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"Imagine a graph in which the x-axis depicts number of interest compounds per year and the y-axis depicts dollars owed. Does this function have a limit?"

Do the units on this graph make sense $ x compounds / year ?

Does the derivation of this graph tell me anything?

I'm very confused as to what I'm supposed to understand from this. No further explanation was provided with this question. Thanks for the help!

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  • It doesn't make any sense. The number of compounding periods per year is not a function of the amount owed. – saulspatz Jul 19 '20 at 14:43
  • @saulspatz you have the axes switched. The amount of interest owed at the end of a certain time is a function of the principal, the interest rate, and the number of comppunding periods. If we hold the first two constant, the interest owed is a function of the number of periods, and does have an interesting limit. – MJD Jul 19 '20 at 15:02
  • (That said, this question is very badly posed.) – MJD Jul 19 '20 at 15:03
  • @MJD I interpreted "the amount of money owed" as the principal, so the question made no sense at all to me. Your interpretation is surely correct. – saulspatz Jul 19 '20 at 15:08
  • Since there is no reply from the OP I have no other choice than to vote to close. – callculus42 Jul 19 '20 at 17:55
  • @callculus Of course you had a choice. You could have chosen not to vote to close. – MJD Jul 21 '20 at 04:42

1 Answers1

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Try pushing ahead and making the graph. Pick some arbitrary principal (say $\$1,000.00$) and some arbitrary interest rate (say $5\%$).

Have the $x$-axis be the number of compounding periods. $x=1$ means that the interest is paid once, at the end of the year; $x=2$ means that half the interest is paid after six months, the other half at the end. $x=365$ means the interest is paid daily, $x=730$ that it is paid twice daily.

On the $y$-axis, plot the total amount of interest paid, or the total deposit including interest, or something of that sort. See how it comes out.

Then do it again, with a different principal and interest rate, and see what you learn.

MJD
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