Assignment 05 - Time Value of Money 1. Simple versus compound interest . Financial contracts involving investments, mortgages, loans, and so on are based on either a fixed or a variable interest rate. Assume that fixed interest rates are used throughout this question. Heather plans to loan $900 to her friend, who will pay a simple interest rate of 8.2% every year for the loan. If no payments are made and no further borrowing occurs between them for five years, then how much money will Heather's friend owe her? $173.80 $979.85 $1,334.69 $1,269.00 Now, assume that Heather's friend volunteers to pay compound interest instead of simple interest for her loan. If interest is accrued at 8.2% compounded annually, all other things being equal, how much money will Heather's friend owe her in five years? $973.80 $1,269.00 $1,334.69 $109.44 Heather has another investment option in the market that pays 8.2% nominal interest, but it's compounded quarterly, Keeping everything else constant, how much money will Heather have in five years if she invests $900 in this fund? O $976.10 $1,350.53 O $119.82 $173.80