Suppose an investment is expected to generate income at the rate of dollars/year for the next 6 years.Find the present value of this investment if the prevailing interest rate is 8% / year compounded continuously.Round your answer to the nearest dollar.
A)$950,930
B)$953,042
C)$951,802
D)$957,375

Question

Suppose an investment is expected to generate income at the rate of  dollars/year for the next 6 years.Find the present value of this investment if the prevailing interest rate is 8% / year compounded continuously.Round your answer to the nearest dollar.
A)$950,930 
B)$953,042 
C)$951,802 
D)$957,375

Quizplus · Accepted Answer

Using the formula for continuous compounding, we have:

Present value = (Future value) / (e^(r*t))

where r = 0.08 (interest rate), t = 6 (number of years), and Future value = 11eb12b0_a960_f5f2_b394_c52bb9641014_TB7866_11 = $78,866.

Plugging in these values, we get:

Present value = 78,866 / e^(0.08*6) = $95,3042

Rounding to the nearest dollar, we get $953,042.

Therefore, the best choice is B.

Suppose an Investment Is Expected to Generate Income at the Rate