2.4 Vocabulary for Continuous Growth and Decay
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Compound interest |
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Interest computed on the accumulated interest as well as on the original principal. Compare to simple interest. |
Continuous Growth (or decay)
Growing (or decaying) without interruption.
Effective Annual Yield
The number of compounding periods per year will affect the total interest earned. For example, if an investment compounds daily, it will earn more than the same investment with the same nominal (stated) rate compounded monthly. The effective annual yield is equivalent to the annual interest rate needed to obtain the same amount of interest.
Exponential function
A function whose output changes by a percentage amount for each unit change in the input. The rate of change, therefore is NOT constant like it is with a linear function. Exponential functions can either exhibit growth or decay.
Natural Exponential Function
An exponential function having the number e as the base.
Interest paid only on the original principal, not
on the interest accrued.