Question

Travis International has a one-time expense of $1.13 million that must be paid two years from today. The firm can earn 4.2 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

Future Value of an Ordinary Annuity
= C*[(1+i)^n-1]/i
Where,
C= Cash Flow per period
i = interest rate per period =4.2%/12 =0.35%
n=number of period =12*2 =24
1130000= C[ (1+0.0035)^24 -1] /0.0035
1130000= C[ (1.0035)^24 -1] /0.0035
1130000= C[ (1.0875 -1] /0.0035]
C=45215.81
Monthly saving should be = $45215.81