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Financial Mathematics - Calculation of Interest & Annuities
Define simple interest in banking context.
Interest calculated as fixed percentage of original principal only, not reinvested.
What is compound interest?
Interest calculated on principal plus accumulated interest; reinvested each period.
Formula for compound interest with m compoundings per year?
A = P(1 + r/100m)^(mn); rate divided by periods, exponent multiplied by periods.
What is continuous compounding formula?
A = P·e^(rt) where e ≈ 2.71828; used in derivatives and Black-Scholes pricing.
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