Scribd
Upload
740 views6 pages

Continuous Compounding Interest

The document discusses continuous compounding interest using the formula F=Pert, where F is the compounded amount, P is the principal, e is the base of the natural logarithm, r is the nominal interest rate, and t is the number of years. It provides 4 examples of using the formula to calculate compounded interest amounts over time, doubling amounts, investment amounts needed to reach a goal, and nominal interest rates.

Uploaded by

Danton Jay
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
740 views6 pages

Continuous Compounding Interest

The document discusses continuous compounding interest using the formula F=Pert, where F is the compounded amount, P is the principal, e is the base of the natural logarithm, r is the nominal interest rate, and t is the number of years. It provides 4 examples of using the formula to calculate compounded interest amounts over time, doubling amounts, investment amounts needed to reach a goal, and nominal interest rates.

Uploaded by

Danton Jay
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Interest

and Money‐Time Relationships


Continuous Compounding Interest

F = Pert

where: ert is continuous compounded amount factor


r = nominal rate of interest
t = number of years

Effective rate if compounded continuously, ER:


ER = er ‐ 1
Continuous Compounding Interest

Example 1:
P100,000 is deposited in a bank that earns 5% compounded
continuously. What will be the amount after 10 years?
Interest and Money‐Time Relationships
Continuous Compounding Interest

Example 2:
Money is deposited in a certain account for which interest is
compounded continuously. If the balance doubles in 6 years,
what is the annual percentage rate?
Ans. 11.55%
Continuous Compounding Interest

Example 2:
A man wishes to have P 40,000 in a certain fund at the end of
8 years. How much should he invest in a fund that will pay 6%
compounded continuously?

Ans. P 24, 751.34


Continuous Compounding Interest

Example 3:
If the effective annual interest rate is 4%, compute the
equivalent nominal interest compounded continuously.

Ans. 3.92%
Continuous Compounding Interest

Example 4:
What is the nominal rate of interest compounded continuously for
10 years if the compound amount factor is 1.34986?

Ans. 3%

You might also like