A New Discounting Model for Teaching Finance
Sonoma State University
March 27, 2014
The mathematics of continuous compounding is not limited to the valuation of continuously compounded financial instruments and flow annuities, but rather it is a versatile and robust model that may be used for valuation of all financial contracts normally encountered. It consists of a simple, consistent, coherent and conceptually appealing set of equations that apply without modification to the complete range of applications. The discrete stepwise model of compounding, by contrast, is a redundant innovation that is more complicated than the generalized model and limited in scope.
Number of Pages in PDF File: 12
Keywords: valuation, continuous compounding, time value of money, discounted cash flow, exponential growth
Date posted: March 29, 2014