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You are here: Home » GMAT Test Prep Questions » Simple & Compound Interest » Question 4

The question given below is a problem solving question in Simple Interest in finding the rate of interest.

Peter invested a certain sum of money in a simple interest bond whose value grew to $300 at the end of 3 years and to $ 400 at the end of another 5 years. What was the rate of interest in which he invested his sum?

1. 12%
2. 12.5%
3. 6.67%
4. 6.25%
5. 8.33%

The correct choice is (E) and the correct answer is 8.33%.

Initial amount invested = $ X

Amount at the end of year 3 = $ 300

Amount at the end of year 8 (another 5 years) = $ 400

Therefore, the interest earned for the 5 year period between the 3rd year and 8th year = $400 - $300 = $100

As the simple interest earned for a period of 5 years is $ 100, interest earned per year = $20.

Therefore, interest earned for 3 years = 3 * 20 = $ 60.

Hence, initial amount invested X = Amount after 3 years - interest for 3 years

= 300 - 60 = $ 240.

Rate of interest = = = 8.33%