mechanics and compounding
It all depends with the amount of the annual or daily compounding. In most cases it is however the daily compounding that pays more than the annual compounding.
The way I understand it, a continuos function is said not to be "uniformly continuous" if for a given small difference in "x", the corresponding difference in the function value can be arbitrarily large. For more information, check the article "Uniform continuity" in the Wikipedia, especially the examples.
By the definition of continuity, since the limit and f(x) both exist and are equal (to 0) at each value of x, y=0 is continuous. This is true for any constant function.
The interest on a loan can be calculated in one of two ways - compounding or simple. Most loans in the U.S. are compounding loans, meaning that the interest is added to the principle each month before the new interest amount is calculated.
Continuous compounding is the process of calculating interest and adding it to existing principal and interest at infinitely short time intervals. When interest is added to the principal, compound interest arise.
I think most banks use daily compounding, but you could use the continuous compounding to approximate daily compounding and be off by less than 0.2%
I think most banks use daily compounding, but you could use the continuous compounding to approximate daily compounding and be off by less than 0.2%
The effective annual rate (EAR) increases with more frequent compounding periods. Therefore, continuous compounding yields the highest effective annual rate compared to other compounding intervals such as annually, semi-annually, quarterly, or monthly. This is because continuous compounding allows interest to be calculated and added to the principal at every possible moment, maximizing the effect of interest on interest.
2
No, the future value of an investment does not increase as the number of years of compounding at a positive rate of interest declines. The future value is directly proportional to the number of compounding periods, so as the number of years of compounding decreases, the future value of the investment will also decrease.
Nine years at 8%
Discounting and compounding are related because both processes involve the time value of money, reflecting how the value of money changes over time. Compounding calculates the future value of an investment by applying interest over time, while discounting determines the present value of future cash flows by removing the effects of interest. Essentially, discounting is the reverse of compounding; where compounding grows an amount, discounting reduces it to its present value, both using the same interest rate concept. Together, they provide a comprehensive understanding of how money behaves over time in financial contexts.
As the compounding rate decreases, the future value of inflows approaches the present value of those inflows. This occurs because lower compounding rates result in less growth over time, diminishing the effect of interest accumulation. Ultimately, if the compounding rate were to approach zero, the future value would converge to the total sum of the initial inflows without any interest or growth.
The greater the number of compounding periods, the larger the future value. The investor should choose daily compounding over monthly or quarterly.
the present value of the inflows
Yes, if you have two limiting variables with other possibles variables between them, the variables between the limiting variables would be continuous.