Question

To provide for expansion, a company has established a sinking fund earning

8 % monthly. The fund is anticipated to reach a balance of $72,000

in 13 years. Payments are made at the beginning of every month.month.

(a) What is the size of the periodic payment?

(b) What is the accumulated balance at the end of payment period 107?

Answer 1

a. The size of the periodic payment can be found using PMT function in EXCEL

=PMT(rate,nper,pv,fv,type)

The payments are monthly and that too at the beginning of the month

rate=8%/12=0.67%

nper=13*12=156

pv=0

fv=72000

type=1 (payments are making at the begining of the month)

=PMT(0.67%,156,0,72000,1)

PMT=$262.07

The size of the periodic payment=$262.07

b. The accumulated balance can be found using FV function in EXCEL

=FV(rate,nper,pmt,pv,type)

rate=8%/12=0.67%

nper=107

pmt=262.07

pv=0

type=1 (payments are making at the begining of the month)

=FV(0.67%,107,-262.07,0,1)

FV=$40,994.88

The accumulated balance=$40,994.88