Problema Solution
A promissory note will pay $50,000 at maturity 6 years from now. If you pay $28,000 for the note now, what rate compounded continuously would you earn?
Answer provided by our tutors
P = $28,000
t = 6 years
A = $50,000
r = the rate as a decimal
A = P*e^(rt)
28,000*e^(6r) = 50,000
e*(6r) = 50,000/28,000
6r = ln(25/14)
r = (1/6)ln(25/14)
r = 0.09663
r = 9.66%
The rate is 9.66%.