An investment will generate income continuously at the constant rate of $1,100 per year for 5 years.If the prevailing annual interest rate remains fixed at 6% compounded continuously,what is the present value of the investment?
A)$6,044.13
B)$47.52
C)$4,751.67
D)$475.17

Question

Quizplus · Accepted Answer

The present value of the investment can be calculated using the formula:

PV = A / (1 + r)^n

where PV is the present value, A is the annual income, r is the interest rate, and n is the number of years.

Substituting the given values, we get:

PV = 1100 / (1 + 0.06)^1 + 1100 / (1 + 0.06)^2 + 1100 / (1 + 0.06)^3 + 1100 / (1 + 0.06)^4 + 1100 / (1 + 0.06)^5

PV = $4,751.67 (rounded to the nearest cent)

Therefore, the best choice is C.

An Investment Will Generate Income Continuously at the Constant Rate