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Question

Suppose you own a parcel of land whose value tt years from now will be V(t)=8,000eV(t)=8,000 e^{\sqrt{ }} dollars. If the prevailing interest rate remains constant at 6%6 \% per year compounded

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Answered 1 year ago
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We start by finding the present value of land, P(t).P(t).

P(t)=V(t)e0.06t=8000ete0.06t=8000et0.06tas aman=am+n \begin{align*} P(t)&= V(t)e^{-0.06t}\\ &=8000e^{\sqrt{t}}e^{- 0.06t}\\ &=8000e^{\sqrt{t}- 0.06t}& \textrm {as }a^{m} \cdot a^n=a^{m+n}\\ \end{align*}

We get the first equality using the fact that present value of an amount AA, compounded continuously at interest rr is Aert.Ae^{-rt}.

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