You deposit $2,000 at 6% compounded annually. What is it worth in 8 years?

Step 1 — State the formula

FV = PV × (1 + r)ⁿ

with PV = 2,000, r = 0.06 and n = 8. Compounding is annual, so the rate and the number of periods are both already in years and need no conversion.

Step 2 — Work out the growth factor

1.06⁸ = 1.593848

Step 3 — Substitute

FV = 2,000 × 1.593848 = $3,187.70

Step 4 — Sanity-check against simple interest

Simple interest would give 2,000 × 0.06 × 8 = 960, so $2,960. The compound answer is larger by $227.70 — the interest earned on earlier interest. If your answer comes out below the simple-interest figure, the exponent has been applied to the wrong quantity.

If compounding is not annual

Divide the rate and multiply the periods: monthly compounding here would be r = 0.06/12 and n = 8 × 12, giving 2,000 × (1.005)⁹⁶ = 3,229.14.