Multi-period compounding or else future value, Financial Management

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Multi-period Compounding or else Future Value :- If the company determination compounding interest half-yearly (semi-annually) instead of annually then investors will gain as he will get interest on half-yearly interest. Ever since interest will be compounded half-yearly for finding out the compound value.

FV = PV (1+i/m) n x m

Where FV = Future value of the preliminary flow in n years

PV= Initial Cash flow

i= Annual rate of interest

n = No. of years for which compounding is done.

m= No. of times compounding is done during a year.

Instance: - Mr. X invests Rs. 10000 at 10% p.a compounded semi-annually. Compute value after three years.

FV = PV (1+i/m) n x m

FV= 10,000 (1+.10/2) 3 x 2

FV = Rs. 11,025


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