Question

Income Suppose income from an endowment is generated at the annual rate of $42,000 per year. Find the capital value of this endowment at an interest rate of 7.5% compounded continuously.

Answer 1

Capital value after 1 year will be equal to $45150

Explanation:

We have given principal amount P = $42000

Rate of interest r = 7.5 %

Time t = 1 year

Capital value is given by
`A=P(1+(r)/(100))^n`

So
`A=42000* (1+(7.5)/(100))^1`

`A=42000* 1.075=45150`

So capital value after 1 year will be equal to $45150