Final answer:
To calculate the interest on interest, we use the formula A = P(1 + r/n)^(nt), where A is the final amount, P is the principal amount, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the number of years. Using the given values, we can calculate the final amount after two years and subtract the initial principal amount to find the interest on interest. The interest on interest after two years is approximately $2,497.63.
Step-by-step explanation:
To calculate the interest on interest, we first need to calculate the total compound interest for the two years. We can use the formula:
A = P(1 + r/n)^(nt)
Where:
- A is the final amount
- P is the principal amount
- r is the annual interest rate
- n is the number of times interest is compounded per year
- t is the number of years
In this case, P = $17,500, r = 8.25%, n = 12 (compounded monthly), and t = 2 years.
Using the formula, we can plug in the values:
A = $17,500(1 + 0.0825/12)^(12*2)
Calculating this expression will give us the final amount after two years. To find the interest on interest, we subtract the initial principal amount ($17,500) from the final amount calculated above. The answer will be the interest on interest after two years.
Performing the calculations, the interest on interest after two years is approximately $2,497.63.