Question: Continuous compounding is an important theoretical concept in Finance. Let i be the annual nominal interest rate. (a) State a formula for the future value

Continuous compounding is an important theoretical concept in Finance. Let i be the annual nominal interest rate.

(a) State a formula for the future value FV of an investment with present value PV which is compounded with compounding frequency m for n years.

(b) State a formula for the future value FV of an investment with present value PV which is compounded with continuous compounding for n years.

(c) Show that the formula in (a) approaches the formula in (b) as the compounding frequency m approaches infinity.

(d) Explain the significance of continuous compounding.

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