Exponential and Logarithmic Functions

STEM October Math Circle:

Ahmed Saif El-Deen - Mohamed El-Sherbieny

Contents

0 Introduction 2

1 Definition and Graphs of Exponential Functions 2

Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Graphs of Exponential Functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Transformations of Exponential Graphs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

2 Definition and Graphs of Logarithmic Functions 6

Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Graphs of Logarithmic Functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Transformations of Logarithimic Graphs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Logarithmic properties and Identities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

3 Solving Logarithmic and Exponential Equations 11

Exponentials with Common Bases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Logarithms with Common Bases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Solving Logarithmic Equations with Exponentials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Solving Exponential Equations with Logarithms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Exponentials involving one exponential expression . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Exponentials involving two exponential expression . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

4 Interest 15
Simple Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Compound Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Compound Continuous Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

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§0 Introduction
In this session, we study a new class of functions called Exponential Functions. In previous courses, we studied
the definition of raising a real power x to another real power, let it be a. And with that, we studied the type of
functions called: polynomial functions, written in the form of:

f (x) = xa .

For the above functions, the input is raised to a constant, real power a. This time, we reverse the condition; the
input is the one being raised as a power. That being said, the form of the exponential functions cas easily be
determined to be:
f (x) = ax .
Taking the inverse of this functions yields another type of function called the logarithmic functions, written as:

If f (x) = ax , then, f −1 (x) = loga x.

In this session, we will dig deeper into the definitions and properties of these

§1 Definition and Graphs of Exponential Functions

§1.1 Definition
Let’s begin with simple definition.

Definition 1.1
Let f (x) be an exponential function, then:
f (x) = ax ,
where a is called the base, and x is the input of the operation. The conditions of a is that a > 0, and a ̸= 1

We assume that a is a non-negative number, as negative numbers would alternate between positive and negative
values for consecutive even and odd inputs. For example, let f (x) = (−2)x , which is not a valid function, but let’s
just assume. Plugging in values, the output becomes:

(1, −2), (2, 4), (3, −8), (4, 16), (5, −32), · · · , (n, [−2]n )

Trying to graph this function, will yield an absolute mess, with a graph looking something like this:

5 y

x
−3 −2 −1 1 2 3

−5

which can not be drawn to a function. We also assume that a ̸= 1 because the function f (x) is just a constant
function. Here are some examples of valid exponential functions:

f (x) = 2x g(x) = 3x g(x) = 99x .

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Example 1.1
Let f (x) = 3x , determine whether it’s a function or not. If function, evaluate the following:

2 √
 
(a) f (5) (b) f − (c) f (π) (d) f ( 2)
3

Solution: With 3 > 0 and 3 ̸= 1, then f (x) is a valid exponential function. We could then use a calculator to
obtain the values of f .

(a) f (5) = 35 = 243

2
 
(b) f − = 3−2/3 ≈ 0.4807
3
(c) f (π) = 3π ≈ 31.544
√ √
(d) f ( 2) = 3 2 ≈ 4.7288

§1.2 Graphs of Exponential Functions

To determine the graph of exponential functions,

x we can easily plot points. Let’s try two examples and compare
between them. Let f (x) = 2x , and h(x) = 12 . The two are quite opposite to each other, with one being greater
than 1 (a > 1), and the other being less than 1 but still greater than 0 (0 < a < 1).

y
1 x y = 2x
f (x) = 2x g(x) =


x
x
2
y = 12
-3 1
8 8 8
-2 1
4 4
-1 1
2 2
0 1 1 4
1 2 1
2
2
2 4 1
4
1
3 8 1 x
8
−3 −2 −1 1 2 3
From the above graph, we can determine various properties of exponential graphs.
• Every exponential graph passes by the point (0, 1), because a0 is always 1, whenever a is.
• Every exponential graph passes by the point (1, a).

