A. Use the formula for continuous compounding with the original example: $1000 invested at 2% for 1 year. Record the amount to 5 decimal places. Use a calculator.
B. Compare it to the result using the original compound interest formula with n = 365 calculated to 5 decimal places. Which has a larger value? Explain.
Continuous compounding is larger 1,020.20134−1,020.20078 =0.00056
Reason The effect of compound interest depends on frequency.Continuously compounded returns compound the most frequently of all because the interest with continuously compounded is computed every second while the interest with daily compounding is computed every day