https://prepswift.gregmat.com/quizzes/quiz/prepswift-compound-interest-ii (Question 2)
Isn’t the wording in such cases too vague? It says “10% interest compounded semi-annually”, which seems to most clearly mean compounded twice a year, 10% each period. If the problem wants to say 5% per period for 10% total annually, as the solution suggests, the correct language should be “10% annual interest compounded semi-annually”. Isn’t that so? In the PrepSwift Explanation that is what was written.
Not quite. The approach used in the solution is correct.
Refer to Compound Interest II - PrepSwift . Greg explains.
Right but in such examples, he clearly states the total interest per year as “annual”. For instance, he writes “earning 12% annual interest, compounding monthly”. The 12% interest is specificed as being annual, and then the information that it is compounded monthly is what informs me that it is 1% per month. I’m really not trying to be nitpicky here, but I just want to know exactly what kind of terminology I can expect on these kinds of questions on the actual GRE, that’s all.
I see your point now. You’re asking about the wording rather than how to perform the calculation.
There doesn’t appear to be an ETS convention (I could be wrong) stating that an interest rate should automatically be interpreted as annual when the word “annual” isn’t given. ETS’s own Math Review consistently uses “annual interest rate” when discussing compound interest.
So while the solution’s intended interpretation of 10% compounded semi-annually is 5% every six months, your concern about the wording is fair. What do you think? @Leaderboard
Fair point. In real life interest rate is implied to be annual, but ETS will always write it explicitly. This has been fixed.