Recall the mechanism behind continuous compounding

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Recall the mechanism behind continuous compounding: the whole period is divided into increasing numbers of smaller and smaller sub-periods, and the resulting effective rate is calculated as a limit of the effective rates under increasing number of sub-periods. Assume that the nominal interest rate per time unit is 2%, and the compounding is continuous. Imagine that the payments are made uniformly over time, from 0 (present) to T=T=0.97 time units, so that amount A=A=8 is paid during one time unit (that is, your bank account will be continuously transferring money as time goes). You can see this as a limit of a scheme where mm payments, each of size A/m, are made during a time unit; and then m→+∞. What is the NPV of such (continuous in time) CFS? (Please provide your answer with 0.001 precision.)

Reference no: EM131022477

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