Compounding factor: Difference between revisions
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(CF). A number greater than one which we multiply a present value by, to work out its Future Value as: | (CF). A number greater than one which we multiply a present value by, to work out its [[Future Value]] as: | ||
FV = CF x present value. | FV = CF x present value. | ||
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* [[Future value]] | * [[Future value]] | ||
* [[Present value]] | * [[Present value]] | ||
Revision as of 15:54, 19 June 2013
(CF). A number greater than one which we multiply a present value by, to work out its Future Value 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
