Question

□ A Company has decided to set up a sinking fund to replace an asset after 5 years. The value of the fund after 5 years must be Tk. 1,00,000 and the fund is expected to earn interest at the rate of 7% per annum.

i) What must be the annual payment into the fund if the payment make at the end of each year?

Answer 1

Sol:

Future value of fund (FV) = Tk. 1,00,000

Interest rate = 7% per annum

Period (NPER) = 5 years

To determine annual payment into the fund if the payment make at the end of each year we can use PMT function in excel:

FV	100000
Interest rate	7%
NPER	5
Annual payment	17,389.07

Therefore annual payment into the fund will be Tk. 17,389.07

Working