• NEW! FREE Beat The GMAT Quizzes
    NEW! FREE Beat The GMAT Quizzes
    NEW! FREE Beat The GMAT Quizzes
    Hundreds of Questions Highly Detailed Reporting Expert Explanations TAKE A FREE GMAT QUIZ
  • 7 CATs FREE!
    If you earn 100 Forum Points

    Engage in the Beat The GMAT forums to earn
    100 points for $49 worth of Veritas practice GMATs FREE

    Veritas Prep
    VERITAS PRACTICE GMAT EXAMS
    Earn 10 Points Per Post
    Earn 10 Points Per Thanks
    Earn 10 Points Per Upvote
    REDEEM NOW

Jeremiah invests his savings of $120,000 by dividing it

This topic has 3 expert replies and 0 member replies

Jeremiah invests his savings of $120,000 by dividing it

Post

Timer

00:00

Your Answer

A

B

C

D

E

Global Stats

Difficult



Manhattan Prep

Jeremiah invests his savings of $120,000 by dividing it between two interest-earning accounts. He puts 3/4 of his savings in an account that earns lower interest and 1/4 of his savings in an account that earns higher interest. He has no other accounts that earn interest and he makes $3,636 in interest by the end of the year. If one account earns 2 percent annual interest, and both accounts are compounded semiannually, what percent interest does the other account earn?

A. 3
B. 4
C. 5
D. 6
E. 7

OA D

  • +1 Upvote Post
  • Quote
  • Flag

GMAT/MBA Expert

Post
AAPL wrote:
Manhattan Prep

Jeremiah invests his savings of $120,000 by dividing it between two interest-earning accounts. He puts 3/4 of his savings in an account that earns lower interest and 1/4 of his savings in an account that earns higher interest. He has no other accounts that earn interest and he makes $3,636 in interest by the end of the year. If one account earns 2 percent annual interest, and both accounts are compounded semiannually, what percent interest does the other account earn?

A. 3
B. 4
C. 5
D. 6
E. 7
On the GMAT, compounded interest is typically just a bit more than simple interest.

Since the answer choices are all greater than 2% -- the percentage given in the prompt -- they must represent the HIGHER interest rate, with 2% representing the LOWER interest rate.

Lower rate:
Since 3/4 of the savings earn the lower 2% rate. we get:
(3/4 )(120,000) = 90,000 at the lower rate, implying $30,000 at the higher rate.
Since the 2% lower rate is compounded semi-annually, we get:
Interest earned = a bit more than 2% of 90,000 = a bit more than $1800.

Higher rate:
Interest earned at the higher rate = (total earnings) - (amount earned at the lower rate) ≈ 3636-1800 = 1836.
We can PLUG IN THE ANSWERS, which represent the higher rate.
When the correct answer is applied to the remaining $30,000, a bit more than $1800 in interest will be earned.

D: 6%, compounded semi-annually
Here, the interest earned = a bit more than 6% of 30,000 = a bit more than 1800.
Success!

The correct answer is D.

_________________
Mitch Hunt
Private Tutor for the GMAT and GRE
GMATGuruNY@gmail.com

If you find one of my posts helpful, please take a moment to click on the "UPVOTE" icon.

Available for tutoring in NYC and long-distance.
For more information, please email me at GMATGuruNY@gmail.com.
Student Review #1
Student Review #2
Student Review #3

  • +1 Upvote Post
  • Quote
  • Flag
Free GMAT Practice Test How can you improve your test score if you don't know your baseline score? Take a free online practice exam. Get started on achieving your dream score today! Sign up now.
Post
AAPL wrote:
Manhattan Prep

Jeremiah invests his savings of $120,000 by dividing it between two interest-earning accounts. He puts 3/4 of his savings in an account that earns lower interest and 1/4 of his savings in an account that earns higher interest. He has no other accounts that earn interest and he makes $3,636 in interest by the end of the year. If one account earns 2 percent annual interest, and both accounts are compounded semiannually, what percent interest does the other account earn?

A. 3
B. 4
C. 5
D. 6
E. 7

OA D
Since all the answer choices are greater than 2, we can see that the account that earns 2 percent annual interest is the one that earns the lower interest (let’s call it account A), and thus it has 120,000 x 3/4 = $90,000 (before earning any interest). And the one that earns higher interest (let’s call it account B) has $30,000 (before earning any interest).

Since the interest is compounded semiannually, account A will earn:

90,000 x 0.01 = $900 for the first half of the year, and

(90,000 + 900) x 0.01 = 90,900 x 0.01 = $909 for the second half of the year.

So the total amount of interest account A earns is 900 + 909 = $1809. That means account B earns 3636 - 1809 = $1827. We see that account B only has 1/3 of the amount of account A, yet it earns about the same amount in interest. It must mean that the interest rate of account B must be 3 times that of account A; that is, account B must be earning 6 percent annual interest. Let’s verify that’s the case:

If account B earns 6 percent annual interest, it will earn:

30,000 x 0.03 = $900 for the first half of the year, and

(30,000 + 900) x 0.03 = 30,900 x 0.03 = $927 for the second half of the year.

