Finance Formulas / July 19, 2018 / Aniyah Booth
Instead of calculating interest on a finite number of periods, such as yearly or monthly, continuous compounding calculates interest assuming constant compounding over an infinite number of periods. Even with very large investment amounts, the difference in the total interest earned through continuous compounding is not very high when compared to traditional compounding periods.
The dividend growth rate is necessary for using the dividend discount model, which is a security pricing model that assumes a stock's price is determined by the estimated future dividends, discounted by the excess of internal growth over the company's estimated dividend growth rate. A history of strong dividend growth could mean future dividend growth is likely, which can signal long-term profitability for a given company.
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