Which formula represents compound interest?

The formula that correctly represents compound interest is expressed as FV = PV(1 + r)^n, where FV is the future value, PV is the present value (or principal amount), r is the interest rate per compounding period, and n is the number of compounding periods.

This formula effectively captures the essence of compound interest, which involves earning interest on both the initial principal and the accumulated interest from previous periods. Each compounding period allows the previously earned interest to become part of the principal for the next period, leading to exponential growth of the investment over time. The exponent ( n ) indicates how many times the interest is applied, which is critical for understanding how growth accelerates as the number of compounding periods increases.

In contrast, other formulas have different structures or uses that do not accurately depict the process of compound interest. They may be intended for simple interest calculations or different types of financial modeling, hence not aligning with the true nature of compound interest accumulation.