To accumulate $5,500 in 8 years, a deposit of X is to be made today and a second deposit of X is to be made 3 years from now. The effective annual interest rate is 2%.
Which of the following is an incorrect equation of value for this problem.
A. X(1.02)^8 + X(1.02)^5 = 5,500, as of time 8.
Time value of money (TVM) means that the money received today fill be worth more than the money received tomorrow. It is based on the concept that that the money has some time value. It gives the assumption that the earlier receipts will be reinvested to generate money before the later receipts are generated. The process of find the future value is called compounding and while finding the present value is called discounting.
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