Problem

Find the accumulated present value of an investment over a 7 year period if there is a continuous money flow of $8,000 per year and the interest rate is 1.9% compounded continuously.

Answer

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Steps

Step 1 :We are given a continuous money flow of $8,000 per year for a 7 year period and an interest rate of 1.9% compounded continuously. We are asked to find the accumulated present value of this investment.

Step 2 :We can use the formula for the present value of a continuous income stream to solve this problem. The formula is: PV=C(1ert)/r, where: PV is the present value, C is the continuous money flow per year, r is the interest rate per year, t is the time in years, and e is the base of the natural logarithm.

Step 3 :Substituting the given values into the formula, we get: C=8000, r=0.019, and t=7.

Step 4 :Calculating the present value, we get: PV=52435.750691043744.

Step 5 :This value represents the total amount of money that would need to be invested today, at an interest rate of 1.9% compounded continuously, to generate a continuous income stream of $8,000 per year for 7 years.

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