Compound Interest

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PGMAT: Senior | Next Rank: 100 Posts; Posts: 73; Joined: Fri Jul 23, 2010 1:30 pm

by PGMAT » Thu Aug 30, 2012 5:36 pm

Michelle deposited a certain sum of money in a savings account on July 1st, 2007. She earns an 8% interest compounded semiannually. The sum of money in the account on December 31st, 2009 is approximately what percent of the initial deposit?

117%
120%
121%
135%
140%

Can some one show an easy way to solve this? Thanks.
[spoiler]OA:C[/spoiler]

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Source: Beat The GMAT — Problem Solving | Thu Aug 30, 2012 5:36 pm

Jim@StratusPrep: MBA Admissions Consultant; Posts: 2279; Joined: Fri Nov 11, 2011 7:51 amFollowed by: 266 members; Location: New York; Thanked: 660 times; GMAT Score:770

by Jim@StratusPrep » Thu Aug 30, 2012 5:59 pm

Simple interest over 5 periods would be 20% (4 x 5). You know you are going to be more than this because of compounding but not almost double or double as is in D and E.

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adthedaddy: Master | Next Rank: 500 Posts; Posts: 167; Joined: Fri Mar 09, 2012 8:35 pmFollowed by: 3 members; Thanked: 39 times

by adthedaddy » Thu Aug 30, 2012 8:13 pm

Ans: 121%
Detailing the steps below -
Assuming Principal amount=100 , over 5 terms we get a sum = 121 which is 121%

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mohan514: Senior | Next Rank: 100 Posts; Posts: 82; Joined: Wed Feb 08, 2012 8:33 pm; Location: india

by mohan514 » Fri Aug 31, 2012 10:22 am

adthedaddy wrote:Ans: 121%
Detailing the steps below -
Assuming Principal amount=100 , over 5 terms we get a sum = 121 which is 121%

can we take 8% annually as 4% semi annually when compounding it
please elaborate your explanation..
thanks

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