Continuous compounding, Mathematics

Assignment Help:

If r per annum is the rate at which the principal A is compounded annually, then at the end of k years, the money due is

         Q = A (1 + r)k

Suppose compounding is done continuously. i.e. at every instant the principal A is compounded at R per annum. Then,

         Q = A eRk

The relationship between R and r is given by the following reasoning:

         A (1 + r)k = A eRk

This implies,      
(1 + r)k = (eR)k  
1 + r = eR  
r = eR - 1  
R = ln (1 + r)  

Example 

If R   = 5.25%, then ln(1 + r) = 5.25% or r = 5.39%

Example 

Suppose Rs.100 is being compounded annually at the rate of 10% per annum. What is the future value of Rs.100 at the end of the third year? What is the effective continuously compounded rate of interest? What is the future value of Rs.100 at the end of the third year, using this interest rate?

FV(Rs.100) = 100 x (1.10)3  = 133.1

If r = 0.1, then the continuously compounded rate of interest R is given by

R = ln(1 + 0.1) = 0.0953

FV(Rs.100) = 100 e0.0953 x 3 = 100 x 1.331 = 133.1


Related Discussions:- Continuous compounding

Las leyes de kepler, la expresión que permite calcular el radio medio de la...

la expresión que permite calcular el radio medio de la órbita de cada planeta es?

Age problem, three years ago,Rica was thrice as old as dandy.Three years he...

three years ago,Rica was thrice as old as dandy.Three years hence,she will be twice as old.Find their present.

Solve the subsequent proportion, Solve the subsequent proportion: Exa...

Solve the subsequent proportion: Example: Solve the subsequent proportion for x. Solution: 5:x = 4:15 The product of the extremes is (5)(15) = 75. The produ

Continuity requirement, Continuity requirement : Let's discuss the continu...

Continuity requirement : Let's discuss the continuity requirement a little. Nowhere in the above description did the continuity requirement clearly come into play.  We need that t

Volume., what is the volume of new ipad pro box

what is the volume of new ipad pro box

Idk, Are you suppose to divide the 1 or subtract

Are you suppose to divide the 1 or subtract

Find out the volume of the solid method of disks , Find out the volume of t...

Find out the volume of the solid obtained by rotating the region bounded by y = x 2 - 4x + 5 , x = 1 , x = 4 , and the x-axis about the x-axis. Solution : The firstly thing t

Arithmetic progression., 1.If a+b=2b and ab+cd+ad=3bc,prove that a,b,c,d ar...

1.If a+b=2b and ab+cd+ad=3bc,prove that a,b,c,d are in A.P 2.The nth term of an A.P is an+b.Find the sum of the series upto n terms.

Find extrema & relative extrema f ( x ) = x3 on [-2, Recognizes the absolut...

Recognizes the absolute extrema & relative extrema for the given function.                                                    f ( x ) = x 3      on        [-2, 2] Solution :

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd