Exercise
A 30-year $500,000 loan is paid off via the accumulation of a sinking fund. Sinking fund deposits are made at the beginning of each year. If the effective annual interest rate earned on the sinking fund is 10%, determine the amount in the sinking fund immediately prior to the 10th deposit.
- 37,800
- 38,700
- 39,400
- 40,300
- 41,300
References
Hlynka, Myron. "University of Windsor Old Tests 62-392 Theory of Interest". web2.uwindsor.ca. Retrieved November 23, 2023.
Determine the sinking fund deposit by using a 30-year annuity-due accumulation factor (the sinking fund must accumulate to $500,000 after 30 years). The 10 th deposit will be made at time 9 , so you want the sinking fund balance at time 9. Use the sinking fund deposit and a 9 -year annuity-due accumulation factor to determine the balance.
The amount immediately prior to the tenth deposit will be the accumulated amount including the tenth deposit less the tenth deposit. i.e.
References
Hlynka, Myron. "University of Windsor Old Tests 62-392 Theory of Interest". web2.uwindsor.ca. Retrieved November 23, 2023.