Your rich uncle bequests to you a continuous, constant income stream of $1000 per year for the next 10 years. The terms of the bequest require that this income stream be paid continuously into a specific savings account that will not be available to you for 10 years. This account earns 5.8% interest, compounded continuously.
You discover that a bank is offering 6.3% interest compounded continuously on a certificate of deposit (CD) that matures in 10 years.
You ask the executor of the estate to buy a CD now whose value after 10 years will be the same as the amount that would be available to you in 10 years under the original terms of the bequest, and to pay you the difference between the present value of the original bequest and the amount invested in the CD.
How much do you get now?
I cant figure out the last part to this homework problem please help!
1 answer
12
3 answers