How is "future value" calculated?

The calculation of "future value" is determined by the formula that uses the present value of an investment, the interest rate, and the time period. The correct formula to calculate future value is represented by Present Value multiplied by (1 + r) raised to the power of t.

In this formula, "Present Value" refers to the current worth of an amount of money before it earns interest. "r" is the interest rate expressed as a decimal, and "t" represents the number of time periods the money is invested or borrowed. By applying the formula, you can clearly see how money grows over time due to the effects of inflation or interest compounding.

This understanding is crucial in finance, as it allows individuals and businesses to make informed decisions about investments, savings, and comparing financial opportunities over time. Other approaches mentioned in the options do not encapsulate the principle of compounding and time value of money, which are fundamental to the right calculation of future value.