Future Value of Account A Note: Account A pays simple interest. Future ValueA A = Principal + Interest = Principal + [(Principal x Interest Rate) x Investment Period] = $2,000 + [($2,000 x 8%) x 3 years] = $

Future Value of Account X Note: Account X pays compound interest. Future ValueX X = Present Value x Interest Rate Factor = Present Value (1 + Interest Rate)N N = $2,000 x (1 + 0.08) = $

To find the interest rate factor, you can use four different ways, including multiplying it out: Interest Factor (1 + 0.08) x (1 + 0.08) x (1 + 0.08) = 1.2597 Or you can use exponents, and calculate it directly: Interest Factor = (1 + 0.08) = 1.2597 The third alternative for solving the equations is to use a spreadsheet, and the fourth is to let a financial calculator perform the calculation. This requires that you know how your calculator functions and how to enter the following variables: Input 1 3 8 2000 Keystroke P/Y N I PV FV Output Answer P/Y indicates the number of compounding periods per year, N is the number of years, I is the interest rate, PV is present value, and FV is future value. Difference in Future Values Difference = FVX X FVA A = $