Your business associate who owes you $12000 offers to pay you either $10080 now or else to pay you 8 yearly installments of $1500, the first installment paid now. Assume a 5.9% market interest rate, compounded continuously. How much would you have at the end of 8 years if you choose to take the installments each year, and you still used the market to earn interest on the the funds?
At the end of 8 years, you would have $17,945.45 if you choose to take the installments each year and use the market to earn interest on the funds. This is calculated by using the formula A = P(1 + r/n)^nt, where A is the amount at the end of 8 years, P is the principal (the amount of the loan, $12,000), r is the interest rate (5.9%), n is the number of times the interest is compounded per year (continuously), and t is the number of years (8).
