What is the formula for calculating future value (FV)?

The formula for calculating future value (FV) is correctly stated as Future Value = Present Value x (1 + interest rate)^number of periods. This formula accounts for the principle of compounding, which is a fundamental aspect of the time value of money.

When you invest a certain amount (the present value), it does not just grow linearly; instead, it grows exponentially over time due to interest being earned on both the original principal and the accumulated interest from previous periods. The expression (1 + interest rate) reflects the total growth factor for each period, while raising it to the power of the number of periods accounts for the compounding effect over that duration.

This formula is essential for understanding how money can grow over time, illustrating the potential of investments and savings to increase in value due to interest. The correct application of this formula can greatly impact financial planning and investment decisions.

In contrast, the other options fail to accurately depict how future value is calculated, as they either simplify the relationship to a linear model or misrepresent the fundamental concept of compounding.