Continuous compounding

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Querist : Anonymous

Querist : Anonymous (Querist)

20 October 2010 How continuous compounding calculations are done?ie when interest is to be compounded daily?

CA Shailesh Kumar Bhagat

CA Shailesh Kumar Bhagat (Expert)
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20 October 2010 Just run the interest calculation cycle, system will calculate the interest.

Now , in computer it is a simple task.

Thrissurkkaran Ishtan

Thrissurkkaran Ishtan (Expert)
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21 October 2010 Step 1
Take the annual interest rate let us say 12% p.a.
Now compute the daily interest rate 12%/365 = 0.0329% per day
So this now your interest rate per day.

Thrissurkkaran Ishtan

Thrissurkkaran Ishtan (Expert)
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21 October 2010 Step 2
Compute how much will be Rs. 1 if you invest at this rate at the end of Day1.
It will be Rs.1.000329 (that is Rs 1 + 0.000329)

Thrissurkkaran Ishtan

Thrissurkkaran Ishtan (Expert)
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21 October 2010 Step 3
If you want to know how much this will be at the end of Day 20 (20 days compounded interest), then do like this:
1.000329 raised to 20th power. In excel do the following =1.000329^20 you will get 1.006596.

Thrissurkkaran Ishtan

Thrissurkkaran Ishtan (Expert)
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21 October 2010 Final Note
So the interest is 0.006596.
You can recheck this by doing daily and carrying forward the balance and see the result will be the same.
Through excel sheet you can do a template so that it becomes easy every time.

Hope this helps.

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