The Accounting Review Vol. 42 No. 1 1967
Time to Double at Compound Interest.
Abstract
The article presents mathematical reasoning behind the formula known as the compound interest or exponential law of growth. This formula assumes that there is continuous or instantaneous growth. This type of accumulation is valid when rates of growth are applicable to biological problems or, in business, when the magnitudes of the investments allow to reasonably assume that the interest is earned practically every instant. But for many types of investment the continuous case is not applicable. The principal remains unchanged until the end of the period and then receives, in a lump sum, the total gain that corresponds to the given period. Mathematically we say that accumulation is discrete, not continuous. A different formula is used to determine the amount in those cases. That formula is equally applicable to the discrete case, but the error may be larger and is a function of the rate. That formula is no substitute for the conventional methods of financial mathematics. But it is so simple that it can be used as a fast indicator of growth perspectives.
- DOI
- 10.2308/tar-4485881
- Volume
- 42
- Issue
- 1
- Pages
- 132-134
- Language
- en
- Sources
- openalex crossref