So the total amount of interest account B earns is 900 + 927 = $1827, which is exactly the amount of interest it earns for the year. So its interest rate must be 6 percent.

Answer: D

_________________

Scott Woodbury-Stewart
Founder and CEO
scott@targettestprep.com



See why Target Test Prep is rated 5 out of 5 stars on BEAT the GMAT. Read our reviews

  • +1 Upvote Post
  • Quote
  • Flag
Post
AAPL wrote:
Manhattan Prep

Jeremiah invests his savings of $120,000 by dividing it between two interest-earning accounts. He puts 3/4 of his savings in an account that earns lower interest and 1/4 of his savings in an account that earns higher interest. He has no other accounts that earn interest and he makes $3,636 in interest by the end of the year. If one account earns 2 percent annual interest, and both accounts are compounded semiannually, what percent interest does the other account earn?

A. 3
B. 4
C. 5
D. 6
E. 7

OA D
Since all the answer choices are greater than 2, we can see that the account that earns 2 percent annual interest is the one that earns the lower interest (let’s call it account A), and thus it has 120,000 x 3/4 = $90,000 (before earning any interest). And the one that earns higher interest (let’s call it account B) has $30,000 (before earning any interest).

Since the interest is compounded semiannually, account A will earn:

90,000 x 0.01 = $900 for the first half of the year, and

(90,000 + 900) x 0.01 = 90,900 x 0.01 = $909 for the second half of the year.

So the total amount of interest account A earns is 900 + 909 = $1809. That means account B earns 3636 - 1809 = $1827. We see that account B only has 1/3 of the amount of account A, yet it earns about the same amount in interest. It must mean that the interest rate of account B must be 3 times that of account A; that is, account B must be earning 6 percent annual interest. Let’s verify that’s the case:

If account B earns 6 percent annual interest, it will earn:

30,000 x 0.03 = $900 for the first half of the year, and

(30,000 + 900) x 0.03 = 30,900 x 0.03 = $927 for the second half of the year.

So the total amount of interest account B earns is 900 + 927 = $1827, which is exactly the amount of interest it earns for the year. So its interest rate must be 6 percent.

Answer: D

_________________

Scott Woodbury-Stewart
Founder and CEO
scott@targettestprep.com



See why Target Test Prep is rated 5 out of 5 stars on BEAT the GMAT. Read our reviews

  • +1 Upvote Post
  • Quote
  • Flag
  • EMPOWERgmat Slider
    1 Hour Free
    BEAT THE GMAT EXCLUSIVE

    Available with Beat the GMAT members only code

    MORE DETAILS
    EMPOWERgmat Slider
  • The Princeton Review
    FREE GMAT Exam
    Know how you'd score today for $0

    Available with Beat the GMAT members only code

    MORE DETAILS
    The Princeton Review
  • Varsity Tutors
    Award-winning private GMAT tutoring
    Register now and save up to $200

    Available with Beat the GMAT members only code

    MORE DETAILS
    Varsity Tutors
  • PrepScholar GMAT
    5 Day FREE Trial
    Study Smarter, Not Harder

    Available with Beat the GMAT members only code

    MORE DETAILS
    PrepScholar GMAT
  • Kaplan Test Prep
    Free Practice Test & Review
    How would you score if you took the GMAT

    Available with Beat the GMAT members only code

    MORE DETAILS
    Kaplan Test Prep
  • e-gmat Exclusive Offer
    Get 300+ Practice Questions
    25 Video lessons and 6 Webinars for FREE

    Available with Beat the GMAT members only code

    MORE DETAILS
    e-gmat Exclusive Offer
  • Veritas Prep
    Free Veritas GMAT Class
    Experience Lesson 1 Live Free

    Available with Beat the GMAT members only code

    MORE DETAILS
    Veritas Prep
  • Magoosh
    Magoosh
    Study with Magoosh GMAT prep

    Available with Beat the GMAT members only code

    MORE DETAILS
    Magoosh
  • Economist Test Prep
    Free Trial & Practice Exam
    BEAT THE GMAT EXCLUSIVE

    Available with Beat the GMAT members only code

    MORE DETAILS
    Economist Test Prep
  • Target Test Prep
    5-Day Free Trial
    5-day free, full-access trial TTP Quant

    Available with Beat the GMAT members only code

    MORE DETAILS
    Target Test Prep

Top First Responders*

1 Ian Stewart 57 first replies
2 Brent@GMATPrepNow 31 first replies
3 Jay@ManhattanReview 29 first replies
4 GMATGuruNY 20 first replies
5 ceilidh.erickson 15 first replies
* Only counts replies to topics started in last 30 days
See More Top Beat The GMAT Members

Most Active Experts

1 image description Scott@TargetTestPrep

Target Test Prep

211 posts
2 image description Max@Math Revolution

Math Revolution

88 posts
3 image description Brent@GMATPrepNow

GMAT Prep Now Teacher

70 posts
4 image description Ian Stewart

GMATiX Teacher

65 posts
5 image description GMATGuruNY

The Princeton Review Teacher

39 posts
See More Top Beat The GMAT Experts