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    Module 4 - Es 125

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    Azhel
    The document discusses continuous compound interest, which is interest calculated on the initial principal and accumulated interest from previous periods. It provides the formula to calculate future amounts given the principal, annual interest rate, and number of years of compounding. Examples are given to demonstrate calculating effective annual interest rates from nominal rates compounded continuously or periodically.

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    Module 4 - Es 125

    Uploaded by

    Azhel
    7 views1 page
    The document discusses continuous compound interest, which is interest calculated on the initial principal and accumulated interest from previous periods. It provides the formula to calculate future amounts given the principal, annual interest rate, and number of years of compounding. Examples are given to demonstrate calculating effective annual interest rates from nominal rates compounded continuously or periodically.

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    MODULE 4- ES 125

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    The document discusses continuous compound interest, which is interest calculated on the initial principal and accumulated interest from previous periods. It provides the formula to calculate future amounts given the principal, annual interest rate, and number of years of compounding. Examples are given to demonstrate calculating effective annual interest rates from nominal rates compounded continuously or periodically.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    7 views1 page

    Module 4 - Es 125

    Uploaded by

    Azhel
    The document discusses continuous compound interest, which is interest calculated on the initial principal and accumulated interest from previous periods. It provides the formula to calculate future amounts given the principal, annual interest rate, and number of years of compounding. Examples are given to demonstrate calculating effective annual interest rates from nominal rates compounded continuously or periodically.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 1

    MIDTERM CONTINUOUS COMPOUND INTEREST

    Compound interest is interest calculated on the initial principal and also


    WEEK/MODULE-4 on the accumulated interest of previous periods of a deposit or loan.
    The effect of compound interest depends on frequency.
    Objectives/Outcomes:
    Instead of calculating interest on a finite number of periods, such as
    At the end of this module, you will be able to: yearly or monthly, continuous compounding calculates interest
    assuming constant compounding over an infinite number of periods.
    1. Solve problems involving effective rate of interest Theory: The rate of increase of money at any time is directly
    2. Solve problems involving annuity proportional to the amount of money present at any time (t).
    3. Analyze problems involving types of annuity
    𝑭 = 𝑷𝒆𝒊𝒏
    EFFECTIVE RATE OF INTEREST

    The effective annual interest rate is the real return on a savings


    𝑬𝑹 = 𝒆𝒊 − 𝟏
    account or any interest-paying investment when the effects of
    where:
    compounding over time are taken into account. It also reveals the real
    percentage rate owed in interest on a loan, a credit card, or any other
    P= principal or capital amount
    debt.
    i= annual rate of interest
    It is also called the effective interest rate, the effective rate, or F= future amount
    the annual equivalent rate. n= number of years
    ER= effective rate of interest
    Effective Rate (ER)- is the actual rate of interest earned on the
    principal during a period of one year.
    EXAMPLE: You deposit $10,000 in a savings account five years ago.
    𝑵𝑹
    𝑬𝑹 = (𝟏 + 𝒊 )𝒎 −𝟏 𝒊= The account has earned 5.25% interest compounded continuously
    𝒎 since then. How much is the account today?

    EXAMPLE: What effective annual interest rate corresponds to a Solution:


    nominal rate of 8% compounded monthly?

    Solution:

    EXAMPLE: What effective annual interest rate corresponds to a


    EXAMPLE: If interest is paid at a rate of 5 % per year, compounded nominal interest rate of 15% per year, compounded continuously?
    quarterly, what is the effective rate?
    Solution:
    Solution:

    1 ES 125 | E N G I N E E R I N G E C O N O M Y

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