GMAT Math : Calculating compound interest

Study concepts, example questions & explanations for GMAT Math

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Example Questions

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Example Question #31 : Interest Problems

Darin invested $4,000 in some corporate bonds that pay 6% annual interest compounded semiannually. what will be the value of the bonds after one year (nearest dollar)?

Possible Answers:

Correct answer:

Explanation:

The formula for compound interest is 

,

where  is the current, or accrued, value of the investment,  is the initial amount invested, or principal,  is the annual rate expressed as a decimal,  is the number of periods per year, and  is the number of years.

In this scenario, 

,

so the equation to solve is 

Round this to $4,244.

Example Question #142 : Word Problems

Phillip invests $5,000 in a savings account at 5.64% per year interest, compounded monthly. If he does not withdraw or deposit any money, how much money will he have in the account at the end of five years?

Possible Answers:

None of the other answers are correct.

Correct answer:

Explanation:

Use the compound interest formula

where , and 

Phillip will have $6,624.52 in his account.

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