document.write( "Question 157377: What does it mean for interest to be compounded continuously as opposed to weekly, monthly or annually? \n" ); document.write( "

Algebra.Com's Answer #116003 by gonzo(654) $\"\"$ $\"About$

You can put this solution on YOUR website!
you can go to yahoo or google and search on \"continuous compounding\" and get many answers.
\n" ); document.write( "here is the url to one of them.\r
\n" ); document.write( "\n" ); document.write( "http://www.frickcpa.com/tvom/TVOM_Continuous.asp\r
\n" ); document.write( "\n" ); document.write( "continuous compounding is an infinitely small interval of time taken an infinitely large number of times per year. \r
\n" ); document.write( "\n" ); document.write( "example:
\n" ); document.write( "annually = 1 interval per year.
\n" ); document.write( "monthly = 12 intervals per year.
\n" ); document.write( "daily = 365 intervals per year.
\n" ); document.write( "hourly = 365*24 intervals per year.
\n" ); document.write( "every minute = 365*24*60 intervals per year.
\n" ); document.write( "every second is 365*24*60*60 intervals per year.
\n" ); document.write( "every time you multiply the interval, you divide the interest rate.
\n" ); document.write( "so annually = annual interest rate divided by 1.
\n" ); document.write( "monthly = annual interest rate divided by 12.
\n" ); document.write( "daily = annual interest rate divided by 365.
\n" ); document.write( ".......
\n" ); document.write( "every second is annual interest rate divided by (365*24*60*60).
\n" ); document.write( "as the number of periods per year approaches infinity, the interest rate approaches 0 for each period.
\n" ); document.write( "there are formulas to derive that and they are used to get an effective annual rate assuming continuous compounding.\r
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