Sinking Funds (Finding Annuity Payments) Section 11.3 Sinking Funds (Finding Annuity Payments)

Sinking fund Sinking fund: fund set up to receive periodic payments. Often used to provide money for pay off a loan in a lump sum or to accumulate money for big expenses.

To find the Amount of Payment Needed Payment = Future x # from table Value on p 432 A utility company needs $600 million in 6 years to build a coal-fired power plant. What amount does it need to deposit at the end of each quarter into a sinking fund, if funds earn 8% compounded quarterly?

A charter airline sold $1,000,000 in bonds to buy a new aircraft A charter airline sold $1,000,000 in bonds to buy a new aircraft. It chose to make end-of-semiannual-period deposits to accumulate the funds needed to pay off the bond in 4 years. Use 5% compounded semiannually. Find (A) the payment and (B) the interest.