GMAT Quant : Simple & Compound Interest

Concept: Computing Rate of interest.

The question given below is a problem solving question in Simple Interest in finding the rate of interest.

Question: Peter invested a certain sum of money in a simple interest bond whose value grew to $300 at the end of 3 years and to $ 400 at the end of another 5 years. What was the rate of interest in which he invested his sum?

  1. 12%
  2. 12.5%
  3. 6.67%
  4. 6.25%
  5. 8.33%

Explanatory Answer

Video explanation will be added soon

This problem is also similar to question three: We need to figured out the interest earned between years 3 and 8 and use that to calculate interest earned each year.

Initial amount invested = $ X

Amount at the end of year 3 = $ 300

Amount at the end of year 8 (another 5 years) = $ 400

Therefore, the interest earned for the 5 year period between the 3rd year and 8th year = $400 - $300 = $100

So, interest earned per year = \\frac{100}{5}) = $20.

Therefore, interest earned for 3 years = 3 * 20 = $ 60.

Hence, initial amount invested X = Amount after 3 years - interest for 3 years

= 300 - 60 = $ 240.

Rate of interest = \\frac{interest per year}{principal invested}) * 100 = \\frac{20}{240}) * 100 = 8.33%

Choice E is the correct answer.

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