Find the amount of each payment to be made into a sinking fund which earns 7%...

Find the amount of each payment to be made into a sinking fund which earns 7% compounded quarterly and produces $57000 at the end of 2.5 years. Payments are made at the end of each period.

The payment size is $___?

Round to the nearest cent.

Solutions

Expert Solution

Given that,

Interest rate r = 7% compounded quarterly

term of payment in year = 2.5 years

final value in account = $57000

So, each payment can be calculated using FV formula of annuity

PMT = FV*(r/n)/((1+r/n)^(n*t) - 1)

here n is compounding frequency = 4

=> periodic payment PMT = 57000*(0.07/4)/((1+0.07/4)^(4*2.5) -1) = $5265.39

The payment size is $5265.39

jeff jeffy answered 2 years ago

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