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Present Value of a Lump Sum with more than 1 compounding period per year

Sometimes, certain institutions pay out interest more than once each year. It is possible the interests are paid out
  • Semi Annualy
  • Quarterly
  • Monthly
  • Daily
  • Continuously
Basically, we will need to discount the compound interests we have earned over the two years taking into account that interests are paid out more than once in a year to derive the Present Value.

Formula of Present Value of a Lump Sum with more than 1 compounding period per year

PV = FVn * (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 compounding period
You may want to bring up the Present Value.xls spreadsheet and refer to the Worksheet Present Value (m CompoundPeriod).

Next :
Present Value of an Ordinary Annuity

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