Art invested $100 two years ago at 8 percent interest. The first year, he earned $8 interest on his $100 investment. He reinvested the $8. The second year, he earned $8.64 interest on his $108 investment. The extra $.64 he earned in interest the second year is referred to as:1. Free interest. 2. Bonus income. 3. Simple interest. 4. Interest on interest. 5. Present value interest.

Question

Eve Howell

Business

26 October, 02:39

Art invested $100 two years ago at 8 percent interest. The first year, he earned $8 interest on his $100 investment. He reinvested the $8. The second year, he earned $8.64 interest on his $108 investment. The extra $.64 he earned in interest the second year is referred to as:1. Free interest. 2. Bonus income. 3. Simple interest. 4. Interest on interest. 5. Present value interest.

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Answers (1)

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Ingrid Dalton · Answer 1

Option 4 - Interest on Interest

Explanation:

Look we earned $8 in the first year which we invested in the same business. Okay now we again earned 8% on this $100 and $8 invested in the second year. The 8% on the $8 is $0.64 which is the interest earned on the interest invested in the previous year.