Assume that the variables I, N, and PV represent the interest rate, investment or deposit period, and present value of the amount deposited or invested, respectively. Which equation best represents the calculation of a future value (FV) using: Compound interest? FV = PV x (1 + 1)N FV= PV / (1+1)N
Simple interest? FV=pV / (1 x 1 x N)
Identify whether the following statements about the simple and compound interest methods are true or false Statement True False
A) All other factors being equal, both the simple interest and the compound interest methods will not generate the amount of earned interest by the end of the first year
B) All other variables held constant, investments paying simple interest have to pay significantly higher interest rates to earn the same amount of interest as an account earning compound interest
C) After the end of the second year and all other factors remaining equal, a future value based on compound interest will exceed a future value based on simple interest