GMAT Math : Calculating simple interest

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Example Question #101 : Word Problems

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:

Correct answer:

Explanation:

To calculate simple interest, the formula is

FV= PV (1+it)

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,

15,000 = 10,000(1+10i)= 10,000 + 100,000i

Solving this we get i=.05

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%.

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Example Question #1 : Calculating Simple Interest

How much interest would an investment yield if the principal of $\$$ 76,000 is invested for years at a $10\%$ simple interest?

Possible Answers:

$\$$ 38000

$\$$ 4500

$\$$ 3800

$\$$ 45000

Correct answer:

$\$$ 38000

Explanation:

I=p*r*t

I=(76000)(0.10)(5)

I=38000

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Example Question #1 : Calculating Simple Interest

What rate does Johnny need if he would like to yield $\$$ 10000 in interest from a principal of $\$$ 25000 in years?

Possible Answers:

$12\%$

$6\%$

$8\%$

$10\%$

Correct answer:

$8\%$

Explanation:

I=p*r*t

$r=\frac{I}{p*t}$

$r=\frac{10000}{25000*5}$

r=0.08

0.08*100= $8\%$

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Example Question #2 : 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:

16,835

14,170

13,900

14,760

16,510

Correct answer:

16,510

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.

$13,000\cdot 0.09=1,170$

$1,170\cdot 3=3510$

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.

3,510+13,000=16,510

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Example Question #1 : Interest Problems

John has $\$100,000$ to invest for years for $8\%$ return. How much simple interest will his investment yield?

Possible Answers:

$\$50,000$

$\$45,000$

$\$40,000$

$\$30,000$

Correct answer:

$\$40,000$

Explanation:

Simple interest formula: I=prt

I= (100,000)*(0.08)*(5)

$I= \$40,000$

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Example Question #2 : Interest Problems

How many years would it take Marissa to make $\$20,000$ in interest using a simple interest investment of $\$200,000$ in principal at 5% return?

Possible Answers:

$4\ years$

$3\ years$

$2\ years$

$5\ years$

Correct answer:

$2\ years$

Explanation:

Simple interest formula is: I=prt

Therefore, solving for the time factor:

$t= \frac{I}{pr}$

$t= \frac{20,000}{200,000*0.05}$

$t=2\ years$

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Example Question #1 : Calculating Simple Interest

Using the simple interest formula, what initial investment does Terry have to make to earn $\$30,000$ in interest if there is an $8\%$ return for years?

Possible Answers:

$\$80,000$

$\$90,000$

$\$85,000$

$\$75,000$

Correct answer:

$\$75,000$

Explanation:

Simple interest formula: I=prt

Therefore, solving for the principal factor in the equation:

$p=\frac{I}{rt}$

$p=\frac{30,000}{0.08*5}$

$p=\$75,000$

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Example Question #4 : Interest Problems

What return does Florence have to yield in order to make $\$10,000$ in interest off of a simple investment of $\$100,000$ for years?

Possible Answers:

$3.67\%$

$4\%$

$5\%$

$3.33\%$

Correct answer:

$3.33\%$

Explanation:

Simple interest formula: I=prt

Therefore, solving for the rate factor in the equation:

$r=\frac{I}{pt}$

$r=\frac{10,000}{100,000*3}$

$r=3.33\%$

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Example Question #1 : Calculating Simple Interest

Jesse has $\$500,000$ to invest for years for $6\%$ return. How much simple interest will his investment yield?

Possible Answers:

$\$700,000$

$\$1,000,000$

$\$900,000$

$\$800,000$

Correct answer:

$\$900,000$

Explanation:

Simple interest formula: I=prt

I= (500,000)*(0.06)*(30)

$I= \$900,000$

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Example Question #3 : Calculating Simple Interest

How many years would it take Julissa to make $\$35,000$ in interest using a simple interest investment of $\$70,000$ at a $13\%$ return?

Possible Answers:

$3.14\ years$

$3.5\ years$

$4.24\ years$

$3.85\ years$

Correct answer:

$3.85\ years$

Explanation:

Simple interest formula is: I=prt

Therefore, solving for the time factor:

$t=\frac{I}{pr}$

$t=\frac{35,000}{70,000*0.13}$

$t=3.85\ years$

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GMAT Math : Calculating simple interest

Study concepts, example questions & explanations for GMAT Math

All GMAT Math Resources

Example Questions

Example Question #101 : Word Problems

Example Question #1 : Calculating Simple Interest

Example Question #1 : Calculating Simple Interest

Example Question #2 : Calculating Simple Interest

Example Question #1 : Interest Problems

Example Question #2 : Interest Problems

Example Question #1 : Calculating Simple Interest

Example Question #4 : Interest Problems

Example Question #1 : Calculating Simple Interest

Example Question #3 : Calculating Simple Interest

All GMAT Math Resources

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