Financial Mathematics → Interest → Simple Interest → Compound Interest → Continuous Interest
The basis for continuous compound interest. See the following example to know the basis for continuous interest.
Example 1.
Suppose $1,000 is deposited in a savings account that earns compounded interest at a rate of 10% per year. How much will be in the account after 1 year if interest is compounded:
(a) Yearly
(b) Semi-annually
(c) Quarterly
(d) Monthly
(e) Weekly
(f) Daily
(g) Hourly
(h) Every minute
Solution:
(a) yearly
Answer
(b) Semi-annually
Answer
(c) Quarterly
Answer
(d) Monthly
Answer
(e) Weekly
Answer
(f) Daily
Answer
(g) Hourly
Answer
(h) Every minute
Answer
In the above example, note that as h goes smaller and smaller (daily, hourly every minute etc.) the value of accumulated amount takes a limiting value.
Next: Accumulation Factor