Equal deposits will be made to a sinking fund at the end of each year for eight years. The sinking fund will earn 10% compounded annually, and the maturity value of the fund after eight years must be $50,000.00.
-What must be the annual deposit to the sinking fund?

Question

Quizplus · Accepted Answer

The annual deposit required for a sinking fund can be calculated using the future value of an annuity formula: $FV = P \times \frac{(1 + r)^n - 1}{r}$, where $FV$ is the future value of the annuity, $P$ is the annual payment, $r$ is the annual interest rate, and $n$ is the number of periods. Rearranging the formula to solve for $P$ gives us $P = \frac{FV \times r}{(1 + r)^n - 1}$. Plugging in the values ($FV = \$50,000$, $r = 0.10$, $n = 8$) gives us $P = \frac{\$50,000 \times 0.10}{(1 + 0.10)^8 - 1}$, which calculates to approximately \$4372.20.

Equal Deposits Will Be Made to a Sinking Fund at the End