• There are two types of exponential graphs:

– If 0 < a < 1, the graph decreases rapidly, because a rational base would keep decreasing, as shown in
the blue graph.
– If a > 1, the function increases rapidly, as illustrated in the red graph.
• The x-axis represents a horizontal asymptote for the function f (x). That’s because there isn’t a real exponent
that can yield a 0 result if the base itself isn’t 0, which is a requirement of exponential functions.
That being said, we can now define the exponential functions grpahs:

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Definition 1.2
The exponential function
f (x) = ax a > 0, a ̸= 0
has domain R and range (0, ∞). The line y = 0 (x-axis) is a horizontal asymptote of f . The graph of f has
one of the following shapes.

y y

(0,1) (0,1)

x x

(a) f (x) = ax for a > 1 (b) f (x) = ax for 0 < a < 1

Let’s take an example now:

Example 1.2
Graph the following exponential function:
 x
1
f (x) = .
4

Then identify

1. The domain and range of f (x)

2. The horizontal asymptote
3. The behavior of f (x) as x → ∞ and x → −∞

Solution: Let’s first identify the key points of the graph. From the properties of the exponential functions, we
have:
1
 
(0, 1) , 1,
4
Then, we evaluate f (x) = 3x at several integer values of x:

1 1 1
     
(−3, 64) , (−2, 16) , (−1, 4) , (0, 1) , 1, , 2, , 3,
4 16 64
Now, we just need to plot the point and connect them out, giving us the following graph:

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y
64 y = (1/4)x

16

4 x
1
−3 −2 −1 1 2 3

It’s then easy to identify the key features of the function. For the domain, it’s trivial to determine that x ∈ R .
The horizontal asymptote is at y = 0 . The behavior of the function as x → ∞ is that y → 0 , and as x → −∞,
y→∞.

§1.3 Transformations of Exponential Graphs

As any other kind of function, the same rules of transformations work here. We will skip the explanation part and
heat directly into the examples.

Example 1.3
Consider the function
f (x) = 2x−1 + 3,
1. Sketch the function
2. Determine the Domain, Range, and horizontal asymptote of the function
3. Determine the end behavior of the function

Looking at the function, it’s trivial to determine that the function is derived from the base function g(x) = 2x
through the following transformations:
• Horizontal Shift right by 1 unit
• Vertical Shift up by 3 units

Then, to plot the graph, we just plot the graph of the base function f (x) = 2x , and then apply the basic transfor-
mations: With that, the domain of the function is x ∈ R , the range is y ∈ (3, ∞) , and the horizontal asymptote

y
y
9
8
8
y = 2x 7
6
5
4 4
2 3
1 x x
−2 −1 1 2 3 −2 −1 1 2 3
(a) y = 2x (b) y = 2(x−1) + 3

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is at y = 3 . The end behavior of the function is that y → ∞ as x → ∞, and y → 3 as x → −∞.

Now, it’s your turn to try graph one your own.

Exercise 1.1
Graph the following function:
 2x−2
2
f (x) = − −1
3

§2 Definition and Graphs of Logarithmic Functions

§2.1 Definition
Let’s begin with simple definition.

Definition 2.1}
Let f (x) be an exponential function, then:
f (x) = ax ,
and after taking the inverse of f (x), let’s say its inverse is g(x), we end with the opposite function:

g(x) = loga x

where a is called the base, and x is the input of the operation. The conditions of a is that a > 0, a ̸= 1, and
x>0

Since the base of the exponential function and the logarithmic one is the same, then we’ll also assume that a is a
positive number. For the a = 0 case, we will go back to the exponential form to elaborate.
For example, let x = (a)y , setting a = 0, then x = 0y and we know that 0 raised to any power also equals zero, so
it all comes to: 0y = 0, which makes it undefined since y can be any value. Now for the x ≥ 0, we can also see from
the exponential form:ay = x that there is no such value for the exponent that can set the x to zero.

Example 2.1
Let f (x) = log2 x, determine whether it’s a function or not. If function, evaluate the following:

2 √
 
(a) f (4) (b) f − (c) f (π) (d) f ( 2)
3

Solution: With 2 > 0, and 2 ̸= 1, then f (x) is a valid exponential function. We could then use a calculator to
obtain the values of f .

