Chapter 12, Problem 9AT

Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

Chapter
Section

Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447
Textbook Problem

Use Table 12-1 to calculate the amount of the periodic payments needed to amount to the financial objective (future value of the annuity) for the following sinking funds. Sinking Fund Payment Time Nominal Interest Future Value Payment Frequency Period (years) Rate (%) Compounded (Objective) 9. _______ every year 13 7 annually $20,000 To determine To calculate: The amount of sinking fund payment where payment frequency is 1 year, time duration is 13 years, nominal rate of return is 7%, future value is$20,000 and interest is compounded annually.

Explanation

Given Information:

Payment frequency is 1 year, time duration is 13 years, nominal rate of return is 7%, future value is $20,000 and interest is compounded annually. Formula used: Steps to compute the amount of sinking fund payment; Step 1: First find the future value table factor from table 12-1 by using appropriate rate and number of periods of the sinking fund. Step 2: Compute the amount of sinking fund payment. The formula to compute the sinking fund payment is, Sinking fund payment=Future value of sinking fundFuture value table factor Calculation: Consider that payment frequency is 1 year, time duration is 13 years, nominal rate of return is 7%, future value is$20,000 and interest is compounded annually.

As the interest is compounded annually. So, the interest rate period is;

7%1=7%

The rate period is 7%

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