financial algebra © cengage/south-western slide 1 3-6 continuous compounding compute interest on an...
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Financial Algebra© Cengage/South-Western Slide 11
3-6
CONTINUOUS COMPOUNDING
Compute interest on an account that is continuously compounded.
OBJECTIVES
Financial Algebra© Cengage Learning/South-Western Slide 22
limit finite infinite continuous compounding exponential base (e) continuous compound interest formula
Key Terms
Financial Algebra© Cengage Learning/South-Western Slide 33
How can interest be compounded How can interest be compounded continuously?continuously?How can interest be compounded How can interest be compounded continuously?continuously?
Can interest be compoundedDaily?Hourly?Each minute?Every second?
If $1,000 is deposited into an account and compounded at 100% interest for one year, what would be the account balance at the end of the year?
Financial Algebra© Cengage Learning/South-Western Slide 44
Example 1Example 1
Given the quadratic function f(x) = x2 + 3x + 5, as the values of x increase to infinity, what happens to the values of f(x)?
Financial Algebra© Cengage Learning/South-Western Slide 55
As the values of x increase towards infinity, what happens to the values of g(x) = –5x + 1?
CHECK YOUR UNDERSTANDING
Financial Algebra© Cengage Learning/South-Western Slide 66
Given the function f(x)= , as the values of x
increase to infinity, what happens to the values of f(x)?
6 1
3 2
x
x
Example 2Example 2
Financial Algebra© Cengage Learning/South-Western Slide 77
If f(x)= , use a table and your calculator to find f(x).1
x
CHECK YOUR UNDERSTANDING
limx
Financial Algebra© Cengage Learning/South-Western Slide 88
Given the function f(x) = 2x, find f(x).limx
EXAMPLE 3EXAMPLE 3
Financial Algebra© Cengage Learning/South-Western Slide 99
CHECK YOUR UNDERSTANDING
Given the function f(x) = 1x, find f(x).limx
Financial Algebra© Cengage Learning/South-Western Slide 1010
EXAMPLE 4EXAMPLE 4
If f(x) =(1 + )x, find f(x).limx
1
x
Financial Algebra© Cengage Learning/South-Western Slide 1111
CHECK YOUR UNDERSTANDING
Use a table and your calculator to find
rounded to five decimal places.
0.05lim 1
x
x x
,
Financial Algebra© Cengage Learning/South-Western Slide 1212
EXAMPLE 5EXAMPLE 5
If you deposited $1,000 at 100% interest, compounded continuously, what would your ending balance be after one year?
Financial Algebra© Cengage Learning/South-Western Slide 1313
The irrational, exponential base e is so important in mathematics that it has a single-letter abbreviation, e, and has its own key on the calculator. When you studied circles, you studied another important irrational number that has a single-letter designation and its own key on the calculator. The number was π. Recall that π = 3.141592654. Use the e and π keys on your calculator to find the difference between eπ and πe. Round to the nearest thousandth.
CHECK YOUR UNDERSTANDING
Financial Algebra© Cengage Learning/South-Western Slide 1414
EXAMPLE 6EXAMPLE 6
If you deposit $1,000 at 4.3% interest, compounded continuously, what would your ending balance be to the nearest cent after five years?
Financial Algebra© Cengage Learning/South-Western Slide 1515
Craig deposits $5,000 at 5.12% interest, compounded continuously for four years. What would his ending balance be to the nearest cent?
CHECK YOUR UNDERSTANDING