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Problem 4-22 Interest-on-Interest (LG4-3) Consider a $5,400 deposit earning 9 percent interest per year for nine...

Problem 4-22 Interest-on-Interest (LG4-3) Consider a $5,400 deposit earning 9 percent interest per year for nine 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

(a)-Future Value

Amount Deposited (P) = $5,400

Interest Rate (r) = 9% per year

Number of years (n) = 9 Years

Future Value = Amount Deposited x (1 + r)n

= $5,400 x (1 + 0.09)9

= $5,400 x 2.171893

= $11,728.22

(b)-Total interest is earned on the original deposit

Total interest is earned on the original deposit = Future Value – Amount Deposited

= $11,728.22 - $5,400

= $6,328.22

(c)-Interest earned on interest

Interest earned on interest = Total interest is earned on the original deposit – Amount Deposited

= $6,328.22 - $5,400

= $928.22

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