1. Annuities, Future Value, and Sinking Funds
Section 5.3
Annuities, Future Value, and Sinking Funds
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Ordinary Annuity
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Sinking Funds
A business sets up a sinking fund so that it will be able to pay off bonds it has issued when they mature. If it deposits $12,000 at the end of each quarter in an account that earns 5.2% interest, compounded quarterly, how much will be in the sinking fund after 10 years?
Example:
Solution:
The sinking fund is an annuity, with
The future value is
So there will be about $624,370 in the sinking fund.
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(200*((1+x/12)^240-1))/(x/12)
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Annuity Due
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