What does the compound interest formula calculate?

مرکب سود کا فارمولا کیا حساب کرتا ہے؟

Interest on the initial principal only

Interest on both the initial principal and accumulated interest

Interest on loans only

Interest on investments only

Compound interest formula: Interest on principal + accrued interest, resulting in exponential growth.

Compound interest is calculated on the initial principal and the interest that has been added to it.