Compounding factor: Difference between revisions
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imported>Doug Williamson (Generalise to any number of periods.) |
imported>Doug Williamson (Generalise to any maturity.) |
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The | The Compounding Factor is calculated from the periodic yield as: | ||
CF = ( 1 + periodic yield )<sup>n</sup> | CF = ( 1 + periodic yield )<sup>n</sup> | ||
Revision as of 05:15, 14 April 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 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.
