Question

Mike wants to save $47000 through semi annual payments over the next 6 years. If the interest rate is j2 = 7.1%, complete the first three lines of the sinking fund schedule. NOTE: Round the deposit appropriately and use this value in further calculations. Schedule:

Schedule:

Deposit number	Interest	Deposit	Increase	Amount
0
1
2

Answer 1

Answer:

Sinking fund is a fund created out of fixed payments each period to accumulated to a future sum after a specified period.

In our case payment is done semi annually and also interest is provided semi annually.

So formula for amount to be paid regularly is :

A = Fn * (i/[(1+i)n-1])

where Fn=$47000

i = 0.071

n= 6*2 = 12

A = 47000*(0.071/[(1+0.071)12 - 1]) = $2612 to be paid semi annually.

Lets provide the details of cash flow:

Deposite number	Year	Principal (Increase Amount)	Semi annual Interest @ 7.1% (Interest Deposite)
0	0.5	2612.00	185.45
1	1.00	5409.45	384.07
2	1.50	8405.52	596.79
3	2.00	11614.32	824.62
4	2.50	15050.93	1068.62
5	3.00	18731.55	1329.94
6	3.50	22673.49	1609.82
7	4.00	26895.31	1909.57
8	4.50	31416.87	2230.60
9	5.00	36259.47	2574.42
10	5.50	41445.89	2942.66
11	6.00	44388.55	3151.59
	Total	47540.14