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September 14, 2014

September 14, 2014

Posted by **nic** on Thursday, September 16, 2010 at 5:10pm.

$3000 a year from now, and $3450 two years from now.

Choice 2: Three yearly payments of $ 3000 starting now.

Interest is compounded continuously.

(a) If the interest rate on savings were 4.76 %,which would you prefer?

(b) What is the interest rate that would make both choices equally lucrative?

- calculus -
**bobpursley**, Thursday, September 16, 2010 at 6:25pmThis is not the calculus I know.

Working present value;

Option 1

PV=2600+3000/(1+i) + 3450/(1+i)^2

calculate that with i=.0476

Option 2

PV=3000+3000/(1+i) + 3000/(1+i)^2

calculate that

which is the lower PV? That is the prefered option.

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