A compounding factor is a number greater than one, that 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
n = number of periods
Annual effective yield (r) = 6%.
Number of years in the total period (n) = 2.
Compounding Factor = (1 + r)n