Question

Find the amount of time needed for a sinking fund with monthly deposits of $2,000 at 9% to accumulate to $1,000,000.

Discuss how a sinking fund’s term would change if the percentage is reduced?

Answer 1

Amount(FV) Required- Int Rate 10,00,000 9% compounded monthly or 0.750 per month Monthly Installment $ 2,000.00 10,00,000 2000[1-(1/1.0075)At1/(0.0075) or 1000000 x(0.0075)2000[1-(1/1.0075)At] = 2000[1-11/1.0075) 7,500 3.75 3.75 -2.75 -2.75 or 7,500 or 2000[1-(1/1.0075) ] = [1-(1/1.0075) 1-(1/1.0075)t (1/1.0075)At or ] or or or (0.992556)1t t In(0.99256) -LN(2.75) 1.0116 135.4616 t (-0.0074678 135.46/12 years 11.29 years So period- or Note: Used log calculater to find the log value If the % of interest is reduced the sinking fund term would increase as it will fetch less interest on deposited amount, which will lead to take more time to achive the target amount.