quarterly Interest
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- dumb.doofus
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I think.. just start with 100 and apply 5% four times..
1st quarter: 105
2nd Quarter: 110.25
3rd Quarter: 115.76
4th Quarter: 121.5
So.. its 21.5%
1st quarter: 105
2nd Quarter: 110.25
3rd Quarter: 115.76
4th Quarter: 121.5
So.. its 21.5%
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- gmat740
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I would completely agree with you, but Is it given that we have to calculate compound interest?Shouldn't need this for the exam but the equation is (1+.05)^4
If it was 5% annual interest and you wanted EAR it would be (1+(5/4*100))^4
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- Ian Stewart
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You might need that for the exam, in fact. You could easily see a question similar to the following:rossmj wrote:Shouldn't need this for the exam but the equation is (1+.05)^4
If you invest $C at a 20% annual interest rate, compounded quarterly, how much will the investment be worth, in dollars, after one year?
On such a question, you would not need to calculate anything (that would be too time consuming) - you would only need to recognize the calculation you would need to perform. That is, the answer choices would look something like:
A) C(1.05)^4
B) C(1.20)
C) C(1.20)^4
D) C(0.05)^4
E) 4C(1.05)
Compound interest can certainly show up on the GMAT, but if you ever need to compute an actual dollar value, you'll almost certainly only have two compounding intervals in the question (unless the question is only about estimation). Otherwise the calculations get too messy.
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