Respuesta :
Answer:
Explanation:
Year 1 you would have:
$1,050*(1+5%)= $1,102.5
Year 2:
$1,102.5*(1+5%)=$1,157.6
"Interest on interest" is when you calculate the new interests considering the interest you earned in the past. In this case, you earned $52,50 in interest on year 1, and then you calculate interests on year 2 considering those $52,50 that you have earned before. On year 2 you earned $107.63 only in interests. If that wouldn’t be "interest on interest" you should have earned the same $52,50 as on year 1. Then, the part of balance that corresponds to "interest on interest" is: $2.63. Because, without "interest on interest" you would have earned $52,50*2= $105. but you earned $107.63, the difference between both is $2.63
Year 34, we use the compound interest formula:
Final Capital (FC)= Initial Capital (IC)*[(1+interest(i))]^(number of periods(n))
FC= 1,050*(1+5%)^34
FC= $5,516.02
Without "interest on interest" you should have earned $52,50*34=$1,785. Then at the end of year 34 you would have $1,050+1,785= $2,835.
