GMAT Math : Calculating simple interest

Study concepts, example questions & explanations for GMAT Math

varsity tutors app store varsity tutors android store

Example Questions

← Previous 1

Example Question #1 : Calculating Simple Interest

Grandpa Jack wants to help pay for college for his grandson, Little Jack. Little Jack is currently 8 years old. Grandpa Jack makes a one-time deposit into an account that earns simple interest every year.  Grandpa Jack invests $10,000 now and in ten years, that will grow to $15,000. What rate of simple interest did Grandpa Jack receive?

Possible Answers:

4%

3%

6%

5%

2%

Correct answer:

5%

Explanation:

To calculate simple interest, the formula is

 

where  stands for Future Value,  stands for Present Value,  stands for the interest rate, and  stands for the number of periods (in this case years). So plugging in, 

Solving this we get 

or 5%

ALTERNATE SOLUTION:

Another way of finding this is to calculate the amount of interest per year. Since this is simple interest, Grandpa Jack earns the same amount of interest per year. The total interest earned is 15,000-10,000= 5,000. $5,000 over 10 years, equates to $500 per year. $500 divided by the original $10,000 is .05, or 5%.

Example Question #2 : Calculating Simple Interest

How much interest would an investment yield if the principal of is invested for  years at a  simple interest?

Possible Answers:

Correct answer:

Explanation:

Example Question #3 : Calculating Simple Interest

What rate does Johnny need if he would like to yield in interest from a principal of in  years?

Possible Answers:

Correct answer:

Explanation:

Example Question #4 : Calculating Simple Interest

A bank offers a business a loan in the amount of $13,000 with a simple annual interest rate of 9%.  How much will the business owe the bank after 3 years?

Possible Answers:

Correct answer:

Explanation:

The accrual of simple interest can be found in two steps.  First, multiply the principal amount by the interest rate.  Second, multiply that result by the number of years during which interest will accrue.

The question asks for the total amount that the business will owe the bank, so we must add the interest accrued to the principal amount.

Example Question #5 : Calculating Simple Interest

John has to invest for years for  return. How much simple interest will his investment yield?

Possible Answers:

Correct answer:

Explanation:

Simple interest formula:

Example Question #6 : Calculating Simple Interest

How many years would it take Marissa to make in interest using a simple interest investment of in principal at 5% return?

Possible Answers:

Correct answer:

Explanation:

Simple interest formula is:

Therefore, solving for the time factor:

Example Question #6 : Calculating Simple Interest

Using the simple interest formula, what initial investment does Terry have to make to earn in interest  if there is an  return for years?

Possible Answers:

Correct answer:

Explanation:

Simple interest formula:

Therefore, solving for the principal factor in the equation:

Example Question #7 : Calculating Simple Interest

What return does Florence have to yield in order to make in interest off of a simple investment of for  years?

Possible Answers:

Correct answer:

Explanation:

 

Simple interest formula:

Therefore, solving for the rate factor in the equation:

Example Question #9 : Calculating Simple Interest

Jesse has to invest for  years for  return. How much simple interest will his investment yield?

Possible Answers:

Correct answer:

Explanation:

Simple interest formula:

Example Question #8 : Calculating Simple Interest

How many years would it take Julissa to make  in interest using a simple interest investment of at a  return?

Possible Answers:

Correct answer:

Explanation:

 

Simple interest formula is:

Therefore, solving for the time factor:

← Previous 1
Learning Tools by Varsity Tutors

Incompatible Browser

Please upgrade or download one of the following browsers to use Instant Tutoring: