VALUE (Dollars) B C PM 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 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? O FV = PV / (1 + i)" O FV = PV X(1 + i)" O FV = (1 + i)"/PV Simple interest? O FV = PV/(1 xi xn) O FV = PV xixn O FV = PV + (PV xixn) Identify whether the following statements about the simple and compound interest methods are true or false. Statement True False 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. o The process of earning simple interest does not allow a depositor or investor to earn interest on any previously earned interest. 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. o O Yuri is willing to invest $35,000 for three 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 three-year investment period, complete the following table and indicate whether Yuri 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. Investment Interest Rate and Method A 10% simple interest Expected Future Value $ $ $ B 6% compound interest 7% compound interest A Investment Interest Rate and Method 10% simple interest 6% compound interest 7% compound interest Expected Future Value $ $ $ B Make this investment? No Investment Yes A B O