Question

You plan to start your own business after completing the MBA. You have always wanted to open a restaurant and have started to save for this by using the remainder of your pension fund (currently at R800 000) and making monthly contributions into an annuity account for the remaining value. If you feel that R2 000 000 will be enough to open your desired and you can make R10 000 monthly contributions towards this goal, by when will you have enough money available to fund your dreams? (Assume that the cost of opening a restaurant remains R2 000 000)

Answer 1

Having already Rs800000, further, we need to save 20lakhs - 8lakhs = 12lakhs

So final value(F) = Rs12,00,000

Amount paid each month(P) = Rs10,000

Interest on annuity = i % per month

total months required to achieve our dream of restaurant = n months

We know,

F = P[(1+i)ⁿ-1]/i

1200000 = 10000[(1+i)ⁿ-1]/i

[(1+i)ⁿ-1]/i = 120

Solving this we can get the desired number of months, as the rate of interest is not mentioned in the question, for whatever interest rate you want to find the value of months required, just plug that in the equation above, and will get the n i.e. number of months. Remember to put that interest rate on a monthly rate basis.