Question stem is:
Reginald invested $100 at 4% simple annual interest in Bank A and $100 at 4% compound annual interest in Bank B.
Quantity A: Amount of interest earned after one year at Bank A
Quantity B: Amount of interest earned after one year at Bank B
I answered D (the relationship cannot be determined) because the question stem does not specify how often the compound interest is compounded (annually would be equivalent to Bank A, semi-annually would be greater than Bank A).
Why is my thinking incorrect here?
It says in the stem that it’s compounded annually?
“4% compound annual interest” is vague to me. Every other compound interest problem I have ever come across is worded “annual interest rate of x%, compounded annually”. They always specify both the annualized interest rate and how often it is compounded.
When I read “4% compound annual interest”, I read that as “an annual interest rate of 4% that compounds” and we aren’t told how often it compounds.
I will assume moving forward that if we aren’t told how often it compounds, that it compounds annually.
Let me flag this with @gregmat
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Feel free to edit the question to remove this ambiguity
The ETS Math Review uses your wording style, so the question has been updated.
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