what continuous compounding can tell you
in theory continuously compounded interest means that an account balance is constantly earning interest as well as refeeding that interest back into the balance so that it too earns interest continuous compounding calculates interest under the assumption that interest will be compounding over an infinite number of periods although continuous compounding is an essential concept it s not possible in the real world to have an infinite number of periods for interest to be calculated and paid as a result interest is typically compounded based on a fixed term such as monthly quarterly or annually even with very large investment amounts the difference in the total interest earned through continuous compounding is not very high when compared to traditional compounding periods example of how to use continuous compoundingas an example assume a 10 000 investment earns 15 interest over the next year the following examples show the ending value of the investment when the interest is compounded annually semiannually quarterly monthly daily and continuously with daily compounding the total interest earned is 1 617 98 while with continuous compounding the total interest earned is 1 618 34 a marginal difference 