• Oct 11th 2007, 10:12 PM
ryandman89
A promissory not will pay \$50,000 at maturity 5 years from now. The note has an interest rate of 6.4% compounded continuously...

1. What is the note worth right now?
2. You bought the note and cashed it after 5 years. How much interest did you earn?

I set up the equation as 50,000=Ce^.064*0 but how do I solve that and then I have no idea how do do the second part of the question...PLEASE HELP!
• Oct 11th 2007, 10:55 PM
CaptainBlack
Quote:

Originally Posted by ryandman89
A promissory not will pay \$50,000 at maturity 5 years from now. The note has an interest rate of 6.4% compounded continuously...

1. What is the note worth right now?
2. You bought the note and cashed it after 5 years. How much interest did you earn?

I set up the equation as 50,000=Ce^.064*0 but how do I solve that and then I have no idea how do do the second part of the question...PLEASE HELP!

The equation you require is that:

V(t)=Ce^{0.064 t},

where t is in years. So in this case:

C = 50000/e^{0.064*5}.

The interest paid is 50000 - C.

RonL