Continuous Compounding Calculation Examples Help

Continuous compounding calculation Examples, Illustrations, Concept, Sample Help Online


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Understanding the concept of Continuous compounding calculation

Continuous Compounding means charging interest on previous interest which may be annually, quarterly or on monthly basis. This means the interest keeps adding to the principle and again interest is charged.It simply means the principal is continuously earning interest and the interest keeps earning on interest earned. Continuous compounding can be calculated easily using the following formula
A= P (1+ r/100) n
Where, A is the sum of principal and interest
P is the principal
r is the rate of interest per annum
n is the time in years

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Continuous compounding calculation Examples Explanation

let’s take an example and understand the concept clearly.
A sum of $10000 was deposited in a bank for a period of 4 years. The rate of interest of 10% quarterly was applied upon it. Find the sum obtained after 4 years of time.
It is calculated using the following formula
A= P (1+ r/100) n
=10000 (1+ r/4×100)4n
=10000 (1+10/4×100)4×4
= 10000 x 1.484517 =$ 14845.17
Similarly, when the question is asked to charge interest yearly or on monthly basis the same formula is used only the time period is changed.
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