Question

One thousand dollars is invested in a savings account that pays 9% interest per year. The interest earned after the first year is added to the account. How much interest is earned on the new principal the following year?

Answer 1

In order to solve this problem, the first thing we are going to do is find out how much is 9% of 1000, since 9% is the interest per year. So 0.09 x 1000 and that would be 90. And since the interest earned is added to the account, the account will now have a total of $1090 which is now the new principal. Based on this new principal, we need to know the 9% of it again to know how much interest in earned in the following year. So that would be 0.09 x 1090 and the result is $98.10. Hope this answer helps.