How to Calculate Continuous Compounding for Present Value

Calculate Continuous Compounding for PV - Definition, Formula, Example

Definition:

Continuous compounding used to find the present value of a current amount when interest is compounded continuously.

Formula:

PV = FV x e-nr
Where,

PV = Present Value FV = Future Value r = Annual Rate of Interest n = Number of Years Invested e = 2.718281828

Example:

Ravi's loan future value is Rs.15000 in the 5% interest rate for 2 years, what is the continuous compounding present value?

Given,

Future Value (P) = Rs.15000 Annual Rate of Interest (r) = 5% = 0.05 Number of Years Invested (t) = 2 years

Solution :

Present Value (PV) = FV x e-nr = 15000 x 2.718281828-0.05x2 = 15000 x 2.718281828-0.1 = 15000 x 0.904837418 = 13572.56 Rs


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