Source: Official Guide for the GMAT 13th Ed. Problem Solving; #84 Official Guide for the GMAT 2015 14th Ed. Problem Solving; #84

1

Leona bought a 1-year, $10,000 certificate of

Leona bought a 1-year, $10,000 certificate of deposit that paid interest at an annual rate of 8 percent compounded semiannually. What was the total amount of interest paid on this certificate at maturity?

2 Explanations

1

IMO

Formula of compound interest:

Total amount to pay off (Principal Quantity + Interest) = P(1 + (r/n)^nt

In Which:

P = Principal or Initial amount
r = rate (decimal expression)
n = # periods per year
t = # years

T = 10000(1 + (0.08 / 2)^(2*1)
T = 10000(1.04)^2
T = 10000(1.0816)
T = 10816

So, in order to get the interest paid:

T = P + I; 10816 = 10000 + I

Hence, I = 816

Jan 25, 2015 • Comment

4

Gravatar Mike McGarry, Magoosh Tutor

Dec 27, 2013 • Comment

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