Question

 

1. Lisa expects her endeavor to go so well she is already planning for a future expansion of her facility. To provide for this expansion, she establishes a sinking fund into which equal payments are made at the beginning of every month. She plans on saving $75,000 over 5 years. Interest is 5.4% compounded monthly.

1. What is the size of the monthly payment rounded to the nearest dollar?
2. Prepare a complete sinking fund schedule with the payments from part a. that are rounded to the nearest dollar. Express totals at the bottom of each column as currency.
3. How much of the maturity value in the fund will be interest?

 

Answer 1

Future Value	75000
Period	5
Interest pa	5.40%
Monthly Payment	1086.738
(Future Value/ PVF)	(75000/69.0139)
Computation of PVF			Sinking Fund Schedule
Months	PVF (1+(r/12)^month)	Months	Opening Balance	Interest (Opening Bal * (5.4%/12))	Payment	Closing Balance (Opening + Int + Payment)
1	1.0045			1	1087	5	1087	2178
2	1.00902			2	2178	10	1087	3275
3	1.013561			3	3275	15	1087	4376
4	1.018122			4	4376	20	1087	5483
5	1.022703			5	5483	25	1087	6594
6	1.027306			6	6594	30	1087	7711
7	1.031928			7	7711	35	1087	8832
8	1.036572			8	8832	40	1087	9959
9	1.041237			9	9959	45	1087	11090
10	1.045922			10	11090	50	1087	12227
11	1.050629			11	12227	55	1087	13369
12	1.055357			12	13369	60	1087	14515
13	1.060106			13	14515	65	1087	15667
14	1.064876			14	15667	71	1087	16825
15	1.069668			15	16825	76	1087	17987
16	1.074482			16	17987	81	1087	19155
17	1.079317			17	19155	86	1087	20328
18	1.084174			18	20328	91	1087	21506
19	1.089053			19	21506	97	1087	22689
20	1.093953			20	22689	102	1087	23878
21	1.098876			21	23878	107	1087	25073
22	1.103821			22	25073	113	1087	26272
23	1.108788			23	26272	118	1087	27477
24	1.113778			24	27477	124	1087	28687
25	1.11879			25	28687	129	1087	29903
26	1.123824			26	29903	135	1087	31125
27	1.128882			27	31125	140	1087	32351
28	1.133962			28	32351	146	1087	33584
29	1.139064			29	33584	151	1087	34822
30	1.14419			30	34822	157	1087	36065
31	1.149339			31	36065	162	1087	37314
32	1.154511			32	37314	168	1087	38569
33	1.159706			33	38569	174	1087	39829
34	1.164925			34	39829	179	1087	41095
35	1.170167			35	41095	185	1087	42367
36	1.175433			36	42367	191	1087	43644
37	1.180722			37	43644	196	1087	44927
38	1.186036			38	44927	202	1087	46216
39	1.191373			39	46216	208	1087	47511
40	1.196734			40	47511	214	1087	48811
41	1.202119			41	48811	220	1087	50118
42	1.207529			42	50118	226	1087	51430
43	1.212963			43	51430	231	1087	52748
44	1.218421			44	52748	237	1087	54072
45	1.223904			45	54072	243	1087	55402
46	1.229412			46	55402	249	1087	56738
47	1.234944			47	56738	255	1087	58080
48	1.240501			48	58080	261	1087	59428
49	1.246083			49	59428	267	1087	60783
50	1.251691			50	60783	274	1087	62143
51	1.257323			51	62143	280	1087	63509
52	1.262981			52	63509	286	1087	64882
53	1.268665			53	64882	292	1087	66261
54	1.274374			54	66261	298	1087	67645
55	1.280108			55	67645	304	1087	69037
56	1.285869			56	69037	311	1087	70434
57	1.291655			57	70434	317	1087	71838
58	1.297468			58	71838	323	1087	73248
59	1.303306			59	73248	330	1087	74664
60	1.309171			60	74664	336	0	75000
Cumulative PVF	69.0139			Total Interest Payment	9796