If a $3,000 deposit is made into a savings account that pays 6 percent interest, compounded monthly, and there are no

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M7MBA: Moderator; Posts: 2058; Joined: Sun Oct 29, 2017 4:24 amFollowed by: 5 members; Thanked: 1 times

by M7MBA » Wed Sep 09, 2020 6:53 am

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If a $3,000 deposit is made into a savings account that pays 6 percent interest, compounded monthly, and there are no other deposits or withdrawals from the account, how much money, rounded to the nearest dollar, is in the account at the end of one year?

A. $2,160
B. $3,180
C. $3,185
D. $5,160
E. $6,037

Answer: C

Source: Princeton Review

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Source: Beat The GMAT — Problem Solving | Wed Sep 09, 2020 6:53 am

deloitte247: Legendary Member; Posts: 2214; Joined: Fri Mar 02, 2018 2:22 pmFollowed by: 5 members

Re: If a $3,000 deposit is made into a savings account that pays 6 percent interest, compounded monthly, and there are n

by deloitte247 » Fri Sep 11, 2020 1:55 pm

$$Compound\ interest\ =\ p\left(1+\frac{r\%}{n}\right)^{nt}$$
$$where\ p=principal\ =\ $3000$$
$$r=rate\ =\ 6\%$$
$$n=\ number\ of\ times\ interest\ is\ compounded\ =\ 12$$
$$t=time\ /year\ =\ 1$$
$$compound\ interest\ =\ 3000\left(1+\frac{6}{100}\cdot\frac{1}{12}\right)^{12}$$
$$\ \ 3000\left(1+\frac{6}{1200}\right)^{12}$$
$$\ \ 3000\cdot1.005^{12}$$
$$\ \ 3000\cdot1.0617$$
$$$3185.1$$
$$Answer\ =\ C$$

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Scott@TargetTestPrep: GMAT Instructor; Posts: 8155; Joined: Sat Apr 25, 2015 10:56 amFollowed by: 29 members; Location: Los Angeles, CA; Thanked: 43 times

Re: If a $3,000 deposit is made into a savings account that pays 6 percent interest, compounded monthly, and there are n

by Scott@TargetTestPrep » Mon Sep 14, 2020 4:14 am

M7MBA wrote: ↑
Wed Sep 09, 2020 6:53 am
If a $3,000 deposit is made into a savings account that pays 6 percent interest, compounded monthly, and there are no other deposits or withdrawals from the account, how much money, rounded to the nearest dollar, is in the account at the end of one year?

A. $2,160
B. $3,180
C. $3,185
D. $5,160
E. $6,037

Answer: C

Solution:

We use the compound interest formula A = P(1 + r/n)^nt, where A is the ending amount, P is the starting amount (P = $3,000), r is the interest rate (r = 0.06), n is the number of times the interest is compounded per year (n = 12), and t is the number of years (t = 1).

The amount of money in the account, rounded to the nearest dollar, at the end of one year is:

A = 3000(1 + 0.06/12)^12 = 3000(1.005)^12 = $3,185

Answer: C

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