##### I need help with a sinking fund question

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a business must raise \$65,000 in 4 years. What should be the size of the quarterly payment to a sinking fund paying 4% compounded quarterly?

Apr 20th, 2015

We have a 4% annual rate compounded quarterly, which is 1% per quarter. We are solving for a future value, so we use the future value of annuity formula (I'm assuming payments are made at the end of the period, rather than at the beginning of the period). We look under the 1% column for 16 periods, and get a factor of 17.25786. We divide the \$65,000 future value needed by 17.25786 and get \$3,766.3998, or rounded to the nearest penny, \$3,766.40. So we would need to make quarterly payments of \$3,766.40 compounded quarterly with an annual rate of 4% for 16 periods to have \$65,000 at the end of 4 years.

Apr 20th, 2015

What about the same 65,000 but 7 years and 4%?

Apr 20th, 2015

Look at a future value of an ordinary annuity table and look down the 1% column for 28 periods, and divide the \$65,000 by that figure.

Apr 20th, 2015

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Apr 20th, 2015
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Apr 20th, 2015
Dec 8th, 2016
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