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Simple qns: how to mentally calculate compounding 125% for 5 years fast

It is a simple question. 

How do you mentally calculate 5*(1.25)^5 fast?

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Top answer
on Aug 18, 2023
#1 Coach for Sessions (4.500+) | 1.500+ 5-Star Reviews | Proven Success: ➡ interviewoffers.com | Ex BCG | 10Y+ Coaching

Hi there,

Q: How do you mentally calculate 5*(1.25)^5 fast?

I believe you want to calculate an increase of 25% per year for 5 years.

The fastest approximation is probably with the rule of 72. Applying it, you get that you double in:

72/25 = 3 years

So after 3 years, you should be around 10.

Once you are there, you can either perform 10*1,25^2, or notice that you would double again in 3 years, so after that the result would be 20, as your new starting point is 10. Given you just have 2 iterations and not 3, the result should be somewhere between 15 and 16 (the actual result is indeed 15.3).

Hope this helps,

Francesco

Ian
Coach
on Aug 17, 2023
Top US BCG / MBB Coach - 5,000 sessions |Tech, Platinion, Big 4 | 9/9 personal interviews passed | 95% candidate success

Hi there,

I can definitively say you will not be required to do this.

By the way, your formula is already wrong. 125% does not translate into 1.25. 

25% translates into 1.25

If I were to eyeball this, I would say it doubles every year and then some.

So, I'll double 5, 5 times, to get 160. Then, I'd double it one more time to account for the .25, getting 320

on Aug 16, 2023
#1 Rated McKinsey Coach | Top MBB Coach | Verifiable success rates

Hi there!

I'd challenge you whether that's actually needed in the interview. 

Interviewers test your skills, not your knowledge, nor your mathematical prowess. 

Basically, they want you to be decent with number, not a genius (otherwise they would be hiring math Phds). 

Best,
Cristian

Deleted user
on Aug 25, 2023

I think Ian and Francesco presented some good approaches here.

In general, with questions like this, the keys are going to be:

  • Rounding and simplifying 
  • Breaking the calculation up into easier parts

But I don't think you'll be required to do a calculation like this with some compounding on the fly. Maybe as part of the quantitative portion, where you can write it out and take a moment to calculate it.

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Clara
Coach
on Aug 31, 2023
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello!

Precisely for the high amount of questions (1) asked by my coachees and students and (2) present in this Q&A, I created the “Economic and Financial concepts for MBB interviews”, recently published in PrepLounge’s shop (https://www.preplounge.com/en/shop/prep-guide/economic_and_financial_concepts_for_mbb_interviews).

After +5 years of candidate coaching and university teaching, and after having seen hundreds of cases, I realized that the economic-related knowledge needed to master case interviews is not much, and not complex. However, you need to know where to focus! Hence, I created the guide that I wish I could have had, summarizing the most important economic and financial concepts needed to solve consulting cases, combining key concepts theorical reviews and a hands-on methodology with examples and ad-hoc practice cases.

It focuses on 4 core topics, divided in chapters (each of them ranked in scale of importance, to help you maximize your time in short preparations):

·        Economic concepts: Profitability equation, Break even, Valuation methods (economic, market and asset), Payback period, NPV and IRR, + 3 practice cases to put it all together in a practical way.

·        Financial concepts: Balance sheet, Income statement/P&L and Performance ratios (based on sales and based on investment), +1 practice case

·        Market structure & pricing: Market types, Perfect competition markets (demand and supply), Willingness to pay, Pricing approaches, Market segmentation and Price elasticity of demand, +1 practice case

·        Marketing and Customer Acquisition: Sales funnel, Key marketing metrics (CAC and CLV) and Churn, +1 practice case

Feel free to PM me for disccount codes for the guide, and I hope it helps you rock your interviews!

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