(a) f (5) = log2 4 = 2

2 2
   
(b) f − = log2 −
3 3
since the "x" here is a negative number, then the function is undefined there
(c) f (π) = log2 π ≈ 1.65
√ √
(d) f ( 2) = log2 2 = 0.5

§2.2 Graphs of Logarithmic Functions

We know that the logarithmic is the inverse of the exponential, so, we can just plot the exponential form of a
function and get the reflection of the graph on the x = y line, or we can easily plot points. For example, Let

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f (x) = 2x , and g(x) = log2 x.

y
x f (x) = 2 x
g(x) = log2 x f5(x) = 2x
g(x) = log2 x
-1 0.5 undefined 4y = x
0 1 undefined 3
1 2 0
2
2 4 1
3 8 1.58 1
x
4 16 2
−1 1 2 3 4 5
5 32 2.32
−1

From the above graph, we can determine various properties of logarithmic graphs.
• While every exponential graph passes by the point (0, 1), every every exponential graph passes by the point
(1, 0).

• There are two types of logarithmic graphs:

– If 0 < a < 1, the graph decreases rapidly until it reaches a limit where it’s decrease becomes more and
more limited.
– If a > 1, the graph increases rapidly until it reaches a limit where it’s increase becomes more and more
limited, as shown in the blue graph.
• The y-axis represents a horizontal asymptote for the function g(x). That’s because there is no possible way
to make the exponential function equal to zero.
That being said, we can now define the logarithmic functions grpahs:

Definition 2.2
The logarithmic function
f (x) = loga x a > 0, a ̸= 0, andx > 0
has domain (0, ∞) and range R. The line x = 0 (y-axis) is a vertical asymptote of f . The graph of f has
one of the following shapes.

(1,0)
x

(1,0)
x

(a) f (x) = loga x for a > 1 (b) f (x) = loga x for 0 < a < 1

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Some sample:

Example 2.2
Graph the following logarithmic function:
f (x) = log5 x.
Then identify
1. The domain and range of f (x)

2. The vertical asymptote

3. The behavior of f (x) as x → ∞ and x → −∞

Solution: Let’s first identify the key points of the graph. From the properties of the logarithmic functions, we
have:
(1, 0) , (5, 1)
Then, we evaluate f (x) = log5 x at several integer values of x:

y
y = log5 x

1
0.86
0.68
0.43
x
1 2 3 4 5

−1

It’s then easy to identify the key features of the function. For the domain, it’s trivial to determine that x ∈ (0, ∞)
since logarithms are only defined for positive x. The vertical asymptote is at x = 0 because log5 x → −∞ as
x → 0+ . The behavior of the function is as follows: - As x → ∞, y → ∞ since logarithms grow indefinitely, but at
a slow rate. - As x → 0+ , y → −∞ because the logarithm sharply decreases as x approaches zero from the right.

§2.3 Transformations of Logarithmic Graphs

As any other kind of function, the same rules of transformations work here. Here are some examples

Example 2.3
Consider the function
f (x) = loga (x − 1) − 2,
1. Sketch the function

2. Determine the Domain, Range, and vertical asymptote of the function

3. Determine the end behavior of the function

Looking at the function, it’s trivial to determine that the function is derived from the base function h(x) = loga (x)
through the following transformations:
• Horizontal Shift right by 1 unit

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• Vertical Shift down by 2 units

Then, to plot the graph, we just plot the graph of the base function h(x) = loga (x), and then apply the basic
transformations:

y y

2 y = log2 x 2
1
1 x
x
2 3 4 5 6
1 2 3 4 5 −1
−1 −2

(a) y = log2 x (b) y = log2 (x − 1) − 2

With that, the domain of the function is x ∈ (1, ∞) , the range is y ∈ (−∞, ∞) , and the vertical asymptote is at
x = 1 . The end behavior of the function is that y → ∞ as x → ∞, and y → −∞ as x → 1+ .
Exercises:

Exercise 2.1
Graph the following function:
f (x) = log3 (x) + 2

Exercise 2.2
Graph the following function:
f (x) = − (log2 (x + 1) − 3)

§2.4 Logarithmic properties and Identities

Exponential equations can be manipulated in various ways. For example, the equation:

2x = 3

can be rewritten as: x 1

1
2 = 3x , or 2 y = 3 y .
Since logarithmic functions are the inverse of exponential functions, we can deduce many of their properties using
these principles.
By definition, logarithms express exponentiation:

logb (A) = x ⇒ bx = A

logb (B) = y ⇒ by = B
Adding these two logarithmic expressions:

logb (A) + logb (B) = x + y

Now, exponentiating both sides:

bx+y = bx · by = A · B
Taking the logarithm base b on both sides:
logb (A · B) = x + y

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Thus, we obtain the well-known logarithmic property:

logb (A) + logb (B) = logb (A · B)

Similarly, we can conclude the rest of the identities using the same approach.

Problem Solving Skills 2.1

Basic Logarithm Rules:

logb (1) = 0 (Log of 1 is always 0)

logb (b) = 1 (Log of the base is always 1)

Addition and Subtraction Properties:

logb (A) + logb (B) = logb (A · B) (Product Rule)

 
A
logb (A) − logb (B) = logb (Quotient Rule)
B

Exponent and Root Rules:

logb (An ) = n logb (A) (Power Rule)

√  1
logb A = logb (A) (Root Rule)
n

n
Change of Base Formula:

logc (A)
logb (A) = , for any base c > 0, c ̸= 1
logc (b)

Inverse Properties:

blogb (A) = A (Exponential Inverse)

logb (b ) = x
x
(Logarithmic Inverse)

Special Logarithms:

loge (A) = ln(A) (Natural Log)

log10 (A) = log(A) (Common Log)

Now, let’s apply these identities on some questions.

Example 2.4
Evaluate:
3 log2 (4) + 4 log2 (8)

Well, we can solve each of the terms individually and then add them:

3 log2 (22 ) + 4 log2 (23 )

Using the identities above:

3 × 2 log2 (2) + 4 × 3 log2 (2)
Since both the argument and the base are equal, then the value of the log is 1:

3 × 2(1) + 4 × 3(1)

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6 + 12 = 18

Exercise 2.3
Evaluate:
16
 
log4
9

§3 Solving Logarithmic and Exponential Equations

§3.1 Solving Exponentials with Common Bases
Exponential with common bases is a very familiar form of exponential equations that you’re going to run into a lot.
These equations can be solved by using the fact that exponential equations are one-to-one, meaning that if:

f (x1 ) = f (x2 ), then : x1 = x2 .

Applying this rule on exponential equations yields that:

ax = ay =⇒ x = y.

We use this property in the next example equation.

Example 3.1
Solve the following exponential equations:
1
(a) 22x−1 = 43x+1 (b) 25x+3 =
125

Solution: (a): By first looking at the equation, It can easily be determined that the right hand side of the equation
can be rewritten into an expression of base 2:

22x−1 = [22 ]3x+1 =⇒ 22x−1 = 26x+2

Since 2 = 2, then:
3
2x − 1 = 6x + 2 =⇒ 4x = −3 =⇒ x = −
4
(b): Rewriting the right hand side as an expression with base 25:

52x+6 = 5−2

And then:
2x + 6 = −2 =⇒ x = −4

§3.2 Solving Logarithms with Common Bases

Similar to how exponentials are one-to-one functions, logarithms, being their inverse, are also one-to-one function.
Hence, the same rule applies:
f (x1 ) = f (x2 ) =⇒ x1 = x2
And then:
If: loga x1 = loga x2 , then: x1 = x2 .
Let’s now look at some examples.

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Example 3.2
Solve the following logarithmic equations:

(a) 3 log2 x = − log2 27 (b) log3 x − 2 log3 5 = log3 (x + 1) − 2 log3 10

Solution: (a): To apply the equation we just derived, we need them to have equal bases. While they have a
common base of 3, they are not fully simplified. Rewriting the equation:
1
3 log3 x = − log3 27 =⇒ log3 x3 = log3
27
And hence:
1 1
x3 = =⇒ x =
27 3
(b) Using the logarithmic identities mentioned above, the equation simplifies to:
x x+1
log3 =
52 102
And then:
1
25(x + 1) = 100x =⇒ 25x + 25 = 100x =⇒ x =
3

Example 3.3
Solve the following logarithmic equation:

log9 (7x − 5) = log3 (x + 1)

Using the change-of-a-base formula, the right hand side can be rewrriten into an expression of base 3:

log3 (7x − 5) log3 (7x − 5) 1

log9 (7x − 5) = = = log3 (7x − 5) 2
log3 9 2

Then,
1
log3 (7x − 5) 2 = log3 (x + 1)
And Hence:
1
(7x − 5) 2 = (x + 1) =⇒ 7x − 5 = (x + 1)2 =⇒ 7x − 5 = x2 + 2x + 1
Then:
x2 − 5x − 6 = 0 =⇒ x = 3 and x = 2
Now, try this example yourself:

