Future value : Future value refers to that value of an investment which will worth at a specified time in future. In simple words, expression of current investment in future dollars on basis of particular rate of interest is known as future value. Interest on interest It refers to that amount of interest which is calculated on the interest received from the invested amount. The difference between actual investment and its future value includes interest and interest on interest. So, if the amount of interest will be deducted from the difference of actual investment and its future value, it will show only interest on interest. To determine: Total balance in the account after 3 years and balance correspondence to “interest on interest”. Total balance in the account after 25 years and balance correspondence to “interest on interest”.

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Chapter 3, Problem 18P

Summary Introduction

Future value:

Future value refers to that value of an investment which will worth at a specified time in future. In simple words, expression of current investment in future dollars on basis of particular rate of interest is known as future value.

Interest on interest

It refers to that amount of interest which is calculated on the interest received from the invested amount. The difference between actual investment and its future value includes interest and interest on interest. So, if the amount of interest will be deducted from the difference of actual investment and its future value, it will show only interest on interest.

To determine:

Total balance in the account after 3 years and balance correspondence to “interest on interest”.

Total balance in the account after 25 years and balance correspondence to “interest on interest”.

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