Jolene entered an 18-month investment contract that guarante

[eitijan]

Jolene entered an 18-month investment contract that guarantees to pay 2 percent interest at the end of 6
months, another 3 percent interest at the end of 12 months, and 4 percent interest at the end of the 18
month contract. If each interest payment is reinvested in the contract, and Jolene invested $10,000 initially, what will be the total amount of interest paid during the 18-month contract?
A) $506.00
B) $726.24
C) $900.00
D) $920.24
E) $926.24

E

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Hi eitijan,

This question is really just about staying organized and doing the calculations one 'step' at a time.

Given the interest payments at 6 months, 12 months and 18 months, the first bit of interest on the $10,000 would be...

6 months: $10,000 + (.02)(10,000) = $10,200
Interest = $200

At the 12 month mark, the interest would be on $10,200 though...

12 months: $10,200 + (.03)(10,200) = $10,506
Interest = $306

At the 18 month mark, the interest would be on $10,506...

18 months: $10,506 + (.04)(10,506) = about $10,926
Interest = about $420

The question asks for the TOTAL interest earned. We can either add up the 3 interest payments OR since we know the final TOTAL, we can subtract $10,000 to determine the interest.

Final Answer: E

GMAT assassins aren't born, they're made,
Rich

[eitijan]

Hi Rich

My doubt is :
formula for Simple Interest = (Principal * Rate * time)/100
Then why we are not considering time while calculating interest?