Find the present value of 11,000 if the interest paid is at a rate of 10% compounded continuously for 2 years

Question

the interest paid is at a rate of 10% compounded continuously for 2 year

Answer 1

Let V_P = Present Value (x)

 

Let V_I = Initial Value (11,000)

 

Let r = Rate (.10)

 

Let I = V_I + rV_I

 

 

 Then V_P = I + rI

 

Let's get I first:

 

11,000 + .10(11,000) = 11,000 + 1,100

 

I = 12,100

 

Now we solve for V_P our x (unknown) value:

 

x = 12,100 + .10(12,100) = 12,100 + 1,210

 

x = 13,310

 

And there we have our present value.