Problem

Find the present value of $5000 payable at the end of 2 years, if money may be invested at 7% with interest compounded continuously.

Answer

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Answer

So, the present value of $5000 payable at the end of 2 years, if money may be invested at 7% with interest compounded continuously, is approximately 4346.79.

Steps

Step 1 ：Given that the future value (FV) is $5000, the interest rate (r) is 7% or 0.07, and the time (t) is 2 years.

Step 2 ：The formula for the present value (PV) when interest is compounded continuously is given by: PV=FV∗e−rt, where e is the base of the natural logarithm, approximately equal to 2.71828.

Step 3 ：Substitute the given values into the formula: PV=5000∗e−0.07∗2.

Step 4 ：Calculate the present value to get approximately $4346.79.

Step 5 ：So, the present value of $5000 payable at the end of 2 years, if money may be invested at 7% with interest compounded continuously, is approximately 4346.79.

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