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14 October, 12:49

Precision engineering invested $125,000 at 6 percent interest, compounded annually for 3 years. how much interest on interest did the company earn over this period of time?

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  1. 14 October, 13:18
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    The future amount of the current investment/credit with interest that is compounded annually can be calculated through the equation,

    F = P x (1 + r) ^n

    where F is the future amount, P is the principal, r is the decimal equivalent of the given rate, and n is the number of years.

    Substituting the known values,

    F = ($125,000) x (1 + 0.06) ^3 = $148,877

    The interest is therefore,

    I = $148,877 - $125,000 = $23,877
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