A sum of $16,000 amounts to $18,400 in two years according to simple interest. What is the rate of interest?
1.) 6%
2.) 6.5%
3.) 7.5%
4.) 8%
simple interest rate
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 Brent@GMATPrepNow
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With simple interest, one's investment increases the SAME AMOUNT each year, based on the INITIAL investment.datonman wrote:A sum of $16,000 amounts to $18,400 in two years according to simple interest. What is the rate of interest?
1.) 6%
2.) 6.5%
3.) 7.5%
4.) 8%
$18,400  $16,000 = $2400
So, the investment increased $2400 over 2 YEARS
$2400 Ã· 2 = $1200
So, the ANNUAL increase is $1200
The INITIAL INVESTMENT was $16,000
$1200/$16,000 = [spoiler]7.5%[/spoiler]
Cheers,
Brent
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This looks very helpful. Thank you. The one method I tried to do. Emphasis on the word 'tried,' is that i was trying to use the formula.
A=P +I or Amount = Principal + Interest
I tried to use A = P(1+RT/100) and just plug in the info from the question. I wonder what I did wrong.
A=P +I or Amount = Principal + Interest
I tried to use A = P(1+RT/100) and just plug in the info from the question. I wonder what I did wrong.
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 Rich.C@EMPOWERgmat.com
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Hi datonman,
The two interest rate formulas that the GMAT could test you on are:
1) Simple Interest: Principal x (1 +rt)
2) Compound Interest: Principal x (1 + r)^t
In both formulas....
"Principal" represents the initial investment
"r" represents the interest rate, as a decimal
"t" represents the number of years
Given the information in this question, we'd use the Simple Interest Formula and plug in the values that we're given:
16,000 x (1 + r(2)) = 18,400
(1 + 2r) = 18,400/16,000
(1 + 2r) = 184/160
(1 + 2r) = 23/20
(1 + 2r) = 1.15
2r = 0.15
r = .075
Final Answer: [spoiler]7.5% or answer #3[/spoiler]
GMAT assassins aren't born, they're made,
Rich
The two interest rate formulas that the GMAT could test you on are:
1) Simple Interest: Principal x (1 +rt)
2) Compound Interest: Principal x (1 + r)^t
In both formulas....
"Principal" represents the initial investment
"r" represents the interest rate, as a decimal
"t" represents the number of years
Given the information in this question, we'd use the Simple Interest Formula and plug in the values that we're given:
16,000 x (1 + r(2)) = 18,400
(1 + 2r) = 18,400/16,000
(1 + 2r) = 184/160
(1 + 2r) = 23/20
(1 + 2r) = 1.15
2r = 0.15
r = .075
Final Answer: [spoiler]7.5% or answer #3[/spoiler]
GMAT assassins aren't born, they're made,
Rich
GMAT/MBA Expert
 Brent@GMATPrepNow
 GMAT Instructor
 Posts: 14498
 Joined: 08 Dec 2008
 Location: Vancouver, BC
 Thanked: 5254 times
 Followed by:1262 members
 GMAT Score:770
With simple interest, one's investment increases the SAME AMOUNT each year, based on the INITIAL investment.datonman wrote:A sum of $16,000 amounts to $18,400 in two years according to simple interest. What is the rate of interest?
1.) 6%
2.) 6.5%
3.) 7.5%
4.) 8%
$18,400  $16,000 = $2400
So, the investment increased $2400 over 2 YEARS
$2400 Ã· 2 = $1200
So, the ANNUAL increase is $1200
The INITIAL INVESTMENT was $16,000
$1200/$16,000 = 7.5%
Cheers,
Brent
Brent Hanneson  Creator of GMATPrepNow.com
Use my video course along with Beat The GMAT's free 60Day Study Guide
Watch these video reviews of my course
And check out these free resources
Use my video course along with Beat The GMAT's free 60Day Study Guide
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 Jeff@TargetTestPrep
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The amount of interest earned is 2,400. Using the formula for simple interest I = P x r x t, where I = interest, P = principal, r = rate, and t = time, we have:datonman wrote:A sum of $16,000 amounts to $18,400 in two years according to simple interest. What is the rate of interest?
1.) 6%
2.) 6.5%
3.) 7.5%
4.) 8%
2400 = 16,000 x r/100 x 2
2400 = r/100 x 32,000
240,000 = r x 32,000
r = 240,000/32,000 = 240/32 = 30/4 = 7.5
Answer: C
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18,400 = 16,000(1 + R.2)datonman wrote:A sum of $16,000 amounts to $18,400 in two years according to simple interest. What is the rate of interest?
1.) 6%
2.) 6.5%
3.) 7.5%
4.) 8%
18,400 = 16,000 + 32,000.R
2,400 = 32,000.R
R = 2,400/32,000
R = 0.075
R = 7.5%
Alternatively:
Interest over 2 years = 18,400  16,000 = 2,400
Interest over 1 year = 2,400/2 = 1,200
Rate = 1,200/16,000
Rate = 7.5%