McGraw-Hill Education GRE 2019

Simple and Compound Interest

Though tested rarely, these topics are worthwhile to learn if you are aiming for a

high score. The formula for simple interest is

principal × rate × time

If Bob invested $800 at 5% simple annual interest, how much interest did his

investment earn after 5 years?

SOLUTION: the interest accrued = principal × rate × time = $800(0.05)5 = $200.

The formula for compound interest is

p(1 + nr)nt

where p = principal, r = rate, n = number of times per year, and t = number of

years.

If Bob invested $5,000 at 5% compound annual interest. What was the dollar

amount of the investment after 3 years, rounded to the nearest dollar?

SOLUTION: $5,000 = p, 5% = r, n = 1, and t = 3. Thus the amount of the

investment is 5,000(1.05)^3 = $5,788.125 ≈ $5,788

Quantitative Comparison Strategy: Percentages

Often percent questions in Quantitative Comparison questions will test your

ability to differentiate between the original value and new values. When looking at

successive percent changes, always keep in mind that each percent change occurs to

the previous value, not the original one.

The price of a shirt increases by x%.

This price then decreases by x%.

QUANTITY A QUANTITY B

The original price of The new price of the shirt A B C D

the shirt

SOLUTION: It may be tempting to assume that the percent changes will offset

each other and that the answer is thus C. But the second percent change is on

a bigger value than the original percent change. Thus the amount by which

the second price decreases is greater than the amount by which the first

price increased. Thus the final price must be less than the original price. The

correct answer is A.

232 PART 4 ■ MATH REVIEW

03-GRE-Test-2018_173-312.indd 232 12/05/17 11:52 am