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Official Guide Explanation:Problem Solving #78

Background

This is just one of hundreds of free explanations I've created to the quantitative questions in The Official Guide for GMAT Review (12th ed.). Click the links on the question number, difficulty level, and categories to find explanations for other problems.

These are the same explanations that are featured in my "Guides to the Official Guide" PDF booklets. However, because of the limitations of HTML and cross-browser compatibility, some mathematical concepts, such as fractions and roots, do not display as clearly online.

Question: 78
Page: 163
Difficulty: 4 (Moderately Easy)
Category 1: Word Problems > Interest Problems > Compound
Category 2: Arithmetic > Percents > other

Explanation: If an investment returns 8 percent semiannually over the course of one year, that means it returns 4 percent twice. Since the interest compounds, we’ll have to first find the result of a 4% increase, then the result of a second 4% increase. Since the investment amount is \$10,000, the first 4% is \$400, for a total of \$10,400. The second 4% is a little trickier to calculate, but just find 1% (\$104) and multiply by 4: \$416. Add \$400, the return for the first six months, and \$416 for the total amount of interest, \$816, choice (C).

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