GMAT Quant : Simple & Compound Interest

Concept: Finding Principal.

The question given below is a problem solving question in Simple Interest. An easy question. The task at hand is to compute the principal invested based on data about interest earned.

Question: Ann invested a certain sum of money in a bank that paid simple interest. The amount grew to $240 at the end of 2 years. She waited for another 3 years and got a final amount of $300. What was the principal amount that she invested at the beginning?

  1. $ 200
  2. $ 150
  3. $ 210
  4. $ 175
  5. Insufficient data

Explanatory Answer

Video explanation will be added soon

Crux of solving this question lies in identifying the interest generated between years 2 and 5. Finding out that will help us figure out what is the interest generated year on year, and use that information in the formula to calculate the principal.

The sum grew to $240 at the end of 2 years.

At the end of another 3 years, the sum grew to $ 300.

i.e. in 3 years, the sum grew by $ 60. So, interest for 3 years = $60.

Therefore, interest earned each year = $ 20.

Sum at the end of 2 years = $ 240

Hence, in the first 2 years, interest earned = 2 * 20 = $ 40.

Therefore, principal = Sum at the end of 2 years - $40 = $ 240 - $ 40 = $ 200.

Choice A is the correct answer.

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