All other things being equal, the numerical difference between a present and a future value corresponds to the amount of interest earned during the deposit or investment period. Each line on the following graph corresponds to an interest rate: 0%, 9%, or 18%. Identify the interest rate that corresponds with each line. VALUE (Dollars) B PV 0 1 2 3 4 5 6 7 8 9 10 TIME Years Line A: Line B: Line C: Investments and loans base their interest calculations on one of two possible methods: the interest and the interest methods. Both methods apply three variables-the amount of principal, the interest rate, and the investment or deposit period, to the amount deposited or invested in order to compute the amount of interest. However, the two methods differ in their relationship between the variables. 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? Simple interest? OFV = PV + (PV XI X N) FV = PV /(1 x I XN) OFV = (1 + I)N / PV FV = PV + (PV x I x N) FV = PV x (1 + I)N FV = PV XI XN Identify whether the following statements about the simple and compound interest methods are true or false. True False Statement Everything else held constant, an account that earns compound interest will grow more quickly than an otherwise identical account that earns simple interest. 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. o o Fedor is willing to invest $30,000 for eight 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 make only one investment during the eight-year investment period, complete the following table and indicate whether Fedor should invest in each of the investments. 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. Make This Investment? Yes No Expected Future Value Investment Interest Rate and Method 9% simple interest 4% compound interest 6% compound interest OOOZ B C