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Interest comparison

by karthikpandian19 » Thu Nov 24, 2011 12:40 am
$1200 is invested at a given interest rate for two years. The difference between the simple 2-year non-compounded return at the end of the two years and an annually compounded return is $132. What is the interest rate?

a. 10%
b. 11%
c. 12%
d. 13%
e. 14%
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by HSPA » Thu Nov 24, 2011 1:11 am
10% simple : 120+120 = simple 2-year non-compounded return at the end of the two years = 240

Using A:10% compound: Principal = 1200(1.1)^2 = 1452 (252)

Using C: 1200(1.12)^2 = 1506 (306 - 144*2)

Assumption: 252-120 = 132.. I got 10% but I read the question wrong or is there a mistake with question.
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by user123321 » Thu Nov 24, 2011 4:24 am
let i be interest
CI accumulated for two years = 1200(1+i)^2 - 1200
SI for two years = 1200*i*2
difference = 132
1200(1+i)^2-1200 -1200*i*2= 132
1200(i^2) = 132
i^2 = 11/100
i = root(11)/10
i as % = 10root(11)

I think choices are not correct.

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by karthikpandian19 » Thu Nov 24, 2011 7:05 pm
The answer choices are correct

Correct answer is [spoiler]A-10%[/spoiler] as per Grockit GMAT
user123321 wrote:let i be interest
CI accumulated for two years = 1200(1+i)^2 - 1200
SI for two years = 1200*i*2
difference = 132
1200(1+i)^2-1200 -1200*i*2= 132
1200(i^2) = 132
i^2 = 11/100
i = root(11)/10
i as % = 10root(11)

I think choices are not correct.

user123321
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by shekhar.kataria » Tue Nov 29, 2011 4:56 am
karthikpandian19 wrote:The answer choices are correct

Correct answer is [spoiler]A-10%[/spoiler] as per Grockit GMAT
user123321 wrote:let i be interest
CI accumulated for two years = 1200(1+i)^2 - 1200
SI for two years = 1200*i*2
difference = 132
1200(1+i)^2-1200 -1200*i*2= 132
1200(i^2) = 132
i^2 = 11/100
i = root(11)/10
i as % = 10root(11)

I think choices are not correct.

user123321
It seems that the Question is not perfectly phrased. Is it the same Question wording as in Grockit GMAT??

Now As Karthik Says the answer is 10%, i feel that question needs to be rephrased. It should be

Difference between the SI added once in 2 years and CI compounded annually then According the the Question

SI would be 120 in 2 years as Interest would be added once in 2 years.
CI would be 120 + 132 ( first and second year ) componded annually.

CI-SI =132?? Therefore [spoiler]A ( 10% )[/spoiler]
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