Business, 11.03.2020 04:19 Nikki2807

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.

True

False

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Answer from: joneil1952

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 - True.

Explanation:

The calculation of simple interest is based on the principal, or original, amount of a loan , while compound interest is calculated based on the principal amount and also on the accumulated interest of previous periods, and can thus be regarded as “interest on interest.”

Compound Interest = FV = PV * (1 + I)N

Simple Interest = FV = PV + PV * I * N

Where FV = Future Value of the deposited amount ; PV = Present Value of the deposited amount ; I = Interest rate and N = Investment periods.

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.

Simple interest and Compound interest will accrue same amount of interest in first year , but the FV of Compound Interest will always exceed FV of Simple Interest from 2nd year on wards

The Compound Interest allow investors to earn interest on prior period interests.

Thus, 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 - True.

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