One Thousand Dollars in a Savings Account Pays 7% Interest Per Year. The Interest Earned after the First Year is added to the Account. How much Interest is Earned on the New Principal the following year?
We will be using the concept of simple interest to solve this.
Answer: The Interest Earned on the New Principal the following year is $74.90.
Let's solve this step by step.
Given that, Interest Rate = 7% = 0.07, Principal Amount = $1000, Time = 1.
We know that simple interest (S.I.) = P × R × T
Here, P = Principal, R = rate of interest, and T = Time,
Interest in first year = 1000 × 0.07 × 1 = $70
Total amount in account after first year = Principal Amount + Interest = $1000 + $70 = $ 1070.
Interest in second year = 1070 × 0.07 × 1 = $74.90