Compounding in finance is used to determine what?

Compounding in finance refers to the process by which an investment grows over time due to the earnings generated on both the initial principal and the accumulated interest from previous periods. This principle is foundational in calculating the future value of investments. By applying the concept of compounding, investors can understand how much their initial investment will grow over a specified timeframe at a given interest rate, effectively allowing them to project future financial outcomes.

The future value calculation incorporates the effects of compound interest, which reflects the reality that interest earned over time can itself earn additional interest. This illustrates why choice B accurately captures what compounding in finance is primarily concerned with, as it focuses on the growth trajectory of an investment rather than just the initial costs or the current worth of cash flows.