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.)
(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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