Question

a bank is offering a 10 year savings plan that will pay 8% annual interest. If Tim puts $150 per month into the college fund, how much will he have for college? Which TMV adjustment does this analysis represent?

Answer 1

Monthly deposit (P) = 150

monthly interest rate = 8%/12 =0.006666666667

Number of months (n) = 10*12 = 120

Amount in 10 years will be calculated by Future value of annuity formula.

Future value of annuity formula = P*(((1+i)^n)-1)/i

=150*(((1+0.006666666667)^120)-1)/0.006666666667

=27441.90528

So He will have $27441.91 for college

This is problem of future value. Future value uses Compounding adjustment of TVM.

So compounding Time money value adjustment is represented by this analysis.