Continuous Compounding on a HP12c

CFA Level I Quant
#1

Given a €1,000,000 investment for four years with a stated annual rate of 3% compounded continuously, the difference in its interest earnings compared with the same investment compounded daily is closest to:

Can anyone solve this question step by step for me in a HP12c please?

IDK how to do continuous compounding in that and I need to know!

Thanks.

#2

Continuous compounding = 1,000,000 * e0.03*4 or as a good approximation, use your TVM function with a frequency of 525,600.

ETA: forgot the 4…

#3

e ≈ 2.7182818 this information I need to know? or the test will give me the e?

the daily compounding I did this way:

PV = $1.000.000 CHS

PMT = 0

i = 3/365

N = 365*4 = 1460

than I got FV = $1.127.491,29

I dont know how to use e raised to x in the calculator...(IKR theres a button in the calculator for that but IDK how to use it)

also I don´t got how to use that: “or as a good approximation, use your TVM function with a frequency of 525,600.”

#4

If I do 2,7182818 raised to 0,03*4 its

2,7182818 raised to 0,12 = 1,12749650

now 1,12749650* 1.000.000 = $1.127.496,85

the difference is 6 euros, the thing is in the test I wouldnt know which value is e so I wouldnt be able to solve it…

Anyone can help me?

#5

Your math is correct. :+1: And I would bet money that there is an e button or function on your calculator.

525,600 = number of minutes in a year. :slightly_smiling_face:

#6

Yes there is an e button in HP12c, I have no idea how to use it through!

“525,600 = number of minutes in a year. :slightly_smiling_face:” - can you show how would you solve this question using that? I still didnt`t get it…

#7

1,000,000 * ( 1 +0.03/525600)(525600 *4) = 1,127,496.484 which is sooooooo close to the continuosly compounded rate. :+1:

[video:https://www.youtube.com/watch?v=hj7LRuusFqo]

#8

Hey, well basicly I tried this equation:

I got $1.127.312,855

I tried to change 525.600 to 1.000.000 and it worked through LOL

as IDK how to use e raised to x in the HP12c Im going with a million if theres any question similar to that!

Thanks.

#9

To get, say, e0.03:

  • Type in 0.03
  • Press “g”, then “1/x”; that’s “ex”
  • Marvel at the correct answer: 1.0305.
#10

Thanks a lot for the help that`s exactly what I needed to know!

I`m figuring out more and more things on how to use this calculator in each day!

#11

They let you bring in an approved calculator!!! It will be your only friend during the exam!!! :bulb:

#12

how do i type e in ba 2 plus ?

#13

Number exponent, then 2ND LN.