Consider a deposit of $2,000 in an account that promises 4% interest, compounded annually. By the end of five years, the interest on interest is closest to:
A) $33.31
B) $80.00
C) $93.51
D) $433.31

Question

Quizplus · Accepted Answer

The interest on interest is the interest earned on the interest that has already been earned. In this case, the interest on interest is closest to $33.31. This is because the interest earned in the first year is $80.00, the interest earned in the second year is $83.20, the interest earned in the third year is $86.43, the interest earned in the fourth year is $89.69, and the interest earned in the fifth year is $93.00. The total interest earned over the five years is $433.31, and the interest on interest is $33.31.

Consider a Deposit of $2,000 in an Account That Promises