Question

A bond is guaranteed to pay a continuous income of 100 + 10t dollars per year over 10 years. Assuming a continuous interest rate of 5% per year, the present value of this income stream equals approximately:
A. $200
B. $1148
C. $1500
D. $1892
E. None of the above

Answer 1

I don't understand where the t in 100 + 10t enters the picture.

If you start with $100, after 10 years you would have
100 e^(10(.05))
= 164.49

The basic formula for continuous compound interest is
Amount = (initial) * e^(rt) , where r is the annual rate as a decimal
and t is the time in years.