From the course: Preparing for the GMAT
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Interest problems
- [Instructor] Since the GMAT is a business school entrance exam, it's going to write a lot of word problems that have something to do with money, so in this video, we'll go over interest word problems that involve both simple and compound interest. So, simple interest is easiest to explain with an example, super simple. If I invest 100 bucks at, let's say, 4% annual interest, in one year, I'm going to have 104 bucks, right? 'Cause 4% of 100 is four. After year two, so let's called this year one, after year two, I'm going to have another four bucks. So, as you can see, basically what we do is we just keep calculating 4% of that original amount. In real life, this doesn't happen a whole lot, it's not very good for the investor. What really usually happens in real life is compound interest and this is a little more complicated. So, I'm going to write the formula out here and then explain what it means. A equals principal, one plus r over n, all raised to the nt. And so I'll just show…
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