Compound and Continuous Interest

Front

What is Compound Interest?

Back

Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.

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What is Continuous Interest?

Back

Continuous interest is a form of compound interest where the interest is calculated and added to the principal continuously, rather than at discrete intervals.

Front

How is Compound Interest calculated?

Back

Compound Interest = P(1 + r/n)^(nt), where P is the principal amount, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the number of years.

Front

What is the formula for Continuous Interest?

Back

Continuous Interest = Pe^(rt), where P is the principal amount, r is the annual interest rate, t is the time in years, and e is Euler's number (approximately 2.71828).

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What does 'compounded daily' mean?

Back

Compounded daily means that the interest is calculated and added to the principal every day.

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What does 'compounded quarterly' mean?

Back

Compounded quarterly means that the interest is calculated and added to the principal four times a year.

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What does 'compounded semiannually' mean?

Back

Compounded semiannually means that the interest is calculated and added to the principal twice a year.

Front

What is the effect of a higher interest rate on compound interest?

Back

A higher interest rate increases the amount of interest earned or paid over time, leading to a larger final amount.

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What is the effect of a longer time period on compound interest?

Back

A longer time period allows more compounding periods, which increases the total amount of interest earned or paid.

Front

If $2,200 is invested at 5.2% interest compounded daily for 4 years, what will the total amount be?

Back

$2708.63