ll other things being equal, the numerical difference between a present and a fu
ID: 2821820 • Letter: L
Question
ll other things being equal, the numerical difference between a present and a future value corresponds to the mount of interest earned during the deposit or investment period. Each line on the following graph corresponds to n interest rate: 0%, 9%, or 17%. Identify the interest rate that corresponds with each line. VALUE (Dollarsl 0 1 2 3 5 67 8910 TIME IYears) Line B:L Line C: Line A: interest and Investments and loans base their interest calculations on one of two possible methods: the the 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 vaiables. interest methods. Both methods apply three variables-the amount of principal, the interest Assume that the variables 1, N, and PV represent the interest rate, investment or deposit period, and present value of the amoun (FV) using: t deposited or invested, respectively. Which equation best represents the calculation of a future value Simple interest? Compound interest?Explanation / Answer
Line A - 17%
Line B - 9%
Line C - 0%
Compound Interest
Simple interest
Compound Interest : FV = PV*(1+I)^N
Simple interest : FV = PV + (PV*I*N)
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