Holistic Holidays Limited has an employment contract with Loretta Bloom, its new

Question

Holistic Holidays Limited has an employment contract with Loretta Bloom, its newly hired CEO. The contract requires a lump sum payment of $1.5 million be paid to Ms. Bloom upon the successful completion of her first three years of service. Holistic Holidays wants to set aside an equal amount of money at the end of each month to cover this anticipated cash outflow and expects to be able to earn an annual rate of 5.65 percent compounded monthly on the funds. How much must Holistic Holidays set aside each month for this purpose?

$37,848.50

$38,332.91

$40,903.11

$41,200.28

$50,392.81

Explanation / Answer

Formula: Monthly set aside = P (1 + r)n r / (1 + r)n -1

= [1.5 m (1 + 0.0565/12)3*12 * 0.0565/12 ] / (1 + 0.0565/12)3*12 - 1

= [1.5 m * 1.184 * 0.0565 / 12 ] / 0.184

= $46298.61

So, Holistic Holidays Limited must set aside $46298.61 or $50,392.81 to have $1.5 m in 3 years.

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.