Interest on interest, or compound interest, is the adding of interest to the principal sum of a loan or deposit. The account balance after a period of 5 years will be $1.63634×10²⁰.
What is compound interest?
Interest on interest, or compound interest, is the adding of interest to the principal sum of a loan or deposit. It's the outcome of reinvesting interest rather than paying it out so that interest is received on the principal plus previously collected interest in the next quarter.
[tex]A = P(1 + \frac{r}{n})^{nt}[/tex]
A = final amount
P = initial principal balance
r = interest rate
n = number of times interest applied per time period
t = number of time periods elapsed
Given the principal amount is $12,385, the rate of interest is 7.5%, and the time period is daily. Therefore, the amount can be written as,
[tex]A = P(1 + \frac{r}{n})^{nt}\\\\A = \$12,385(1 + \frac{7.5}{365})^{(365 \times 5)}\\\\A = \$1.63634 \times 10^{20}[/tex]
Hence, the account balance after a period of 5 years will be $1.63634×10²⁰.
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