Unformatted text preview: integral of the continuously compounded rate r ( t ): Indeed, a key reason for using continuous compounding is to simplify the analysis of varying discount rates and to allow one to use the tools of calculus. Further, for interest accrued and capitalized overnight (hence compounded daily), continuous compounding is a close approximation for the actual daily compounding. More sophisticated analysis includes the use of differential equations , as detailed below. Examples Using continuous compounding yields the following formulas for various instruments: Annuity Perpetuity Growing annuity Growing perpetuity • FV for ordinary annuity and growing annuity can be calculated by Source: http://en.wikipedia.org/wiki/Time_value_of_money...
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 Fall '11
 Nazar
 Compounding, Interest, Interest Rate

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