SAT Math Word Problems: Present and Future Values - dummies

SAT Math Word Problems: Present and Future Values

By Ron Woldoff

You are almost guaranteed to encounter a word problem on the SAT Math exam that deals with banking; for example, you may be asked to determine the present value of an account based on its future value, or vice versa.

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

Practice questions

  1. 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?
    SAT1001_eq2601
  2. 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?
    SAT1001_eq2602

Answers and explanations

  1. 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)m
    Divide both sides by (1.006)m to get the value of PV.
  2. 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
    SAT1001_eq2603
    In the equation, m represents the number of times that the present value is multiplied by
    SAT1001_eq2604