Simple and Compound Interest Problem
Q:Shawn invested one half of his savings in a bond that paid simple interest for 2 years and received $ 550 as interest. He invested the remaining in a bond that paid compound interest, interest being compounded annually, for the same 2 years at the same rate of interest and received $605 as interest. What was the value of his total savings before investing in these two bonds?
- $ 5500
- $ 11000
- $ 22000
- $ 2750
- $ 44000
1. Interest for the first year of the simple compound bond is 275/2 - $275.
2. So we need to determine the rate of interest based on this so...
605 - 550 = 55. That's the difference between the interest earned on the simple vs compound interest bonds.
55/275 * 100/1 = 11/55 * 100/1 = 20% Interest
3. 275 represents 20% interest of a number
275/20 * 100/1 = 55/4 * 100/1 = $1375.
4. This represents half the money so 1375*2 = $2750. (D).
My questions is: Why are we using 55. I.E. The difference between the two interest to determine the interest in 2. What does this 55 represent (besides the difference between the two?)
Thanks in Advance.