The interest earned on interest is determined in the following way.
Explanation:
Calculate the future value as follows:
Future value=Present valuex(1+Interest rate)[tex]No of years[/tex]
=$1500 x (1+8%)⁵
=$1500 x 1.4693280768
=$2,203.9921152
or
$2,203.99
Calculate the total interest as follows:
Total Interest =Future value-Present Value
=$2,203.99-$1500
=$703.99
Calculate the simple interest
Simple interest=(Present value x Rate of interest x No of years)
=$1500 x8% x5
=$600
