Jason M. answered • 12/16/20

Corporate Banking Analyst with degree in Finance & Data Analytics

First thing we need to know, is the number of periods the investment will be compounded. Because it will be compounded monthly for 4 years, we will have 48 periods (nper=48).

Because we will need $40,000 our desired "future value" (FV) for the account will be 40,000.

And finally, we no our interest rate is 9%, or 0.09.

What we do not know, is the amount we must invest every month to reach the 40,000, or the "Payment" (PMT) required.

nper = 48

FV = 40,000

rate = 0.09

PMT = x

The easiest way to do this is going to be in excel, with the CF function.

First we type:

=PMT(

It will then prompt for the following things

=PMT(rate,nper,pv,[fv])

We can ignore the pv, because that would be the amount of money we are starting with, which is 0.

After plugging our info in, it should look like:

=PMT(0.09,48,,40000)

*note the double comma after 48, indicating that there is no pv, or present value.

This should give us an answer of: -$58.46

This is negative because we made our Future value positive, and we will be depositing the $58.46 into the account monthly, to then be able to take out the $40,000 at the end.