subject: Compound Interest Problems: The Three Types Commonly Asked In Examinations [print this page] Compound interest problems are very common in the mathematics subject. There are even examinations like the GMAT where, most of the times, it is encountered. Students all get scared and confused when it comes to word problems especially when it mentions how many time the interest is compounded. Words like daily compounding and bi-annual compounding are just some words that often get mistaken by the students. Now, you do not have to worry. This article will be your guide in answering compound interest problems.
For GMAT examinees, just be reminded that compound interest problems and the simple interest ones are quite different. The compound interest problems have several given periods that make solving them more complicated than the simple interest problems. The compound ones are also answered using a certain compound interest formula. Although it is just a part of the whole problem, it is a very crucial thing to known especially when it comes to computing for a salary or profit. And also be reminded that it has other types
Below Are The Three Types Of Compound Interest Problems.
First type of the compound interest problems
I will be investing an amount of five thousand dollars with the interest rate of five percent a year. How much profit will I get from this investment after a year?
The answer to the first of the compound interest problems is five thousand two hundred fifty dollars.
You can get the answer through multiplying the principal amount to one point zero five to get the new principal amount. One for the principal amount and the point zero five for the five percent interest rate in decimal form.
Second type of the compound interest problems
I will be investing an amount of five thousand dollars with the interest rate of five percent that gets compounded semi-annually. How much profit will I get from this investment after a year?
The answer is to the second of the compound interest problems is five thousand two hundred fifty three dollars and thirteen cents.
You can get the answer through dividing the given interest rate into two and multiplying one point zero two five to get the answer for the first half year. After getting the answer, multiply it again with one point zero two five to get the answer to how much profit youll get in a year.
Third type of the compound interest problems
I will be investing an amount of five thousand dollars with the interest rate of five percent that gets compounded quarterly a year. How much profit will I get from this investment after a year?
The answer to the third of the compound interest problems is five thousand two hundred fifty four and seventy three cents.
You can get the answer through dividing the given interest rate into two and multiplying one point zero one two five to get the answer for the first three months. After getting the answer, multiply it again with one point zero one two for another 3 times to get the answer to how much youll earn in a year.
