Continuous Compounding Periods
If compounding periods are continuous, it means that the time between them is considered to be infinitesimally small, hence they are continuously compounding.
In this case, to calculate future and present values, use the following:
f = p ern
or,
p = f e-rn
where:
- f is future value
- p is present value
- e is the natural number, i.e. 2.7182...
- r is periodic interest rate as a decimal value (not as a percentage)
- n is the number periods
Example: You have invested $2,000 dollars in a venture which offers an annual continuously compounded return of 5%. How much will the investment be worth in 6 months?
In RPN mode, key in:
2000
[ENTER]
0.05 (annual rate as fraction)
[ENTER]
0.5 (6 months - half a period)
[×]
[e^x]
[×]
Displays: 2050.63
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