Simple, Compound And Continuous Interest Discounts. A Comparative Study

José Daza

Journal of Applied Finance & Banking, 2013, vol. 3, issue 1, 3

Abstract: This article makes an analytical comparison between simple, compound and continuous interest discount factors. It studies the equivalency relations between the three discount factors. An analysis is performed for a limited time period and of normal economy interest rates. It makes use of the Taylor and Maclaurin series to analytically compare the three factors, then performs a numerical analysis that includes econometric and statistical verification whose results are consistent with those stipulated within the mathematical argument. The central observation is that, regarding interest rates within a normal economy and within a maximum period of three years, the three factors are statistically similar and therefore very close. Some implications are obtained from the analyzed results.

Date: 2013
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