Future Value of Account A

Note: Account A pays simple interest.

Future ValueA

$=$ Principal $+$ Interest

$=$ Principal $+[($Principal x Interest Rate$)$ x Investment Period$]$

$=$ $$2,000+[($$$2,000$ x $9\%)$ x $3$ years$]$

$=$ $

Future Value of Account X

Note: Account X pays compound interest.

Future ValueX

$=$ Present Value x Interest Rate Factor

$=$ Present Value $\backslash$times $(1+$ Interest Rate$)$N

$=$ $$2,000$ x $(1+0\mathrm{.}09)^3$

$=$ $

To find the interest rate factor, you can use four different ways, including multiplying it out:

Interest Factor $(1+0\mathrm{.}09)$ x $(1+0\mathrm{.}09)$ x $(1+0\mathrm{.}09)=1\mathrm{.}2950$

Or you can use exponents, and calculate it directly:

Interest Factor $=(1+0\mathrm{.}09)^3=1\mathrm{.}2950$

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 $1392000$

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

$$ FVA

$=$ $