BREAKING: Target Test Prep releases Brand New 2026 On Demand GMAT prep course

Redeem
TTP OnDemand GMAT Video Course
Featured Course

Target Test Prep GMAT OnDemand

Scott Woodbury-Stewart’s private virtual classroom — 400 hours of master-class video lessons for the GMAT Focus Edition.

  • 715+ score guarantee — highest in the industry (99th percentile)
  • 52 chapters · 1,500+ lessons · 4,000+ practice questions
  • 400 hours of video · 1,500+ instructor-led HD smartboard lessons
  • 300,000+ students accepted to Harvard, Stanford, Wharton, Booth & Sloan & more
  • 24/7 live support + weekly Zoom office hours with GMAT instructors
  • TTP AI Assist — 24/7 AI-powered virtual tutor for instant help
  • 1,200+ flashcards + AI-powered study assistant & daily calendar
  • OnDemand, LiveTeach & GMAT Bootcamp formats available
  • Also: GRE, SAT Math & Executive Assessment courses
  • MBA Admissions Consulting now available
  • 🏆 2025 EdTech Breakthrough Award: Test Prep Solution Provider of the Year
  • 200,000+ students served
  • 5-day free trial — $0 to start, no auto-billing, cancel anytime
★★★★★ 5.0 (559 reviews)
130-pt guarantee
$0 to start then $127/mo
Start Free 5-Day Trial Read 559 Reviews →

PS: percentage note

Expert replies
Post new topic Post Reply
Previous Topic Next Topic
Senior | Next Rank: 100 Posts
Posts: 63
Joined: Sat Dec 24, 2011 9:47 am
Location: India
by him1985 » Tue Feb 28, 2012 9:12 am
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?
1. 6000
2. 6048
3. 6100
4. 6150
5. 6200
Himanshu Chauhan
Top
Join the discussion
Log in to postLogin with Googleuse password
QUOTE IN REPLY
Source: — Problem Solving |
User avatar
Newbie | Next Rank: 10 Posts
Posts: 8
Joined: Tue Jan 03, 2012 12:48 pm
Thanked: 3 times

by [email protected] » Tue Feb 28, 2012 9:38 am
My understanding of how the problem can be solved:

Let x be the variable we need to calculate. Principal after 1st year= 1.1x
For 2nd year return = 1.1x (1+5/100)^1

Now, the return is 6430 + 500 ( deducted for early redemption)

Hence: 1.1x(1+5/100)^1=6930

x= $ 6000
Top
Join the discussion
Log in to postLogin with Googleuse password
QUOTE IN REPLY
User avatar
GMAT Instructor
Posts: 15539
Joined: Tue May 25, 2010 12:04 pmFollowed by: 1906 members
Location: New York, NY
Thanked: 13060 times
GMAT Score:790

by GMATGuruNY » Tue Feb 28, 2012 10:22 am
him1985 wrote: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?
1. 6000
2. 6048
3. 6100
4. 6150
5. 6200
ALWAYS LOOK AT THE ANSWER CHOICES.
Since the value of the note after two years is a multiple of 10, the initial investment must be a multiple of 1000; otherwise, when 5% interest is calculated after the first year, the resulting amount of interest will NOT be a multiple of 10.

The correct answer is A.

Answer choice A: 6000
Amount at the end of the first year = 600 + .1(600) = 6600.
Amount at the end of the second year = 6600 + .05(6600) = 6930.
Amount after the early redemption penalty = 6930-500 = 6430.
Success!
Private tutor exclusively for the GMAT and GRE, with over 20 years of experience.
Followed here and elsewhere by over 1900 test-takers.
I have worked with students based in the US, Australia, Taiwan, China, Tajikistan, Kuwait, Saudi Arabia -- a long list of countries.
My students have been admitted to HBS, CBS, Tuck, Yale, Stern, Fuqua -- a long list of top programs.

As a tutor, I don't simply teach you how I would approach problems.
I unlock the best way for YOU to solve problems.

For more information, please email me (Mitch Hunt) at [email protected].
Student Review #1
Student Review #2
Student Review #3
Top
Join the discussion
Log in to postLogin with Googleuse password
QUOTE IN REPLY
User avatar
Master | Next Rank: 500 Posts
Posts: 143
Joined: Mon Mar 14, 2011 3:13 amFollowed by: 5 members
Thanked: 34 times

by krusta80 » Tue Feb 28, 2012 3:12 pm
GMATGuruNY wrote:
him1985 wrote: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?
1. 6000
2. 6048
3. 6100
4. 6150
5. 6200
ALWAYS LOOK AT THE ANSWER CHOICES.
Since the value of the note after two years is a multiple of 10, the initial investment must be a multiple of 1000; otherwise, when 5% interest is calculated after the first year, the resulting amount of interest will NOT be a multiple of 10.

The correct answer is A.

Answer choice A: 6000
Amount at the end of the first year = 600 + .1(600) = 6600.
Amount at the end of the second year = 6600 + .05(6600) = 6930.
Amount after the early redemption penalty = 6930-500 = 6430.
Success!
How do we know that the 10% return is applied after the first year?
Top
Join the discussion
Log in to postLogin with Googleuse password
QUOTE IN REPLY
User avatar
GMAT Instructor
Posts: 15539
Joined: Tue May 25, 2010 12:04 pmFollowed by: 1906 members
Location: New York, NY
Thanked: 13060 times
GMAT Score:790

by GMATGuruNY » Tue Feb 28, 2012 9:48 pm
krusta80 wrote:
GMATGuruNY wrote:
him1985 wrote: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?
1. 6000
2. 6048
3. 6100
4. 6150
5. 6200
ALWAYS LOOK AT THE ANSWER CHOICES.
Since the value of the note after two years is a multiple of 10, the initial investment must be a multiple of 1000; otherwise, when 5% interest is calculated after the first year, the resulting amount of interest will NOT be a multiple of 10.

The correct answer is A.

Answer choice A: 6000
Amount at the end of the first year = 600 + .1(600) = 6600.
Amount at the end of the second year = 6600 + .05(6600) = 6930.
Amount after the early redemption penalty = 6930-500 = 6430.
Success!
How do we know that the 10% return is applied after the first year?
The problem states that the note earns a 10% return ON PURCHASE.
In other words, when the note is purchased, it immediately earns 10% interest.
Private tutor exclusively for the GMAT and GRE, with over 20 years of experience.
Followed here and elsewhere by over 1900 test-takers.
I have worked with students based in the US, Australia, Taiwan, China, Tajikistan, Kuwait, Saudi Arabia -- a long list of countries.
My students have been admitted to HBS, CBS, Tuck, Yale, Stern, Fuqua -- a long list of top programs.

As a tutor, I don't simply teach you how I would approach problems.
I unlock the best way for YOU to solve problems.

For more information, please email me (Mitch Hunt) at [email protected].
Student Review #1
Student Review #2
Student Review #3
Top
Join the discussion
Log in to postLogin with Googleuse password
QUOTE IN REPLY
Post new topic Post Reply
• Page 1 of 1