The Megabucks Corporation is issuing a 20-year bond paying 7% interest. An investor wishes to buy the rights to receive the interest on $30,000 worth of these bonds and seeks a 12% rate of return. If the investor payments are made continuously, what will the investor pay Round your answer to the nearest cent. Round your answer to the nearest cent.
A)$159.12
B) $17,500.00
C) $210,405.59
D) $1,909.49
E) $15,912.44

Question

The Megabucks Corporation is issuing a 20-year bond paying 7% interest. An investor wishes to buy the rights to receive the interest on $30,000 worth of these bonds and seeks a 12% rate of return. If the investor payments are made continuously, what will the investor pay  Round your answer to the nearest cent. Round your answer to the nearest cent. 
A)$159.12
B) $17,500.00
C) $210,405.59
D) $1,909.49
E) $15,912.44

Quizplus · Accepted Answer

To find the present value, we can use the continuous compounding formula:
PV = FV / e^(rt)
where PV is the present value, FV is the future value, r is the interest rate, and t is the time period in years.

Since the bond pays 7% interest for 20 years, the future value of $30,000 invested in this bond would be:
FV = $30,000 * e^(0.07*20) = $150,821.91

To get a 12% rate of return, the investor would be willing to pay:
PV = $150,821.91 / e^(0.12*20) = $15,912.44 (rounded to the nearest cent)

Therefore, the best choice is E, $15,912.44.

The Megabucks Corporation Is Issuing a 20-Year Bond Paying 7