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### Nathan took out a student loan for 1200$at 10 percent by swerve » Fri Feb 22, 2019 9:06 am ## Timer 00:00 ## Your Answer A B C D E ## Global Stats Difficult Nathan took out a student loan for 1200$ at 10 percent annual interest, compounded annually. If he did not repay any of the loan or interest during the first 3 years, which of the following is the closest to the amount of interest he owed for the 3 years.

A. 360
B. 390
C. 400
D. 410
E. 420

The OA is C

Source: GMAT Prep

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### nathan

by GMATGuruNY » Fri Feb 22, 2019 11:13 am
swerve wrote:Nathan took out a student loan for 1200$at 10 percent annual interest, compounded annually. If he did not repay any of the loan or interest during the first 3 years, which of the following is the closest to the amount of interest he owed for the 3 years. A. 360 B. 390 C. 400 D. 410 E. 420 Since the 10% rate is compounded annually, the amount of interest increases by 10% each year: First-year interest = 10% of 1200 = 120. Second-year interest = (first-year interest) + 10% = 120 + 12 = 132. Third-year interest = (second-year interest) + 10% = 132 + 13.2 = 145.2. Total interest = 120 + 132 + 145.2 = 397.2. The correct answer is C. Mitch Hunt Private Tutor for the GMAT and GRE GMATGuruNY@gmail.com If you find one of my posts helpful, please take a moment to click on the "UPVOTE" icon. Available for tutoring in NYC and long-distance. For more information, please email me at GMATGuruNY@gmail.com. Student Review #1 Student Review #2 Student Review #3 ### GMAT/MBA Expert GMAT Instructor Posts: 3997 Joined: 25 Apr 2015 Location: Los Angeles, CA Thanked: 43 times Followed by:20 members by Scott@TargetTestPrep » Sun Feb 24, 2019 5:38 am swerve wrote:Nathan took out a student loan for 1200$ at 10 percent annual interest, compounded annually. If he did not repay any of the loan or interest during the first 3 years, which of the following is the closest to the amount of interest he owed for the 3 years.

A. 360
B. 390
C. 400
D. 410
E. 420

The OA is C

Source: GMAT Prep
We can use the annual compound interest formula: A = P(1 + r)^t. So we have:

A = 1200(1 + 0.1)^3

A = 1200(1.1)^3

A = 1597.2

The amount of $1597.20 is the total amount (principal plus interest) he owes, so the amount of interest he owes is 1597.2 - 1200 =$397.2, or approximately \$400.