Compounding interest

[Manyak222]

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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

 

[DMD to Be]

Hm, this is on the DAT? 🙁

 

[Manyak222]

I could have sworn i read a post on it being on the DAT. Or was that from the reading section? Please lord let it be from the reading section so I can forever get this crap off my mind...
I love to forget stuff and this is definitely worth forgetting

Hm, this is on the DAT? 🙁

 

[Notoriousjae]

it is fair game for math. as a matter of fact they even have it for practice on the topscore tests.

 

[DMD to Be]

About topscore, how do you get explanations for the PAT part? Can't seem to find that??

 

[Manyak222]

it is fair game for math. as a matter of fact they even have it for practice on the topscore tests.

then does anyone know how to do the problem?

 

[Notoriousjae]

it sucks but they dont have explanations for the PAT. all you can do is print out the correct answer and figure out why you got it wrong.

 

[Djapprentice]

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 🙂

 

[DMD to Be]

it sucks but they dont have explanations for the PAT. all you can do is print out the correct answer and figure out why you got it wrong.

Gah. That's pretty STUPID. 😡

 

[Notoriousjae]

Gah. That's pretty STUPID. 😡

yeah i was pretty pissed off too 😡 so hows studying going DMD; i'm sure you're ready to kick arse by now.

 

[Djapprentice]

yeah i was pretty pissed off too 😡 so hows studying going DMD; i'm sure you're ready to kick arse by now.

Yeah, I too was wondering how you guys are holding up? I'm score 17-18's on Topscore sciences. I've seen some people pull high 20's, what do you guys think?

 

[Notoriousjae]

Yeah, I too was wondering how you guys are holding up? I'm score 17-18's on Topscore sciences. I've seen some people pull high 20's, what do you guys think?

you're good to go. 👍

 

[Manyak222]

This is the type of example i hope they have, one where you can figure it out in your head quite easily. But what about my example? what if you have to use the formula? what would you plug in for that i mean i had to have messed up somewhere i just pulled that example out of my ummm... brain

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 🙂

 

[Djapprentice]

This is the type of example i hope they have, one where you can figure it out in your head quite easily. But what about my example? what if you have to use the formula? what would you plug in for that i mean i had to have messed up somewhere i just pulled that example out of my ummm... brain

Hey Jae, I know things are crazy for you, but hit me up sometime on IM when you get a chance, I gotta ask you some stuff too. Oh yeah, & I scored a 16 on the G chem, but if it wasn't for careless mistakes, I could easily break 20's in them.

 

[Djapprentice]

This is the type of example i hope they have, one where you can figure it out in your head quite easily. But what about my example? what if you have to use the formula? what would you plug in for that i mean i had to have messed up somewhere i just pulled that example out of my ummm... brain

Well pinky, yours is quite a brain teaser. I think the same thing would apply. Don't quote me on this, but break down the 5% into 69 days, which is probably going to be like a fraction or so. In the above example, we divided 10 by 2, for the two halves of the year, in this case, it would be 5/69, then you would do the same step as in my example problem & add that on to the initial amount. From there, multiply that result by 69 & see what you get, I hope it works.

 

[Notoriousjae]

Hey Jae, I know things are crazy for you, but hit me up sometime on IM when you get a chance, I gotta ask you some stuff too. Oh yeah, & I scored a 16 on the G chem, but if it wasn't for careless mistakes, I could easily break 20's in them.

no doubt.. keep plugging away

 

[Manyak222]

well, i figured how to put your example into the formula ...
2000*(1+.1*.5)^2

the .5 is from 6 months out of 12 months
still cant figure mine out though, there must be a rule im misssing

 

[bruinpredent]

woah, topscore has explanations to the questions? where in the world are they?

 

[Manyak222]

ok got it..
1000*(1+.05*1/365)^69

A juicy 9 dollars 49 cents after 69 days

 

[Djapprentice]

ok got it..
1000*(1+.05*1/365)^69

A juicy 9 dollars 49 cents after 69 days

Good, because just like Jae's headbanger in the corner, my head was doing the same even more than it should have, heh