Lydia wants to have $3,800 in her sinking fund in 4 years at 8%. She should make quarterly payments of $156.41.

Question

Quizplus · Accepted Answer

Using the sinking fund formula, we have:
P = (r*(FV))/((1+r)^n - 1)
where P is the quarterly payment, r is the quarterly interest rate (8%/4 = 2%), FV is the future value ($3,800), and n is the number of quarterly payments (4*4 = 16).
Plugging in the values, we get:
156.41 = (0.02*3800)/((1+0.02)^16 - 1)
156.41 = 76.08
This is false. The correct quarterly payment is actually $76.08, which can be verified by plugging it into the sinking fund formula and solving for the future value.

Lydia Wants to Have $3,800 in Her Sinking Fund in 4