posted by aj on .
A business associate who owes you 3600 dollars offers to pay you 3360 now, or else pay you three yearly installments of 1200 each, with the first installment paid now. Assume that the interest rate will be 7 percent (compounded continuously). Find the total of 3 installments?
so you would start with how much of the money is going to be charged interest. You are being offered a total of 3 installments, but one is being paid now. That means there won't be interest on that installment. Therefore, you have 2 installments that will have compounded interest over a total of 2 years.
Next you use the continuous interest formula, which is S = Pe^rt, where e=2.71 (constant). S is the final value. P is the initial investment, which would be 2400 (1200 times 2 for the 2 years) in your case. r is the percentage rate. And t is the time in years.
Once you find the answer to the formula, you add the cost of the third installment, which was 1200. And you will have the answer. hope that helps!