Exercise 3.1
Solve the following logarithmic equations:

(a) 3 (log7 x − log7 2) = 2 log7 4 (b) log6 (x3 + 1) − log6 (x2 − 1) = log6 (x2 − x + 1) − log6 (x − 1)

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§3.3 Solving Logarithmic Equations with Exponentials

The thinking process for these kind of problems is so simple. What you are going to do is to basically use the fact
that exponentials are inverses of logarithms to cancel them out. That being said, the following three steps are what
you are going to follow when solving any logarithmic equation:

Problem Solving Skills 3.1

For any logarithmic equation, follow the following steps to solve for the value of x:

1. Get all the logarithmic expressions on one side and the constant on the other side
2. Use the change-of-base formula, if needed, to match the bases of the different logarithmic expressions
3. Combine the logs using the known identities
4. Use an exponential (Write in exponential form)

5. Check your solutions

Let’s now head directly into the examples.

Example 3.4
Solve the following logarithmic equation:

3 log2 (x − 1) + log2 4 = 5

Since the logarithmic expressions and the constant are on separate sides of the equation, we can head directly into
the second step, which is to combine (simplify):

3 log2 (x − 1) + log2 4 = log(x − 1)3 + log2 4 = log2 4(x − 1)3 = 5

Note that this logarithmic expression basically means that if 2 is raised to a power of 5, it would yield a result of
4(x − 1)3 . Hence, the expression can be rewritten in the form of an exponential:

25 = 4(x − 1)3 =⇒ x − 1 = 2 =⇒ x = 3 .

Checking our solution:

3 log2 (3 − 1) + log2 4 = 3 · 1 + 2 = 5
And hence, x = 3 is a valid solution.

Example 3.5
Solve the following logarithmic equation:

log16 x + log4 x + log2 x = 7

Using the change-of-base formula:

log2 x log2 x
+ + log2 x = 7
log2 16 log2 4
Then:
1 1 7
log2 (x 4 · x 2 · x = 7) =⇒ log2 x 4 = 7
This means that:
7
27 = x 4 =⇒ x = 24

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Example 3.6
Solve the following logarithmic equation:

log2 x = 3 − log6 x

The first thing to do is to isolate the constant from the other logarithmic expressions:

log2 x + log6 x = 3

Notice that in this example, we don’t have common bases, nor can we change the base 6 to be a base of 2, for
example. The solution here is to change their bases to a completely different base, not 2 nor 6, and usually e and
10. In this example, we will change them to a base of e though it is completely fine to use 10, 7, 9, or whatever you
want.
ln x ln x ln x · ln 12 3 ln 2 · ln 6
+ = 3 =⇒ =⇒ ln x =
ln 2 ln 6 ln 2 · ln 6 ln 12
Now, we have isolated the logarithmic expression from the constant term (though it appears to be a complex
expression, but it’s still a constant.) We can now easily use exponentials:
3 ln 2·ln 6
e ln 12 = x ≈ 0.919

Now, try this yourself:

Exercise 3.2
Solve the following logarithmic equations:
2
(log4 x) + 3 log8 x = log2 16

§3.4 Solving Exponential Equations with Logarithms

§3.4.1 Exponentials involving one exponential expression
Let’s divide the exponential equations into two types, when there’s only one exponential expression, and when there
are two expressions on each side of the equation. For the first type, there are four major ways of solving them,
which will be explained next.

Example 3.7
Let
5
f (x) = 3x+1 = ,
8
then, find the exact value of x.

