Compounding factor: Difference between revisions
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imported>Doug Williamson m (Spacing and clarify by defining abbreviations.) |
imported>Doug Williamson (Align presentation of formula with qualification material) |
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The periodic Compounding Factor is calculated from the periodic yield as: | The periodic Compounding Factor is calculated from the periodic yield as: | ||
CF = (1 + periodic yield). | CF = ( 1 + periodic yield ). | ||
Revision as of 15:26, 14 March 2015
(CF).
A number greater than one which we multiply a present value by, to work out its Future Value (FV) as:
FV = CF x present value.
The periodic Compounding Factor is calculated from the periodic yield as:
CF = ( 1 + periodic yield ).
For example when the annual effective yield (r) = 6%
and the number of years in the total period (n) = 2, then:
Compounding Factor = (1+r)n
= 1.062
= 1.1236
