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Roger's edge fund is taking x dollars and investing in bonds

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Roger's edge fund is taking x dollars and investing in bonds

by AAPL » Wed May 16, 2018 4:51 am

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Roger's hedge fund is taking x dollars and investing in bonds that yield r percent in simple interest. The amount of interest earned over 2 years is $1000. In terms of x, what dollar amount invested will yield $4000 over 5 years, assuming the bond's yield remains the same?

A. x
B. 2x/3
C. 2x
D. 4x/3
E. 8x/5

The OA is E.

Is there a strategic approach to solve this question? Can anyone help, please? Thanks!
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by Brent@GMATPrepNow » Wed May 16, 2018 5:47 am
AAPL wrote:Roger's hedge fund is taking x dollars and investing in bonds that yield r percent in simple interest. The amount of interest earned over 2 years is $1000. In terms of x, what dollar amount invested will yield $4000 over 5 years, assuming the bond's yield remains the same?

A. x
B. 2x/3
C. 2x
D. 4x/3
E. 8x/5
Roger's hedge fund is taking x dollars and investing in bonds that yield r percent in simple interest. The amount of interest earned over 2 years is $1000.
So, the original investment of x dollars results in $500 interest EACH YEAR

In terms of x, what dollar amount invested will yield $4000 over 5 years?
$4000 over 5 years is the same as $800 interest EACH YEAR

We can solve this question with equivalent ratios
We'll compare investment/interest EACH YEAR

Let y = the investment needed to earn $800 interest EACH YEAR

We get: x/500 = y/800
Cross multiply: 800x = 500y
Divide both sides by 500 to get: 800x/500 = y
Simplify to get: 8x/5 = y

Answer: E

Cheers,
Brent
Brent Hanneson - Creator of GMATPrepNow.com
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by Jeff@TargetTestPrep » Thu May 17, 2018 5:12 pm
AAPL wrote:Roger's hedge fund is taking x dollars and investing in bonds that yield r percent in simple interest. The amount of interest earned over 2 years is $1000. In terms of x, what dollar amount invested will yield $4000 over 5 years, assuming the bond's yield remains the same?

A. x
B. 2x/3
C. 2x
D. 4x/3
E. 8x/5
We use the simple interest formula: interest = principal x rate x time. Letting x = the principal and expressing the interest rate as a decimal, we can create the equation:

(x)(r/100)(2) = 1000

xr = 50,000

r = 50,000/x

For a 5-year period,, letting p = the new principal, the amount of interest earned will be:

(p)[(50,000/x)/100](5) = 4000

(p)(500/x) = 800

p = 800/(500/x)

p = 800x/500 = 8x/5

Alternate Solution:

Let's first find the interest paid to x dollars over a period of 5 years. Since 5 is 2.5 times 2, the interest paid to x dollars in 5 years should also be 2.5 times the interest paid to x dollars in 2 years; i.e. 2500 dollars.

Now, let's denote the amount required to earn 4000 dollars in 5 years by y and set up a simple proportion:

x/2500 = y/4000

y = 4000x/2500 = 8x/5

Answer: E

Jeffrey Miller
Head of GMAT Instruction
[email protected]

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