When an investor wishes to know what the value of their investment will be as it is compounded over a certain period of time they will use the function that gives them the COMPOUNDED INTEREST of the FUTURE VALUE of their investment.

The equation is expressed as follows:

The formula is defined as:
F = the future value of the investment,
P = the present value of the investment, or the amount being initially invested,
i = the interest rate at which the investment is growing,
and
n = the number of periods that the investment is being compounded.

For an example say that a bank offers a 4% interest rate paid monthly for a savings account. In the example you decide to put $100 in this savings account. You are curious how much your $100 will be worth in a year from having been in this savings account if you do not take any money out, so you use the FUTURE VALUE EQUATION with COMPOUNDING INTEREST to calculate it:

The earnings of interest on interest is defined as COMPOUND INTEREST and this equation is a simple way to calculate the value of an investment being compounded minus other variables such as the time-value of money.