Identify whether the following statements about the simple and compound interest methods are true or false. Statement The process of earning compound interest allows a depositor or investor to earn interest on any interest earned in prior periods. After the end of the second year and all other factors remaining equal, a future value based on compound interest will never exceed the future value based on simple interest. All other factors being equal, both the simple interest and the compound interest methods will accrue the same amount of earned interest by the end of the first year. Investment A B C Interest Rate and Method 8% simple interest 3% compound interest 5% compound interest True Expected Future Value Make this investment? S $ $ O PPP O False Nicholai is willing to invest $30,000 for six years, and is an economically rational investor. He has identified three investment alternatives (A, B, and C) that vary in their method of calculating interest and in the annual interest rate offered. Since he can only make one investment during the six-year investment period, complete the following table and indicate whether Nicholai should invest in each of the investments. O Note: When calculating each investment's future value, assume that all interest is earned annually. The final value should be rounded to the nearest whole dollar. O O
Identify whether the following statements about the simple and compound interest methods are true or false. Statement The process of earning compound interest allows a depositor or investor to earn interest on any interest earned in prior periods. After the end of the second year and all other factors remaining equal, a future value based on compound interest will never exceed the future value based on simple interest. All other factors being equal, both the simple interest and the compound interest methods will accrue the same amount of earned interest by the end of the first year. Investment A B C Interest Rate and Method 8% simple interest 3% compound interest 5% compound interest True Expected Future Value Make this investment? S $ $ O PPP O False Nicholai is willing to invest $30,000 for six years, and is an economically rational investor. He has identified three investment alternatives (A, B, and C) that vary in their method of calculating interest and in the annual interest rate offered. Since he can only make one investment during the six-year investment period, complete the following table and indicate whether Nicholai should invest in each of the investments. O Note: When calculating each investment's future value, assume that all interest is earned annually. The final value should be rounded to the nearest whole dollar. O O
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:O FV = PV + (PV XIXN)
O FV = PV x IXN
O FV = PV / (PV XIX N)
Identify whether the following statements about the simple and compound interest methods are true or false.
Statement
The process of earning compound interest allows a depositor or investor to earn interest on any interest earned in prior periods.
After the end of the second year and all other factors remaining equal, a future value based on compound interest will
never exceed the future value based on simple interest.
All other factors being equal, both the simple interest and the compound interest methods will accrue the same amount of
earned interest by the end of the first year.
Investment
A
B
C
True
Interest Rate and Method
8% simple interest
3% compound interest
5% compound interest
O
Expected Future Value Make this investment?
$
$
$
O
False
Nicholai is willing to invest $30,000 for six years, and is an economically rational investor. He has identified three investment alternatives (A, B, and C)
that vary in their method of calculating interest and in the annual interest rate offered. Since he can only make one investment during the six-year
investment period, complete the following table and indicate whether Nicholai should invest in each of the investments.
O
Note: When calculating each investment's future value, assume that all interest is earned annually. The final value should be rounded to the nearest
whole dollar.
O
O
Expert Solution
Step 1
STEP 1
Simple Interest is the amount repaid for using the borrowed funds over a predetermined amount of time. When the total principal amount and the rate of interest for a certain amount of time surpass the due date for payment, this is known as compound interest.
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