Compounding factor

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Financial maths.


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

= 1.062

= 1.1236.

See also