# Different definitions of e (Part 10): Connecting the two definitions

In this series of posts, I consider how two different definitions of the number $e$ are related to each other. The number $e$ is usually introduced at two different places in the mathematics curriculum:

1. Algebra II/Precalculus: If $P$ dollars are invested at interest rate $r$ for $t$ years with continuous compound interest, then the amount of money after $t$ years is $A = Pe^{rt}$.
2. Calculus: The number $e$ is defined to be the number so that the area under the curve $y = 1/x$ from $x = 1$ to $x = e$ is equal to $1$, so that

$\displaystyle \int_1^e \frac{dx}{x} = 1$.

These two definitions appear to be very, very different. One deals with making money. The other deals with the area under a hyperbola. Amazingly, these two definitions are related to each other. In this series of posts, I’ll discuss the connection between the two.

In yesterday’s post, I proved the following theorem, thus completing a long train of argument that began with the second definition of $e$ and ending with a critical step in the derivation of the continuous compound interest formula. Today, I present an alternate proof of the theorem using L’Hopital’s rule.

Theorem. $\displaystyle \lim_{n \to \infty} P \left( 1 + \frac{r}{n} \right)^{nt} = P e^{rt}$.

Proof #2. Let’s write the left-hand side as

$L = \displaystyle \lim_{n \to \infty} P \left( 1 + \frac{r}{n} \right)^{nt}$.

Let’s take the natural logarithm of both sides:

$\ln L = \displaystyle \ln \left[ \lim_{n \to \infty} P \left( 1 + \frac{r}{n} \right)^{nt} \right]$

Since $g(x) = \ln x$ is continuous, we can interchange the function and the limit on the right-hand side:

$\ln L = \displaystyle \lim_{n \to \infty} \ln \left[ P \left( 1 + \frac{r}{n} \right)^{nt} \right]$

$\ln L = \displaystyle \lim_{n \to \infty} \left[ \ln P + \ln \left( 1 + \frac{r}{n} \right)^{nt} \right]$

$\ln L = \displaystyle \lim_{n \to \infty} \left[ \ln P + nt \ln \left( 1 + \frac{r}{n} \right)\right]$

$\ln L = \ln P + \displaystyle \lim_{n \to \infty} \frac{t \displaystyle \ln \left(1 + \frac{r}{n} \right)}{1/n}$

$\ln L = \ln P + \displaystyle t \lim_{n \to \infty} \frac{\displaystyle \ln \left(1 + \frac{r}{n} \right)}{1/n}$

The limit on the right-hand side follows the indeterminate form $0/0$, as so we may apply L’Hopital’s Rule. Taking the derivative of both the numerator and denominator with respect to $n$, we find

$\ln L = \ln P + \displaystyle t \lim_{n \to \infty} \frac{\displaystyle \frac{1}{1 + \frac{r}{n}} \cdot \frac{-r}{n^2}}{\displaystyle \frac{-1}{n^2}}$

$\ln L = \ln P + \displaystyle t \lim_{n \to \infty}\frac{r}{1 + \frac{r}{n}}$

$\ln L = \ln P + \displaystyle t \frac{r}{1 + 0}$

$\ln L = rt + \ln P$

We now solve for the original limit $L$:

$L = e^{rt + \ln P}$

$L = e^{rt} e^{\ln P}$

$L = Pe^{rt}$

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