Let us assume that you deposit Rs.1000 in a bank that pays 10 percent interest compounded yearly for a period of 3 years. The deposit will grow as given details:

To acquire the future value from current value for one year period:

FV = PV  + (PV . k)

 Here PV = Present Value;

k = Interest rate

 FV =  PV (1 + k)

 As the same for a two year period:

FV = PV+PVk+PVk+PVk²

= PV+2PVk+PVk²

= PV (1+2k+K²) = PV (1+k)²

Hence, the future value of amount after n periods is as:

FV = PV (1+k)n  ............................Eq(1)

Here FV = Future value n years thus

PV = Cash today or present value

k    = Interest rate par year in percentage

n    = number of years for that compounding is done

Equation (1) is the fundamental equation for compounding analysis. Here the factor (1+k)ⁿ is considered as the future value interest factor or the compounding factor (FVIFk,n). Published tables are obtainable showing the value of (1+k)ⁿ for different combinations of k and n.  In such table is specified in appendix A of this section.