Suppose you deposit $100/-$ today in a bank account,

that pays $10\%$ interest per year. In one year you

will have $110/-$ made up of your original $100/-$ and

the $10/-$ in interest that you earn. If you leave all

these in the account $($no withdrawals$)$ for another

year, you will have $121/-$ made up of the original

$110/-($at the end of year one$)$ and the $11/-$ in interest

that you earn. If we denote the deposit today as

present value $($PV$)$ and the rate of interest as r$,$ we

can generalise the transaction as follows: