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If $500 is deposited into a savings account at an annual int

by GMATinsight » Mon Oct 12, 2015 11:02 pm
If $500 is deposited into a savings account at an annual interest rate of 5% that compounds monthly, what is the value of the investment after 10 years?

A) $750.00
B) $823.50
C) $973.25
D) $1000.25
E) $1100.00

Answer: Option B
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by GMATinsight » Mon Oct 12, 2015 11:03 pm
GMATinsight wrote:If $500 is deposited into a savings account at an annual interest rate of 5% that compounds monthly, what is the value of the investment after 10 years?

A) $750.00
B) $823.50
C) $973.25
D) $1000.25
E) $1100.00

Answer: Option B
ROI = 5% per annum compounded Monthly
Tenure, n = 10 years = 120 month
Principal = $500


5% per annum compounded monthly will be a little more than 5% at end of an year compounded anually = 6% per annum (approx)
in 10 yeasr the amoung simple rate will increase by 60% but at coumpound rate the amount wil increase more by 60%



This question can only be solved by approximation
60% of $500 = $300

i.e. amount after 10 years will be a little more than 500+300 = $800

i.e. B option seems the closest possible answer

Answer: option B
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