Compounding factor: Difference between revisions
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and the number of years in the total period (n) = 2, then: | and the number of years in the total period (n) = 2, then: | ||
Compounding Factor = (1+r)<sup>n</sup> | Compounding Factor = ( 1 + r )<sup>n</sup> | ||
= 1.06<sup>2</sup> | = 1.06<sup>2</sup> | ||
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
