We computed the present value of a continuous flow of money. Suppose that instead of a continuous flow, an amount C is deposited each year, and the annual interest rate is r. Then the present value of the cash flow over n years is

(a) Show that the present value can be simplified to

(b) Show that the present value, taken over an infinite amount of time, is given by P = C/r.

Transcribed Image Text:

P = C(1 + r)−¹ + C(1 + r)−² + C(1 + r)−³ + + C(1 + r)". ...