Compounding factor: Difference between revisions
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'''Example''' | |||
Annual effective yield (r) = 6%. | |||
Number of years in the total period (n) = 2. | |||
Then: | |||
Compounding Factor = ( 1 + r )<sup>n</sup> | Compounding Factor = ( 1 + r )<sup>n</sup> | ||
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= 1.06<sup>2</sup> | = 1.06<sup>2</sup> | ||
= 1.1236 | = 1.1236. | ||
Revision as of 11:52, 21 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 ).
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.
