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Time Value of Money - Continuous Compounding

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You make deposits of $2 each year for 30 years. The rate of interest that will prevail is 10 percent for the first 20 years and then 12 percent for the remaining period. If the interest rate is compounded continuously, what is the present and future value of these deposits.

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The solution is comprised of a discussion on the time value of money, and calculations to determine the present and future value of deposits described in the question.

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You make deposits of $2 each year for 30 years. The rate of interest that will prevail is 10 percent for the first 20 years and then 12 percent for the remaining period. If the interest rate is compounded continuously, what is the present and future value of these deposits.

Note: The abbreviations have the following meanings

PVIF= Present Value Interest Factor
PVIFA= Present Value Interest Factor for an Annuity
FVIF= Future Value Interest Factor
FVIFA= Future Value Interest Factor for an Annuity

They can be read from tables or calculated using the following equations
PVIFA( n, ...

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