The following practice questions require you to build equations to calculate the present value of a savings account.

## Practice questions

- The money in a savings account increases 0.6% each month. Which of the following equations shows the present value,
*PV*, of the money in the account based on the future value,*FV*, after a period of*m*months? - The money in a savings account increases by an annual interest rate of
*i*percent. If the interest accrues monthly, which of the following equations shows the present value,*PV*, of the money in the account based on the future value,*FV*, after a period of*m*months?

## Answers and explanations

**The correct answer is Choice (B).**Each month, the present value,*PV*, increases 0.6%, meaning that it's multiplied by 1.006 (because 100% + 0.6% = 100.6%). In the equation,*m*represents the number of times that the present value is multiplied by 1.006. This gives you the following equation:*FV*=*PV*(1.006)Divide both sides by (1.006)^{m}to get the value of^{m}*PV*.**The correct answer is Choice (D).**If the annual interest rate is*i*percent, then it's*i*/100. Divide this by 12 for a monthly interest rate of*i*/1,200. Each month, the present value,*PV*, increases by*i*/1,200, meaning that it's multiplied by In the equation,*m*represents the number of times that the present value is multiplied by