Examples & Explanation of Continuous Compounding FormulaĬalculate the compounding interest on the principal of $ 10,000 with an interest rate of 8 % and time period of 1 year. Despite a large number of investments, the difference between total interest earned through continuous compounding in Excel is the same as traditional compounding interest. This is multiplied by the current interest rate and time period. As the time period mentioned is infinite, the exponent function (e) helps multiply the current investment amount. The above calculation assumes constant compounding interest over an infinite time period. P = Principal amount (Present Value of the amount) The continuous compounding formula calculates the interest earned, which is continuously compounded for an infinite period. The formula for continuous compounding is as follows:
Banks use daily compounding interest amounts in some of their products.
Any financial institution does not use this for interest rate charges as there is little difference in the continuous and daily compounding amounts. For continuously compounding interest rate gets added on every moment.
