[T50_Omaha8]

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ok makes sense.

now, and you might not know this, but why do i use it in finance so much? we use it for continuously compounding interest rates. for example $100 at 5% interest continuously compounded for 2 years is $100e^.05*2. so, why e?

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Because the definition of e...
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the limit of (1+1/n)^n as n approaches infinity

[/ QUOTE ] ...is the formula for compounding interest with the number times you compound limiting to infinity.

Say you compound interest 1 time over a period at rate r.

You get (1+r)^1 = 1+r

Say you compound interest 4 times over a period.

You get (1+r/4)^4

Say you compound monthly.

You get (1+r/12)^12.

Say you compound continuously.

You get lim(n to infinity) (1+r/n)^n = e^r

I forget the proof of the very last equality, but I imagine it's not hard to come by. It should be pretty easy to see where the definition of e comes into play though based on its similarity to the formula for compound interest.