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# An investment is made at 12.5% annual simple interest. The n

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An investment is made at 12.5% annual simple interest. The n [#permalink]  30 Jul 2018, 09:44
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Question Stats:

76% (00:36) correct 23% (00:36) wrong based on 13 sessions
An investment is made at 12.5% annual simple interest. The number of years it will take for the cumulative value of the interest to equal the original investment is equalt to which of the following?

(A) 4
(B) 5
(C) 6
(D) 7
(E) 8
[Reveal] Spoiler: OA

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Re: An investment is made at 12.5% annual simple interest. The n [#permalink]  10 Aug 2018, 18:10
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sandy wrote:
An investment is made at 12.5% annual simple interest. The number of years it will take for the cumulative value of the interest to equal the original investment is equalt to which of the following?

(A) 4
(B) 5
(C) 6
(D) 7
(E) 8

We can assume the initial investment is $1000. Since the investment has a simple annual interest rate of 12.5%, in one year, the amount of interest accumulated is 1000 x 0.125 =$125. So it will take 1000/125 = 8 years to accumulate \$1000 in interest.

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Joined: 07 Jun 2014
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Re: An investment is made at 12.5% annual simple interest. The n [#permalink]  12 Aug 2018, 07:15
Expert's post
Explanation

“Simple” interest means that the interest is calculated based on the initial amount every time; the interest earned is not included in future calculations. Each year, the investment pays 12.5%, or $$\frac{1}{8}$$, of the original investment as simple interest.

As a result, it will take exactly 8 years for the cumulative interest to add up to the original investment.

Be careful not to apply the compound interest formula here. If the 12.5% interest is in fact compounded annually, it will take only about 6 years for the investment to double in value.
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Re: An investment is made at 12.5% annual simple interest. The n   [#permalink] 12 Aug 2018, 07:15
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