LrIntCmpdCntsChXSIII - Dr. Raja Latif.Finite...

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Dr. Raja Latif.Finite Mathematics.Pg:1 Math131 ( 043Smr2005 ) Finite Mathematics . 10 . 3 Interest Compounded Continuously Objective: To extend the notion of compound interest discussed in Chapter 8 to the situation where interest is compounded continuously. To develop formulas for compound amount and present value. Continuous Compound Interest Formula: Suppose a principal of P dollars is invested for t years at an annual rate of r . If interest is compounded k times a year, then the rate per conversion period is r / k , and there are kt periods. The compound amount is given by S P 1 r k kt . If k , the number of conversion periods increases indefinitely, and the length of each period approaches 0. We say that interest is compounded continuously. The compound amount is S k lim P 1 r k kt which may 1
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Dr. Raja Latif.Finite Mathematics.Pg:2 be written S P k lim 1 r k k / r rt . By letting x r / k , then as k , we have x 0. Thus
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LrIntCmpdCntsChXSIII - Dr. Raja Latif.Finite...

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