Future Value of Account A Note: Account A pays simple interest. Future Value = Principal + Interest Principal + ((Principal x Interest Rate) x Investment Period] $2,000 + (($2,000 x 10%) x 3 years] $ Future Value of Account X Note: Account X pays compound interest. Future Valuex = Present Value x Interest Rate Factor Present Value x (1 + Interest Rate) $2,000 x (1 + 0.10) $ To find the interest rate factor, you can use four different methods, including multiplying it out: Interest Factor (1 + 0.10) x (1 + 0.10) x (1 + 0.10) 1.3310 Or you can use exponents and calculate it directly: Interest Factor = (1 + 0.10) 1.3310 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: 1 3 10% 2000 Input Keystroke N P/Y I FV PV me nu aremauve Tor Solving the equdLIIS IS w use a spreaubrie, dnu ure Tour IT IS W TELO financial calculator perform the calculation. This requires that you know how your calculator functions and how to enter the following variables: 1 3 10% 2000 Input Keystroke Output P/Y N I PV FV 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 - FVA Mackenzie So, what do you think? Savannah Your work looks fantastic! But now I've got to challenge you with one last question: What would happen to the two future value numbers and the difference between them if the two accounts did not pay interest? Mackenzie Uh... if the interest rate were zero, then interest would earned by ; the future value of account A would be ; the future value of account X would be ; and the difference between the two accounts would be Savannah Correct! You are so ready for Dr. Thibodeaux's next quiz