Hi, This is Koushik, Do anyone have any idea how do we calcaulate FV of a lump sum with Continous compounding in TI BA II calci?
I think I did it on the first mock exam CFA 30,000 for the inflation rate of 3% for 44 years. PV=30,000 I/Y=3% N=44 PMT = 0 FV = 110,143.57
Example Problem An amount of $2,340.00 is deposited in a bank paying an annual interest rate of 3.1%, compounded continuously. Find the balance after 3 years. Solution Use the continuous compound interest formula, A = Pe rt, with P = 2340, r = 3.1/100 = 0.031, t = 3. Recall that e stands for the Napier’s number (base of the natural logarithm) which is approximately 2.7183. However, one does not have to plug this value in the formula, as the calculator has a built-in key for e. Therefore,
to make things easier you can just increase the number of compounding periods and still use the same calulator inputs as say a semi annual payment. this will be a close approximation that will prevent you from having to remember a new formula example using cfaicomplex example above lets use 1000 periods in a year so: PV=2,340 I=3.1/1000 N=3*1000 FV ENTER = $2,569.056 by comparison Pe^rt = $2,340e^(0.031*3)=$2,568.0605 this is enough precision to answer any CFAI question
Type 0.031 into the calculator and then hit [2nd] [e^x] above the LN key. This gives you the continuously compounded rate plus 1. So subtract 1 and use that rate and solve as normal. I get $2,568.06
Thanks guys, it’s working