A sum of $16,000 amounts to $18,400 in two years according to simple interest. What is the rate of interest?
1.) 6%
2.) 6.5%
3.) 7.5%
4.) 8%
simple interest rate
This topic has expert replies
GMAT/MBA Expert
- Brent@GMATPrepNow
- GMAT Instructor
- Posts: 16207
- Joined: Mon Dec 08, 2008 6:26 pm
- Location: Vancouver, BC
- Thanked: 5254 times
- Followed by:1268 members
- GMAT Score:770
With simple interest, one's investment increases the SAME AMOUNT each year, based on the INITIAL investment.datonman wrote:A sum of $16,000 amounts to $18,400 in two years according to simple interest. What is the rate of interest?
1.) 6%
2.) 6.5%
3.) 7.5%
4.) 8%
$18,400 - $16,000 = $2400
So, the investment increased $2400 over 2 YEARS
$2400 ÷ 2 = $1200
So, the ANNUAL increase is $1200
The INITIAL INVESTMENT was $16,000
$1200/$16,000 = [spoiler]7.5%[/spoiler]
Cheers,
Brent
-
- Senior | Next Rank: 100 Posts
- Posts: 53
- Joined: Wed May 28, 2014 9:36 pm
- Followed by:1 members
This looks very helpful. Thank you. The one method I tried to do. Emphasis on the word 'tried,' is that i was trying to use the formula.
A=P +I or Amount = Principal + Interest
I tried to use A = P(1+RT/100) and just plug in the info from the question. I wonder what I did wrong.
A=P +I or Amount = Principal + Interest
I tried to use A = P(1+RT/100) and just plug in the info from the question. I wonder what I did wrong.
GMAT/MBA Expert
- [email protected]
- Elite Legendary Member
- Posts: 10392
- Joined: Sun Jun 23, 2013 6:38 pm
- Location: Palo Alto, CA
- Thanked: 2867 times
- Followed by:511 members
- GMAT Score:800
Hi datonman,
The two interest rate formulas that the GMAT could test you on are:
1) Simple Interest: Principal x (1 +rt)
2) Compound Interest: Principal x (1 + r)^t
In both formulas....
"Principal" represents the initial investment
"r" represents the interest rate, as a decimal
"t" represents the number of years
Given the information in this question, we'd use the Simple Interest Formula and plug in the values that we're given:
16,000 x (1 + r(2)) = 18,400
(1 + 2r) = 18,400/16,000
(1 + 2r) = 184/160
(1 + 2r) = 23/20
(1 + 2r) = 1.15
2r = 0.15
r = .075
Final Answer: [spoiler]7.5% or answer #3[/spoiler]
GMAT assassins aren't born, they're made,
Rich
The two interest rate formulas that the GMAT could test you on are:
1) Simple Interest: Principal x (1 +rt)
2) Compound Interest: Principal x (1 + r)^t
In both formulas....
"Principal" represents the initial investment
"r" represents the interest rate, as a decimal
"t" represents the number of years
Given the information in this question, we'd use the Simple Interest Formula and plug in the values that we're given:
16,000 x (1 + r(2)) = 18,400
(1 + 2r) = 18,400/16,000
(1 + 2r) = 184/160
(1 + 2r) = 23/20
(1 + 2r) = 1.15
2r = 0.15
r = .075
Final Answer: [spoiler]7.5% or answer #3[/spoiler]
GMAT assassins aren't born, they're made,
Rich
GMAT/MBA Expert
- Brent@GMATPrepNow
- GMAT Instructor
- Posts: 16207
- Joined: Mon Dec 08, 2008 6:26 pm
- Location: Vancouver, BC
- Thanked: 5254 times
- Followed by:1268 members
- GMAT Score:770
With simple interest, one's investment increases the SAME AMOUNT each year, based on the INITIAL investment.datonman wrote:A sum of $16,000 amounts to $18,400 in two years according to simple interest. What is the rate of interest?
1.) 6%
2.) 6.5%
3.) 7.5%
4.) 8%
$18,400 - $16,000 = $2400
So, the investment increased $2400 over 2 YEARS
$2400 ÷ 2 = $1200
So, the ANNUAL increase is $1200
The INITIAL INVESTMENT was $16,000
$1200/$16,000 = 7.5%
Cheers,
Brent
GMAT/MBA Expert
- Jeff@TargetTestPrep
- GMAT Instructor
- Posts: 1462
- Joined: Thu Apr 09, 2015 9:34 am
- Location: New York, NY
- Thanked: 39 times
- Followed by:22 members
The amount of interest earned is 2,400. Using the formula for simple interest I = P x r x t, where I = interest, P = principal, r = rate, and t = time, we have:datonman wrote:A sum of $16,000 amounts to $18,400 in two years according to simple interest. What is the rate of interest?
1.) 6%
2.) 6.5%
3.) 7.5%
4.) 8%
2400 = 16,000 x r/100 x 2
2400 = r/100 x 32,000
240,000 = r x 32,000
r = 240,000/32,000 = 240/32 = 30/4 = 7.5
Answer: C
Jeffrey Miller
Head of GMAT Instruction
[email protected]
See why Target Test Prep is rated 5 out of 5 stars on BEAT the GMAT. Read our reviews
-
- Senior | Next Rank: 100 Posts
- Posts: 94
- Joined: Tue Dec 16, 2014 9:50 am
- Location: London, UK
- Thanked: 2 times
- Followed by:4 members
- GMAT Score:770
18,400 = 16,000(1 + R.2)datonman wrote:A sum of $16,000 amounts to $18,400 in two years according to simple interest. What is the rate of interest?
1.) 6%
2.) 6.5%
3.) 7.5%
4.) 8%
18,400 = 16,000 + 32,000.R
2,400 = 32,000.R
R = 2,400/32,000
R = 0.075
R = 7.5%
Alternatively:
Interest over 2 years = 18,400 - 16,000 = 2,400
Interest over 1 year = 2,400/2 = 1,200
Rate = 1,200/16,000
Rate = 7.5%