EECO101

ENGINEERING ECONOMY
 Compound
Interest
Continuous Compounding
Continuous Compounding

• interest that is computed and added to the balance of

an account every instant.

• Continuously compounded interest means that

your principal is constantly earning interest and the

interest keeps earning on the interest earned.

Continuous Compounding
Formula:

𝑭= 𝑷𝒆 𝒓𝒕 𝑷= 𝑭𝒆 −𝒓𝒕
Where: 𝑭 - Final Amount
𝑷 - Principal
𝒓 - rate
𝒕 - term of investment (years)
𝒆 - constant (approximately 2.71828)
If interest is compounded continuously
at 4.5% for 7 years, how much will a
$2,000 investment be worth at the end
of 7 years?

𝐹 = $2,740.52
An amount of $2,340.00 is deposited in
a bank paying an annual interest rate
of 3.1%, compounded continuously.
Find the balance after 3 years.

𝐹 = $2568.06
If you invest $1,000 at an annual interest
rate of 5% compounded continuously,
calculate the final amount you will have
in the account after five years.

𝐹 = $1,284.03
At what interest rate compounded
continuously would $3,000 grow to
$300,000 in 25 years?

𝑟 = 18.42%
How much would you have to invest
in an account earning 8% interest
compounded continuously for it to be
worth one million dollars in 30 years?

𝑃 = $90,717.95