Question

Consider a $2,600 deposit earning 8 percent interest per year for five years. What is the future value? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Future valueſ How much total interest is earned on the original deposit? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Total interest earned How much is interest earned on interest? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Interest earned on interest

Answer 1

Deposit amount = $2,600

Interest rate = 8%

Period = 5 years

1)

Future value = Deposit amount * (1 + R)ⁿ

  Future value = $2,600 *(1 + 0.08)⁵

Future value = $2,600 *1.469328

Future value = $3,820.25

2)

Total interest earned on original deposit

Total Interest = $3,820.25 - $2,600 = $1,220.25

Interest on original deposit (excluding Interest on interest)

= $2,600 * 8% * 5 years

Interest earned on original deposit= $1,040

3)

Interest earned on interest

Total Interest = $3,820.25 - $2,600 = $1,220.25

Interest earned on interest = $1,220.25 - $1,040

= $180.25