nment 05 Time value of Money at t1 PM EST Abigail so, why is it important to be able to calculate the future value of some amount invested? and the Caleb First, remember that the amount invested is usually called maturity payment nt to be able to amount eamed during the investment period is called rincipal rincipal will be calculate a future value so that you can know in advance w for a known worth after eaming a speedfied Abigail OK, i understand that, and I know the amount of principal invested today can be called the value of the investment, whereas the amount re after the passage of t period of value. But what causes the present and future values to be different time is called its values? Caleb Two things cause the present and future values to be different amounts. First, the eamed during the investment period causes the future value to be greater than, equal to, or less than the present value. Second, the method used to calculate the interest interest- determines the eamed- that is, whether the account pays amount by which the future value differs from the present value. bigail That makes sense, and I remember Dr. Anderson saying that the difference between simple and compound interest is that in the case of interest, interest is eamed solely on the invested principal, but in the case of interest, interest is eamed not only on the principal but also on previously eamed interest. caleb very good! So, here's your next question. Assuming equal amounts of principal, interest rates, and investment periods, which type of account should produce the greater future value: the account eaming simple interest or the account eaming compound interest? interest should have the greater future all By my reasoning, the account eaming value, assuming identical amounts of principal, interest rates, and investment periods. eb Again, correct! But now, I want you to prove it. So let's assume that you invest s2,000 into two different accounts, both of which eam 11% per year, and the money is invested for three years. A simple interest while account xeams compound interest By how future value of account X exceed the future value of account A? sheet of paper, show me how to calculate the future va ues of the two accounts