This section introduces a special number with many important properties. The first place we’ll see it is in the study of compound interest when the frequency of compounding is taken to be very large.
1. Review the compound interest examples from section 4.1 of the text – especially the idea of compounding more than once per year. Note that with a fixed nominal annual interest rate, if we compound more frequently the interest given each time is less but it is given proportionately more often, and in fact more frequent compounding actually yields a bigger result.
2. Use the Reading Guide to guide your reading of section 4.2 of the text.
3. Read the following Summary Notes and Discussion, and make sure that you have absorbed the main points by answering the questions.