Continuous compounding yields A = P e^{rt}, with P principal, r rate, t time.
Key Concepts
- Concept: Continuous compounding
- Concept: Differential equation dA/dt = r A
- Concept: Exponential growth function
Steps
- Action: Assume constant r; set dA/dt = r A
- Action: Solve with A(0) = P
- Action: Conclude A(t) = P e^{rt}
Formula
$$A(t) = P,e^{r t}$$
For a non-constant rate r(t):
$$A(t) = P,expleft(int_{0}^{t} r(s),dsright)$$
Example: P = 1000, r = 0.05, t = 5 → A ≈ 1000 e^{0.25} ≈ 1284.03.