Manyak222 said:
What is the easiest way to do a compounding interest problem? I noticed a lot of peeps were saying it was on the DAT.
I know the formula is A = P(1+i)^n
Where P is the principal amount and i is the interest and n is the amount of compounding cycles. Does that mean that for 5 percent interest for 69 days with daily compounding on $1000 you would enter 1000[1+(.05*69/365)]^69?? Did I just answer my own question? (correctly) 😕 😕 😕
Scratch that I calculated over $900 in interest in 69 days. no way im confused
Have no fear, the Djapprentice is here! Ok, so I bought this ARCO GMAT book, pretty helpful to an extent and there's a much faster way to do compound interest problems & besides, we'll probably need a calculator to use that formula, which we don't have any access to anyway.
I'll show you an example:
P. 229 - Arco Mastering the GMAT
$2000 is deposited into a savings account that earns interest at the rate of 10 percent per year, compounded semiannually. How much money will there be in the account at the end of the year?
A) $2105 B) $2200 C) $2205 D) $2400 E) $2600
Ans: (C) $2205
The first thing to do in any compound interest problem is to read the problem carefully, & took at the time period. In this case, the $2,000 is being compounded SEMIANNUALLY, which is twice a year & they want the amount of money in the account, after ONE year.
so since its twice per year, you divide the percent into half, so its 5% for the first 6 months, & another 5% for the second 6 months.
So for the first 6 months:
5% of $2000 = $100
so we add this on to the $2000, so after the first 6 months, you'll have:
$2,000 + $100 = $2,100 in the account.
For the second 6 months:
take 5% of the $2,100, the amount after the first 6 months:
$2,100 x 5% = $105
the new amount at the end of the year is
$2100 + $105 = $2205
you get that by adding the amounts after the 1st & the 2nd 6 months
its using the formula: Principal x Rate x Time = Interest Earned
Hope this helped
🙂
