Find the amount of each payment to be made into a sinking fund which earns 9?% compounded quarterly and produces ?$42,000 at the end of 3.5 years. Payments are made at the end of each period.
the payment size is?
Payment size is $2,585.62
| The question is based on the concept of Future Value of ordinary annuity. | |||||||||||
| Ordianry annuity is the annuity in which amount is related with the end of the period. | |||||||||||
| Quarterly Payment | = | Future Value / Future Value of annuity of Quarterly Payment of 1 | |||||||||
| = | $ 42,000 | / | 16.24371 | ||||||||
| = | $ 2,585.62 | ||||||||||
| Working: | |||||||||||
| Future Value of annuity of 1 | = | (((1+i)^n)-1)/i | Where, | ||||||||
| = | (((1+0.0225)^14)-1)/0.0225 | i | 9%/4 | = | 0.0225 | ||||||
| = | 16.24371 | n | 3.5*4 | = | 14 | ||||||
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