What is A = P(e)^(rt)?


Quick Answer

The formula A = P(e)^(rt) is a mathematical formula to calculate continuously compounded interest over a period of time. This formula is only used if interest is compounded continuously, rather than compounded a discrete number of times per year such as monthly.

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Full Answer

In the formula A = P(e)^(rt), the value "P" represents the principal, "r" represents the annual interest rate as a decimal, "t" represents the number of years and "A" represents the future value. The value "e" is a constant known as Napier's number, equal to approximately 2.7183. The formula is an example of exponential growth. Continuous interest is assumed to compound at infinitely small time intervals, so continuously compounded interest results in a higher future value than interest that is compounded at regular intervals, such as monthly.

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