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The power to which a base must be raised to yield a particular number. For example, the exponent 2 is the logarithm of 16 to the base 4, because 4 squared equals 16. Most financial applications use logarithms to the base 2.71828, which is denoted by the letter e. These logarithms are called natural logarithms and have a special property. The natural logarithm of the quantity, one plus a periodic rate of return, equals the continuous rate of return. For example, the natural logarithm of 1.10 equals 9.53%. If one were to invest $1 at a continuously compounded annual rate of 9.53% for one year, it would grow to $1.10 by the end of the year. See e.
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