Question

Travis International has a one-time expense of $1.13 million that must be paid two years from today. The firm can earn 4.3 percent, compounded monthly, on its savings. How much must the firm save each month to fund this expense if the firm starts investing equal amounts each month starting at the end of this month?

Answer 1

Answer:

The firm must save $45,172.02  monthly for 24 months to be able to pay $1,130,000 at 4.3% compounded monthly as found in the attached

Explanation:

In calculating the monthly saving , I used the PMT function in excel,whose formula is given as PMT(rate,nper,pv,-fv)

r represents the rate on the savings given as 4.3% annually but 0.36% per month (4.3%/12 months), as the compounding is done monthly.

nper represents the duration of savings,given as two years but multiplied by 12 months to reflect monthly compounding horizon

pv is the present value zero as it is not given and not required

Fv is future value given as $1,130,000

Find detailed computation in the attached.

Download xlsx