Euler's number for the calculation of compound interest

krd

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.

Biruni

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.

Yakuza

This might clarify things:

http://en.wikipedia.org/wiki/E_%28mathematical_constant%29#Compound_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

krd

Yakuza wrote: »

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?