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

Redeem

Compound interest questions

This topic has expert replies
Post new topic Post Reply
Previous Topic Next Topic
Source: — Problem Solving |

GMAT/MBA Expert

User avatar
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

by Brent@GMATPrepNow » Wed May 04, 2016 12:08 pm
Shikatokika wrote:How could I solve the compound interest questions when they ask for calculating the rate to a high power
Like 17,000 * 1.0082^8 for example
Is there an easy way to solve this
On the GMAT, you'd never be required to make such a calculation.

Cheers,
Brent
Brent Hanneson - Creator of GMATPrepNow.com
Image
Top

GMAT/MBA Expert

User avatar
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

by [email protected] » Wed May 04, 2016 3:08 pm
Hi Shikatokika,

Are you working with practice materials that are asking you to perform that type of calculation? Since the GMAT will NOT ask you to do that type of work, you might be using materials that aren't appropriate for. There are plenty of quality resources to be found though, so you might want to consider your options.

GMAT assassins aren't born, they're made,
Rich
Contact Rich at [email protected]
Image
Top
User avatar
Legendary Member
Posts: 2663
Joined: Wed Jan 14, 2015 8:25 am
Location: Boston, MA
Thanked: 1153 times
Followed by:128 members
GMAT Score:770

by DavidG@VeritasPrep » Wed May 04, 2016 3:31 pm
For official compound interest questions, see here: https://www.beatthegmat.com/compound-int ... 12277.html

or here: https://www.beatthegmat.com/if-a-loan-of ... 76962.html
Veritas Prep | GMAT Instructor

Veritas Prep Reviews
Save $100 off any live Veritas Prep GMAT Course
Top
Newbie | Next Rank: 10 Posts
Posts: 5
Joined: Mon Apr 18, 2016 6:43 am
Followed by:1 members

by Shikatokika » Wed May 04, 2016 7:40 pm
Thank you guys for your reply.

It is true that the other one I got it from one of the online problem solving, and not from the OG, however here is the question that got me confused
OG16 - PS104

Leona bought a 1 yr, $10,000 certificate of deposit that paid interest at an annual rate of 8% compounded semiannually
What was the total amount of interest paid on this certificate at maturity

A $10,464
B $864
C $816
D $800
E $480

So the answer was 10,000 (1+ 0.08/2) ^ 2x1
which will be 10,000 (1.04)^2

Is there a way to make such calculation easier?
By elimination we shall eliminate A, D, and E
But how to know whether it's B or C
Top

GMAT/MBA Expert

User avatar
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

by [email protected] » Thu May 05, 2016 9:22 am
Hi Shikatokika,

Instead of trying to solve this problem with one 'big' calculation, you would likely find it easier to just do it in 'pieces'

Since the interest is generated semi-annually, you'll calculate 4% interest after 6 months and then another 4% interest (on the new total) after then next 6 months:

Start: $10,000
6 months later: $10,000 + (.04)(10,000) = $10,400
12 months later: $10,400 + (.04)(10,400) = $10,816

The question asks for the total interest earned --> $816

Final Answer: C

GMAT assassins aren't born, they're made,
Rich
Contact Rich at [email protected]
Image
Top
Post new topic Post Reply
• Page 1 of 1