Formula for calculating total of continuous compounded interest and annually compounded interest is
A = Peˣⁿ₁ and A=P(1 + x)^n respectively
P stands for principal; x stands for interest; n stands for the number of compounding periods; A is for total amount; n₁ is the length of time for which the interest is applied
Annual compounding means that the interest is added every year. The idea behind continuous compounding is similar to that of annual compounding, however the compounding intervals are indefinitely brief. Although it is simple to adapt the annual compounding formula to smaller time frames, the number of compounding periods required for continuous compounding would be infinite. The annual compounding formula must therefore be substantially altered in order to accommodate the continuous compounding formula.
Continuously compounded interest formula is similar in principle to annually compounded interest formula but continuous compounding has indefinitely short compounding intervals.
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