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Find the periodic payments PMT necessary to accumulate the amount given in a sinking fund
Find the periodic payments PMT necessary to accumulate the amount given in a sinking fund. HINT (See Example 2.) (Assume end-of-period deposits and compounding at the same intervals as deposits. Round your answer to the nearest cent.) $40,000 in a fund paying 2% per year, with monthly payments for 10 years PMT = $ 301.51
Expert Solution
Sinking fund amount is future value that is required to be saved
So Future value =40000
rate per month (i)=APR/number of months in year
=2%/12=0.001666666667
total months in 10 years (n)=10*12 = 120
Amount required to save each year Formula (Annuity for sinking fund or Future value accumulation)= Future value*i/(((1+i)^n)-1)
=40000*0.001666666667/(((1+0.001666666667)^120)-1)
=301.3871487
so amount deposit is $301.39
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