Suppose you invest $1000 in an account paying 8% interest per year. What is the balance in the account after 3 years? How much of this balance corresponds to “interest on interest”?
Question
Suppose you invest $1000 in an account paying 8% interest per year. What is the balance in the account after 3 years? How much of this balance corresponds to “interest on interest”?
Solution
To calculate the balance in the account after 3 years, we can use the formula for compound interest:
Future Value = Present Value * (1 + interest rate)^number of years
Future Value = 1000 * (1.08)^3 Future Value ≈ $1259.71
Therefore, the balance in the account after 3 years is approximately $1259.71.
To calculate the amount that corresponds to "interest on interest", we subtract the initial principal and the simple interest for 3 years from the future value:
Simple Interest = Principal * interest rate * number of years Simple Interest = 240
Interest on Interest = Future Value - Principal - Simple Interest Interest on Interest = 1000 - 19.71
Therefore, the amount that corresponds to "interest on interest" is approximately $19.71.
Similar Questions
If $2,500 is invested at 12% annual interest, which is compounded continuously, what is the account balance after 3 years, assuming no additional deposits or withdrawals are made?
Trent opened a savings account and deposited $400.00 as principal. The account earns 10% interest, compounded monthly. What is the balance after 3 years?Use the formula A=P1+rnnt, where A is the balance (final amount), P is the principal (starting amount), r is the interest rate expressed as a decimal, n is the number of times per year that the interest is compounded, and t is the time in years.Round your answer to the nearest cent.
850 is invested for 3 years at the rate of 10 % per year on simple interest. What will be total amount at the end of 3 years?Options1,1471,296None of these1,2951105
The amount of money in the account every year, when ` 10000 is deposited atcompound interest at 8 % per annum.
How much was borrowed if the interest at 8% after 3 months is P6,000.00?
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.