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 will be the sinking fund's balance just after the fifth deposit?

Question

Quizplus · Accepted Answer

The correct answer is A.The future value of an annuity is given by the formula:FV = PMT * [(1 + r)^n - 1] / rwhere:PMT is the periodic paymentr is the annual interest raten is the number of periodsIn this case, we have:PMT = $50,000 / 8 = $6,250r = 10% = 0.10n = 8Substituting these values into the formula, we get:FV = $6,250 * [(1 + 0.10)^8 - 1] / 0.10 = $50,000The sinking fund's balance just after the fifth deposit will be:FV * (1 + r)^-5 = $50,000 * (1 + 0.10)^-5 = $26,692.72

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