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:
𝒓𝒕 −𝒓𝒕
𝑭 = 𝑷𝒆 𝑷 = 𝑭𝒆
Where: 𝑭 - Final Amount
𝑷 - Principal
𝒓 - rate
𝒕 - term of investment (years)
𝒆 - constant (approximately 2.71828)
1. 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 = 𝑷𝒆𝒓𝒕
𝟎.𝟎𝟒𝟓𝒙𝟕
𝑭 = $𝟐𝟎𝟎𝟎𝒆

𝑭 = $𝟐, 𝟕𝟒𝟎. 𝟓𝟐
4. At what interest rate compounded
continuously would $3,000 grow to
$300,000 in 25 years?

𝑭 = 𝑷𝒆𝒓𝒕
𝟐𝟓𝒓
$300,000= $𝟑, 𝟎𝟎𝟎𝒆
r = 18.42%
 𝑭 = 𝑷𝒆𝒓𝒕
𝐹
= 𝑒 𝑟𝑡
𝑃
𝐹
𝑙𝑛 = 𝑟𝑡
𝑃
𝐹
𝑙𝑛
𝑟= 𝑃 𝑥100
𝑡
3. 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?

𝒓𝒕
𝑭 = 𝑷𝒆

𝟎.𝟎𝟖𝒙𝟑𝟎
$𝟏, 𝟎𝟎𝟎, 𝟎𝟎𝟎 = 𝑷𝒆
P =$90,717.95
How long will it take P 4,000 to triple if
it is invested at 5% compounded
continuously?

𝒓𝒕
𝑭 = 𝑷𝒆
𝟎.𝟎𝟓𝒕
𝟑𝑷 = 𝑷𝒆
𝟎.𝟎𝟓𝒕
𝟑𝑷 = 𝑷𝒆
t =21.97 tears
 𝒓𝒕
𝑭 = 𝑷𝒆
𝐹
= 𝑒 𝑟𝑡
𝑃
𝐹
𝑙𝑛 = 𝑟𝑡
𝑃
𝐹
𝑙𝑛
𝑡= 𝑃
𝑟
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.
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.