Future Value of a Lump Sum with more than 1 compounding periods per year

The previous definition of Future Value assumes that interests are paid at the end of each year. Sometimes, certain institutions pay out interest more than once per year. It is possible that the interests are paid out
  • Semi Annualy
  • Quarterly
  • Monthly
  • Daily
  • Continuously (Continuous Compounding. See the next section.)
For Semi Annual, the compounding periods is 2, Quarterly, the compounding period is 4, Monthly the compounding period is 12 and Daily the compounding period is 365.

For some financial formulas, special compounding periods like 360 days will sometimes be used. Basically the more frequent the compounding period, the better the interest.

Formula of Future Value with more than 1 compounding periods

FVn = PV * (1+(r/m))^(m*n)
  • FVn is the Future Value after a specific period
  • PV is Present Value
  • r is the interest rate
  • n is the period. For example 5 years.
  • m is the number of compounding periods
Open up the Future Value.xls spreadsheet and look into the Worksheet Future Value(m Compound Periods). The additional parameter compared to the previous formula is m, the number of compounding periods.

Next :
Future Value of a Lump Sum with Continuous Compounding

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