Compounding factor

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Revision as of 15:26, 14 March 2015 by imported>Doug Williamson (Align presentation of formula with qualification material)
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(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


See also