Please help me im having trouble!!!

[ace001]

Bob invested $2,000 in fund A and $1,000 in fund B. Over the next two years, the money in fund A earned a total interest of 12 percent for the two years combined and the money in fund B earned 30% annual interest compounded annually. Two years after Bob made these investments, Bob's investment in fund A was how much more than his investment in fund B?
a. 500
b. 550
c. 600
d. 650
e. 700

The correct answer is B can someone please help me on how you got this please!? THANKS!! [/spoiler]

[jeremy8]

Answer is B.

Fund A made 12% interest over that common 2 year period. That's 240$, so at the end of that 2 year period, Fund A has 2240$.

Fund B made 30% compounded anually, which is different from 60% over 2 years.
Compounded means that after the first year, it had made 30% on 1000$, which is 300$, and the second year it made 30% on 1300$, which is 390$. 60% over two years would be 600$ total interest, which is wrong.

Compounded just means that the interest is earned over the new capital (old capital + interest) for each given cycle. (Here, anually over two years, so two cycles. It could be every week over a two week period, same thing.)

So after 2 years, fund A has 2240$ and fund B has 1690$. 2240-1690=550, so fund A had 550$ more than fund B.

[ace001]

Answer is B.

Fund A made 12% interest over that common 2 year period. That's 240$, so at the end of that 2 year period, Fund A has 2240$.

Fund B made 30% compounded anually, which is different from 60% over 2 years.
Compounded means that after the first year, it had made 30% on 1000$, which is 300$, and the second year it made 30% on 1300$, which is 390$. 60% over two years would be 600$ total interest, which is wrong.

Compounded just means that the interest is earned over the new capital (old capital + interest) for each given cycle. (Here, anually over two years, so two cycles. It could be every week over a two week period, same thing.)

So after 2 years, fund A has 2240$ and fund B has 1690$. 2240-1690=550, so fund A had 550$ more than fund B.

Thanks so much for your help and time!

[jeremy8]

Thanks so much for your help and time!

You're welcome, good luck for your preparation!

[vivekmalhotra]

Hi jeremy8,

For Fund A, should not total interest be $480? He invested $2000.00 in the plan on 12% for 2 years.
Fund A investment after 2 yrs should be 2480. I am not able to reconcile with any answer..my answer is 2480 - 1690 = $790.

Please help!!

[vipin85]

For Fund A, should not total interest be $480? He invested $2000.00 in the plan on 12% for 2 years.
Fund A investment after 2 yrs should be 2480. I am not able to reconcile with any answer..my answer is 2480 - 1690 = $790.

Please help!!

The question says that the money in fund A earned a total interest of 12 percent for the two years combined and the money in fund B earned 30% annual interest compounded annually.
This means, Bob's total return from fund A is 12% after 2 years = 12% of 2000 = 240$
As for Fund B, It earns 30% each year (not over two years).
Hence, total returns from Fund B = 1.3 * (1.3 * 1000) = 1690 $.

Hope this helps !