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    2E19Brendan
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    Jacob Bernoulli discovered the mathematical constant e while investigating what would happen if $1 was invested at 100% annual interest and compounded continuously over 1 year. As the number of compounding intervals (k) within the year increased towards infinity, the value approached approximately 2.71828, which is known as the mathematical constant e. Compounding interest continuously results in a far greater final amount than compounding it annually, even at a high interest rate, due to the power of compounding over many short intervals.

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    Jacob Bernoulli discovered the mathematical constant e while investigating what would happen if $1 was invested at 100% annual interest and compounded continuously over 1 year. As the number of compounding intervals (k) within the year increased towards infinity, the value approached approximately 2.71828, which is known as the mathematical constant e. Compounding interest continuously results in a far greater final amount than compounding it annually, even at a high interest rate, due to the power of compounding over many short intervals.

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    MathematicalConstant e

    Uploaded by

    2E19Brendan
    Jacob Bernoulli discovered the mathematical constant e while investigating what would happen if $1 was invested at 100% annual interest and compounded continuously over 1 year. As the number of compounding intervals (k) within the year increased towards infinity, the value approached approximately 2.71828, which is known as the mathematical constant e. Compounding interest continuously results in a far greater final amount than compounding it annually, even at a high interest rate, due to the power of compounding over many short intervals.

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    Real-Life Discovery of Mathematical Constant e by Bernoulli

    The mathematician Jacob Bernoulli (1654-1705) tried to find out what happened if interest is
    compounded continuously for P = $1, n = 1 year and R = 100 (i.e., 100% annual interest). So
    the formula simplifies to:

    where A is the amount at the end of one year and k is the number of compounding intervals
    within the year.

    1. Use a calculator to fill in the following table, leaving your answers to 5 decimal places
    where applicable.

    k k

    1 =2 1000

    2 = 10 000

    3 = 100 000

    10 = 1 000 000

    100 10 000 000

    2. What do you notice about the value of as k becomes very big? What is its
    final value correct to 5 decimal places?

    This is called the mathematical constant e.

    3. Is the final amount A very big compared to P = $1 at 100% annual interest compounded
    continuously?

    4. Which one of the following has a greater effect: interest compounded continuously or a
    higher interest rate? Why?

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