04-05-2012, 01:18 #1 krd Banned   Join Date: Nov 2005 Posts: 3,429 Euler's number for the calculation of compound interest I've been trying this. But it hasn't worked. I'm not sure how it's meant to A = Principal (1+R/n)^nt is the standard formula. r interest rate, n number of times per year calculated, t is number of years. The formula I've seen for Euler's number is e^Rt....But I'm not getting answers that are anywhere near correct.
 04-05-2012, 09:47 #2 Biruni Registered User   Join Date: Dec 2011 Posts: 4 Probably because the formula is (1+1/n)^n... at least where compound interest is concerned. The higher n is, the closer the answer to e. Last edited by Biruni; 04-05-2012 at 09:55.
04-05-2012, 11:14   #3
Yakuza
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Join Date: Nov 1999
Location: Dublin
Posts: 3,250
This might clarify things:

http://en.wikipedia.org/wiki/E_%28ma...pound_interest

The formula is (1+r/n)^(t*n), not quite what Biruni said. But as was said, the larger n is, the closer to e^rt we get.

R= 0.05
------------(t)1 2 3 4
Freq
1 1.05 1.1025 1.157625 1.215506
2 1.050625 1.103813 1.159693 1.218403
4 1.050945 1.104486 1.160755 1.21989
12 1.051162 1.104941 1.161472 1.220895
52 1.051246 1.105118 1.161751 1.221285
365 1.051267 1.105163 1.161822 1.221386
e^(Rt) 1.051271 1.105171 1.161834 1.221403

I hope that makes sense, see the spreadsheet for calcs
Attached Files
 eulerint.xls (13.5 KB, 7 views)

04-05-2012, 17:32   #4
krd
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Posts: 3,429
Quote:
 Originally Posted by Yakuza The formula is (1+r/n)^(t*n), not quite what Biruni said. But as was said, the larger n is, the closer to e^rt we get.
It converges.

So, it's pretty useless if there are not that many terms.

Does this problem crop up much with the e^x function?