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word problem

by sud21 » Sat Jan 28, 2012 11:29 pm
A person invested $5,000 for two years at a certain rate, compounded annually. If he invested $5,000 again two years later, did the interest rate increase?
1). After the first two years, the total amount became $5,800
2). To the nearest hundred, the amount of the interest for the second two years is $500
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Source: — Data Sufficiency |
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by Jim@StratusPrep » Sun Jan 29, 2012 3:21 pm
1) No information about the second 2 years INSUFFICIENT
2) No information about the first 2 year INSUFFICIENT

Together, you know that the interest income on the first two years was more than the second two years and the base was lower in the first two years. This means the rate had to be higher for the first 2 years. The answer is C.
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by pemdas » Sun Jan 29, 2012 3:43 pm
the question doesn't specify compounded annually in the second year, hence we compare compounded annual rate for the first two years with the interest rate for the second two years which is 5800=5000*(1+r)^2 VERSUS R=500/5000. r=7.7% and R=10% if the rate is flat r<R
and if the rate is compounded then as Jim says r>R
Both statements are Not Sufficient
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Jim@StratusPrep wrote:1) No information about the second 2 years INSUFFICIENT
2) No information about the first 2 year INSUFFICIENT

Together, you know that the interest income on the first two years was more than the second two years and the base was lower in the first two years. This means the rate had to be higher for the first 2 years. The answer is C.
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