Derivatives market solutions
Continuous compounding rate of return is that rate when the interest amount is compounded annually. It is used to find out the future value of the present value.
In other words, when the interest amount is added in principle amount continuously, so that interest is charged again and again, that rate is called continuous compounding.
It is calculated as follows:
And to calculate the future value we use the following formula:
Where:
a Continuously compounded rate of return:
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