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Simple, Compound And Continuous Interest Discounts. A Comparative Study

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  • José Rigoberto Parada-Daza

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.

Suggested Citation

  • José Rigoberto Parada-Daza, 2013. "Simple, Compound And Continuous Interest Discounts. A Comparative Study," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 3(1), pages 1-3.
    • Handle: RePEc:spt:apfiba:v:3:y:2013:i:1:f:3_1_3
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