Question

Calculate The Following Elements Used to Derive a Cap Rate - Sinking Fund Factor

1. Loan/Holding Period 10 Equity Yield Rate 8%            _____________
2. Loan/Holding Period 10 Equity Yield Rate 9%            _____________
3. Loan/Holding Period 10 Equity Yield Rate 10%          _____________
4. Loan/Holding Period 10 Equity Yield Rate 11%          _____________

Answer 1

The sinking fund factor is calculated as 1/(FV of regular payment of $1 over a holding period measured at the yield rate on equity)
FV is the future value.

Part 1:
The loan/holding period is 10 and the yield rate on equity is 8%
We can calculate the future value using a financial calculator.
Input and steps for financial calculator:
PMT = 1
Rate = 8%
N = 10
Step>> CPT FV (This step will compute the value of FV)
FV = 14.49
Sinking fund factor is equal to 1/14.49 = 0.0690

Part 2:
The loan/holding period is 10 and the yield rate on equity is 9%
We can calculate the future value using a financial calculator.
Input and steps for financial calculator:
PMT = 1
Rate = 9%
N = 10
Step>>CPT FV (This step will compute the value of FV)
FV = 15.19
Sinking fund factor is equal to 1/15.19 = 0.0658

Part 3:
The loan/holding period is 10 and the yield rate on equity is 10%
We can calculate the future value using a financial calculator.
Input and steps for financial calculator:
PMT = 1
Rate = 10%
N = 10
Step>>CPT FV (This step will compute the value of FV)
FV = 15.94
Sinking fund factor is equal to 1/15.94 = 0.0627

Part 4:
The loan/holding period is 10 and the yield rate on equity is 11%
We can calculate the future value using a financial calculator.
Input and steps for financial calculator:
PMT = 1
Rate = 11%
N = 10
Step>>CPT FV (This step will compute the value of FV)
FV = 16.72
Sinking fund factor is equal to 1/16.72 = 0.0598