GMAT Math : Calculating compound interest

Study concepts, example questions & explanations for GMAT Math

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Example Questions

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Example Question #141 :Word Problems

Darin invested $4,000 in some corporate bonds that pay 6% annual interest compounded semiannually. what will be the value of the bonds after one year (nearest dollar)?

Possible Answers:

Correct answer:

Explanation:

The formula for compound interest is

,

whereis the current, or accrued, value of the investment,is the initial amount invested, or principal,is the annual rate expressed as a decimal,is the number of periods per year, andis the number of years.

In this scenario,

,

so the equation to solve is

Round this to $4,244.

Example Question #142 :Word Problems

Phillip invests $5,000 in a savings account at 5.64% per year interest,compounded monthly. If he does not withdraw or deposit any money, how much money will he have in the account at the end of five years?

Possible Answers:

None of the other answers are correct.

Correct answer:

Explanation:

Use the compound interest formula

where,,, and

Phillip will have $6,624.52 in his account.

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