Question

Travis International has a one-time expense of $1.13 million that must be pald 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?

A. $38.416.20
B. $45,17202
C. $51,300.05
D. $47.411.08
E. $53.901.15

Answer 1

The firm must save $38,416.20 each month to fund the one-time expense. Option A

Step-by-step explanation:

To calculate how much the firm must save each month to fund the expense, we can use the formula for the future value of an annuity:

FV = PMT x [(1 + r)^n - 1] / r

Where:

PMT is the monthly payment

r is the monthly interest rate

n is the number of months

We know that the one-time expense is $1.13 million and it must be paid two years from today. The interest rate is 4.3% compounded monthly.

Let's calculate the monthly payment:

PMT = 1.13 million x [(1 + 0.043/12)^(2*12) - 1] / (0.043/12) = $38,416.20

Therefore, the firm must save $38,416.20 each month to fund the expense. Option A