ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Total = [Principal x (1 + Interest)] ^Number of years The return on investment is obtained by deducting the principal amount from the total returns obtained using the above formula.

Detailed explanation-2: -Continuously compounded interest is interest that is computed on the initial principal, as well as all interest other interest earned. The idea is that the principal will receive interest at all points in time, rather than in a discrete way at certain points in time.

Detailed explanation-3: -In contrast to discrete compounding, continuous compounding means that the returns are compounded continuously. The frequency of compounding is so large that it reaches infinity. These are also called log returns.

Detailed explanation-4: -Calculating Continuous Compounding Continuous compounding uses the following formula to calculate the principal-plus-interest total: Total = Principal x e^(Interest x Years) The letter “e” represents the exponential constant, which is approximately 2.71828.