1. The problem asks: What does compounding mean? 2. Compounding is a financial concept where the value of an investment grows because the earnings on an investment, both capital gains and interest, earn interest as time passes. 3. The formula for compound interest is: $$A = P \left(1 + \frac{r}{n}\right)^{nt}$$ where: - $A$ is the amount of money accumulated after $t$ years, including interest. - $P$ is the principal amount (the initial money). - $r$ is the annual interest rate (decimal). - $n$ is the number of times interest is compounded per year. - $t$ is the time the money is invested for in years. 4. Important rules: - Interest is calculated on the initial principal and also on the accumulated interest from previous periods. - The more frequently interest is compounded, the greater the amount accumulated. 5. In simple terms, compounding means "earning interest on interest," which helps your investment grow faster over time. Final answer: Compounding means the process where the earnings on an investment generate their own earnings, leading to exponential growth over time.