With both periodic and continuous interest, compounding occurs. In other words, interest is gained on principal plus accumulated interest for each cycle of interest received. An example would be getting a rate of return and then reinvesting for another return. Some savings accounts advertise compounding interest daily. How would this differ from compounding weekly, monthly, yearly or even continuously (infinitely many periods)? In this spreadsheet below, I have created interest calculators, and a graph. By inputting different values we can see how increasing the number of compounding cycles affects the overall return on investment. Eventually, there is a cut off where increasing the number of cycles has little to no affect. This ties back to the mathematical concept of limits. |
Describing Compounding Interest Using Technology
We can think of interest in three ways:
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compounding_interest.xlsx | |
File Size: | 16 kb |
File Type: | xlsx |
Feel free to try some basic interest calculations to explore this concept in further detail on the below worksheet.
worksheet3-continuouscompounding.pdf | |
File Size: | 92 kb |
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