Interest-on-Interest Consider a $1,500 deposit earning 4 percent interest per year for 7 years. How much total interest is earned on the original deposit (excluding interest earned on interest) ?

Interest earned = $420

Explanation:

The total worth of the investment after the the investment period compounded at certain rate is called the Future Value.

Future Value = Principal + compounded interest i. e

FV = P * (1+r) ^n

r - rate, FV - future value, n - period

FV = ?, P - 1,500, r - 4%, n-7 years

FV = 1,500 * 1.04^ (7)

FV = 1973.897669

Interest earned (compound intrest) = FV - Principal amount

= 1973.897669 - 1,500

= $473.89

Without interest earning interest.

The amount of interest earned will be computed on the principal only

Interest earned = $1,500 * 4% * 7

= $420