A 5-year investment note offers a 10% return on purchase, and a compounding 5% for each year after the first. If there is a $500 penalty for early redemption, and the note is redeemed for $6430 after the second year, what was the original purchase price?
A. $ 6,000
B. $ 6,048
C. $ 6,100
D. $ 6,150
E. $ 6,200
I don't understand when the question says: "A 5-year investment note offers a 10% return on purchase". Here, I think that the note pays the 10% at the end of the five years. So, if the note is sold in the second year, the interest will be Capital*0.10*(2 years / 5 years).
In addition, the phrase "a compounding 5% for each year after the first" doesn't indicate that that amount will be calculated after the capitalization of the original 10%.
I say this because, according to the OE, this is the solution:
P*1.1*1.05 - 500 = 6430
P is the original Price.
IMO, this question is not good at all. What do you think? Do you expect something like this in the real GMAT? Does it worth the time of studying it? Thanks!
OA is A.
A. $ 6,000
B. $ 6,048
C. $ 6,100
D. $ 6,150
E. $ 6,200
I don't understand when the question says: "A 5-year investment note offers a 10% return on purchase". Here, I think that the note pays the 10% at the end of the five years. So, if the note is sold in the second year, the interest will be Capital*0.10*(2 years / 5 years).
In addition, the phrase "a compounding 5% for each year after the first" doesn't indicate that that amount will be calculated after the capitalization of the original 10%.
I say this because, according to the OE, this is the solution:
P*1.1*1.05 - 500 = 6430
P is the original Price.
IMO, this question is not good at all. What do you think? Do you expect something like this in the real GMAT? Does it worth the time of studying it? Thanks!
OA is A.
