Sandra Smith deposited $2,200 today in an account paying 6 percent interest annually. 1. What would...

Sandra Smith deposited $2,200 today in an account paying 6 percent interest annually.

1. What would be the simple interest earned on this investment in 5 years?

Simple interest on investment

2. With annual compounding, how much interest-on-interest would Sandra earn in 5 years?

Interest-on-interest

Solutions

Expert Solution

1) Simple interest = principal*rate of interest*no.of years

= 2,200*6%*5

= 660

2) Compounding interest = Future value- Present value

Present value = 2,200

Future value = 2,200*(1+0.06)^5

= 2,200*1.3382

= 2,944

Interest =2,944-2,200

= 744

jeff jeffy answered 2 years ago

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