Shorter compounding period, Financial Accounting

In our discussion so far, we have supposed that the compounding is done yearly, here let us see the case where compounding is complete more often.  In such case the equation (1) is modified to factor into the change of compounding frequency.

FVn = PV (1 + K/M) m*n

Here    FVn   = Future value after n years

PV = Present Value

K     = nominal annual rate of interest

m    = Frequency of compounding complete during a year

n     = number of years for that compounding is done.

 Whether the interest is payable semiannually frequency of compounding is 2, if this is payable monthly frequency is 12, if it is payable weekly frequency is 52 and so on.

Posted Date: 4/9/2013 2:26:42 AM | Location : United States







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