Compounding factor: Difference between revisions
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''Financial maths.'' | |||
(CF). | (CF). | ||
A number greater than one | A compounding factor is a number greater than one, that we multiply a present value by, to work out its [[Future Value]] (FV) as: | ||
FV = CF x present value. | FV = CF x present value. | ||
Revision as of 14:28, 26 June 2019
Financial maths.
(CF).
A compounding factor is a number greater than one, that we multiply a present value by, to work out its Future Value (FV) as:
FV = CF x present value.
The Compounding Factor is calculated from the periodic yield as:
CF = (1 + periodic yield)n
Where:
n = number of periods
Example
Annual effective yield (r) = 6%.
Number of years in the total period (n) = 2.
Then:
Compounding Factor = (1 + r)n
= 1.062
= 1.1236.
