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Continuous Compounded Interest Formula:
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Continuous compounding is the mathematical limit that compound interest can reach if it's calculated and reinvested into an account's balance over an infinite number of periods. It represents the maximum possible interest that can be earned on an investment.
The calculator uses the continuous compounding formula:
Where:
Explanation: The formula calculates how much an investment will grow when interest is compounded continuously rather than at discrete intervals.
Details: Continuous compounding is used in advanced financial modeling and theoretical economics. It provides the upper limit of what can be earned with compound interest and is particularly relevant for investments with very frequent compounding periods.
Tips: Enter the principal amount in USD, interest rate as a decimal (e.g., 0.05 for 5%), and time in years. All values must be positive numbers.
Q1: How does continuous compounding differ from regular compounding?
A: Regular compounding calculates interest at specific intervals (daily, monthly, etc.), while continuous compounding assumes interest is calculated and added constantly.
Q2: Is continuous compounding used in real financial products?
A: While no financial product compounds literally continuously, some come very close (like daily compounding), making continuous compounding a useful approximation.
Q3: What is Euler's number (e)?
A: Euler's number (~2.71828) is a mathematical constant that arises naturally when modeling continuous growth processes.
Q4: How accurate is continuous compounding for practical purposes?
A: For most investments with daily compounding, continuous compounding gives nearly identical results to actual calculations.
Q5: Can this formula be used for debt as well as investments?
A: Yes, the same formula applies to continuously compounded interest on loans or debts, where it would calculate the total amount owed.