In the compound interest formula A = P(1 + r/n)^nt, we can think of P as the present value of an investment and A as the future value of an investment after t years. For example, if you were saving for college and needed a future value of A dollars, then P would represent the amount needed in an account today to reach your goal in t years at an interest rate of r, compounded in times per year. If we solve the equation for P, it results in

Suppose you want to have $15,000 to buy a car in 3 years. What should the present value of a savings account be to reach this goal, if the account pays 5% compounded monthly?

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P = A(1 + r/n)-².