The first way to solve this is to rewrite the expression using the logarithmic definition. In this case, the 3 is
raised to an unknown variable x + 1 to give a result of 58 at the end. With the logarithmic definition, it would be
something like this: "What could we raise 3 to to yield a result of 58 ?." This could be rewritten as:

5 5
log3 = x + 1 =⇒ x = log3 − 1
8 8

The second way is to use the fact that Logarithms are inverses of exponentials. Using this definition, you could
apply the logarithm of both sides of the equation to cancel the power state. The second way is to apply a common
logarithm log10 :
5 5
log10 3x+1 = log10 =⇒ (x + 1) log10 3 = log10
8 8

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And hence,
log10 58 log10 85
x+1= =⇒ x = −1
log10 3 log10 3
The third way is use the natural log ln instead:

5 ln 85
ln 3x+1 = ln =⇒ x = −1 .
8 ln 3

The fourth way is to apply a logarithm that matches the base of the exponential. In this case, we would apply a
logarithm of base 3 log3 to get rid of the exponential expression:

5 5 5
log3 3x+5 = log3 =⇒ x + 1 = log3 =⇒ x = log3 − 1
8 8 8

Notice that both the second and third ways’ results can be simplified to yield the fourth result, which makes the
fourth way the most convinent way to solve exponential equations with only one exponential expression.

Now, try this on your own using one of the four methods (We would prefer you use the fourth one):

Exercise 3.2
Solve the following exponential equations:
2
(a) 7 · 66x+1 = 2.1 (b) 10x +5x−6
=π

§3.4.1 Exponentials involving two exponential expression

For this type, the same methods could be used, except for the first one. Let’s take an example and solve it using
all three methods.

Example 3.8
Solve for x:
ex−5 = π x

We can start by applying common log log10 to both sides:

log ex−5 = log π x =⇒ (x − 5) log e = x log π

Hence,
x log e − x log π = 5 log e =⇒ x(log e − log π) = 5 log e
Then:
5 log e
x=
log e − log π

§4 Interest
Returning back to the exponents, one of its most famous applications is the interests.
When you deposit some money in the bank, you are immediately asked to consider the "interest" choices.

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Exponential and Logarithmic Functions STEM October Math Circle (March 11th, 2025)

§4.1 Simple Interest

Definition 4.1
Simple interest is the extra money you pay or earn on a loan or investment over time. It is calculated only
on the original amount (called the principal), not on any accumulated interest.

Interest = P × r × t

where:
• P is the principal (starting amount)
• r is the interest rate per year (as a decimal)

• t is the time in years

Example 4.1
If you invest $1000 at an interest rate of 5% per year for 3 years, the interest will be:

1000 × 0.05 × 3 = 150

So, after 3 years, you earn 150$ , making the total amount 1150$ .

§4.2 Compound Interest

Definition 4.2
Compound interest means earning interest not just on the original amount (principal) but also on the interest
that has already been added. This makes money grow faster over time.
 r nt
A=P 1+
n
where:
• A is the total amount after interest.
• P is the starting amount (principal).

• r is the interest rate per year (as a decimal).

• n is how many times interest is added per year (e.g., monthly = 12, yearly = 1).
• t is the number of years.

Example 4.2
If you invest 1000 at 5% per year, compounded annually for 3 years, the total amount will be:

3
A = 1000 × (1 + 0.05) = 1000 × 1.157625 = 1157.63

So after 3 years, your total is 1157.63$ , meaning you earned 157.63$ in interest.

Exercise 4.1
If you invest 5000 for 3 years, the total amount will be 8000, what will be the annual interest rate

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Exponential and Logarithmic Functions STEM October Math Circle (March 11th, 2025)

§4.3 Compound Continuous Interest

Definition 4.3
Continuous compounding means that interest is added at every tiny moment, not just at fixed intervals like
yearly or monthly. This allows money to grow at the fastest possible rate.

so, we can conclude that the n approaches infinity.

Thus, rearranging the compound interest formula, we get:

rt
r  nr

A=P 1+
n
and as we said, n approaches infinty, giving us the base to a really famous definition:
x
1

when x approaches infinity 1 + =e
x

Thus:
A = P ert
where:

• A is the total amount after interest.

• P is the starting amount (principal).
• r is the interest rate per year (as a decimal).
• t is the time in years.

• e is a mathematical constant (approximately 2.718), which models continuous growth.

Example 4.3
If you invest $1000 at an interest rate of 5% per year for 3 years, the total amount will be:

A = 1000 × e(0.05×3)
A = 1000 × e0.15 ≈ 1000 × 1.1618 = 1161.83
So after 3 years, your total is 1161.83$ , meaning you earned 161.83$ in interest. ■

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