How much should you be willing to pay for an account today that will have a value of $1,000 in 10 years under continuous compounding if the nominal rate is 10%?
A)$349.49
B)$367.88
C)$386.27
D)$405.59
E)$425.87

Question

Quizplus · Accepted Answer

We can use the formula for continuous compounding:

A = Pe^(rt)

Where A is the future value, P is the present value, e is the mathematical constant approximately equal to 2.71828, r is the nominal rate, and t is the time period.

In this case, we want to find P, so we can rearrange the formula:

P = A/e^(rt)

P = $1,000/e^(0.1*10)

P = $1,000/e

P = $367.88

Therefore, the answer is B.

How Much Should You Be Willing to Pay for an Account