calculus

Choice 1: Payments of \$ 2600 now,
\$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?

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2. 👎 0
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1. This 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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2. 👎 0

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