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I must admit I still don't understand continual compounding
by 01HNNWZ0MV43FF 2y ago
I must admit I still don't understand continual compounding
- Xelynega 2y agoExplained in a terrible way, it's integrals for interest if "compound daily/monthly/yearly" was an estimation using discrete intervals
- skeeter2020 2y agoyou didn't really improve by hiding behind "integrals"; this is why so many kids are afraid of calculus.
- triyambakam 2y agoThe explanation worked for me. I learned basic calculus but didn't know about continual compounding interest.
- inopinatus 2y agothis isn’t kindergarten. if something is described concisely by analysis then that’s how I want it explained to me too.
- Xelynega 2y agoThere's a reason I prefaced it with "explained in a terrible way". It clicks that way in my head, might for others
- kstrauser 2y agoImagine that instead of compounding the interest every day, you wanted to calculate it every nanosecond. And then, every billionth of a nanosecond. If you keep dividing that until it’s an infinite number of infinitely small compounding, you get a super simple equation: interest = e^(years*rate) 10% interest for 5 years? e^(5*.1) = 1.649 3% for 8 years? e^(8*.03) = 1.271 You can plug any numbers into that and get the end result in 1 step.
- afthonos 2y agoSibling’s explanation is a great starting point! If you understand annual, weekly, and daily compounding, continuous compounding is the limit of what happens when the time you compound over becomes ever shorter. It’s not obvious without calculus, but it’s a well-defined function.