Question

Consider a $2,800 deposit earning 7 percent interest per year for six years. What is the...

Consider a $2,800 deposit earning 7 percent interest per year for six years.

What is the future value? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

How much total interest is earned on the original deposit? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

How much is interest earned on interest? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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Homework Answers

Answer #1

Answer a.

Amount deposited = $2,800
Interest rate = 7%
Period = 6 years

Future value = Amount deposited * (1 + Interest rate)^Period
Future value = $2,800 * 1.07^6
Future value = $2,800 * 1.500730
Future value = $4,202.04

Answer b.

Total interest earned = Future value - Amount deposited
Total interest earned = $4,202.04 - $2,800.00
Total interest earned = $1,402.04

Answer c.

Simple Interest = Amount deposited * Interest rate * Period
Simple Interest = $2,800 * 7% * 6
Simple Interest = $1,176.00

Interest earned on interest = Total interest earned - Simple Interest
Interest earned on interest = $1,402.04 - $1,176.00
Interest earned on interest = $226.04

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