Answer and Explanation:
a. The computation of balance in the account after 2 years is shown below:-
Balance in account in 3 years = Future value = Present value (1+ interest rate)^No of years
= 850 × (1 + 7%)^2
= 973.165
Total compounded Interest = 973.165 - 850
= 123.165
Total Simple Interest = 850 × 0.07 × 2
= 119
Balance corresponds to the interest on interest = Total compounded Interest - Total simple interest
= 123.165 - 119
= 4.165
b. The computation of balance in the account after 35 years and balance corresponds to "interest on interest" is shown below:-
Future value = Present value (1+ interest rate)^No of years
= 850 × (1 + 7%)^35
= 9,075.094262
or
= 9,075.09
Total compounded Interest = 9075.09 - 850
= 8,225
Total Simple Interest = 850 × 0.07 × 35
= 2082.5
Balance corresponds to the interest on interest = Total compounded Interest - Total simple interest
= 8,225 - 2,082.5
= 6,142.5