Sinking funds may help pay off the debt at maturity or assist in buying back bonds on the open market. Sample problems with suggested solution keystrokes for the. Advanced income capitalization appraisal institute. Welcome to the interest formulas on equal payment series factors. The last payment in the series occurs at the same time as f. The answers arrived at using the formula versus the factor table turn out to be. These funds sit in a sinking fund account and generate interest. The sinking fund factor is used to calculate the uniform series of equal endofperiod amounts, a, that are equivalent to a single future amount, f.
In the formulas we introduced in earlier slides, i is the effective. Suppose that an account has an annual rate of compounded times per year, so that is the interest rate per compounding. In the sinking fund method of repaying a loan, the borrower agrees to make. Sinking fund factor takes a single payment and spreads into a uniform series over n earlier periods.
Brush up on the stuff for your next or current job with this howto. Sinking fund formula you can use a sinking fund formula to calculate the amount of regular or periodic contributions that go into a particular sinking fund. Using the formula for the sinking fund factor, the required annual deposits. Sinking fund formula how to calculate sinking fund. The sinking fund factor is a ratio used to calculate the future value of a series of equal annual cash flows. A sinking fund is an account earning compound interest into which you make periodic deposits. The usual way of retiring the debt is by a bond issue. Sinking fund calculator payment required to reach specified value. Sinking fund refers to a fund that is set up by the particular bond issuer in order to repurchase a definite portion of the bond issue or for the replenishment of a major asset or any other similar capital expenditure. The basic amortization formula relies on three variables, identified by the letters p, r and n. How to calculate future value for a sinking fund in ms. Use this calculator to determine the payment required to accumulate a specified amount by.
In a very simple language, sinking fund is a type of fund which is set up for repayment of debt. As depreciation charges are incurred to reflect the assets falling value, a matching amount of cash is invested. This is the reverse of the uniform series compound amount factor. Youll work with these to determine your monthly payment, or m. Its calculation by using microsoft excel can be done in 10 seconds. In order to repay the principal at the end, the borrower is required to make. The sinking fund method is a technique for depreciating an asset while generating enough money to replace it at the end of its useful life. Sinking fund factor how much must be deposited at the end of each year into an account that earns 4. Wonderhowto as you might guess, one of the domains in which microsoft excel really excels is business math. A sinking fund method is a technique for depreciating an asset in bookkeeping records while generating money to purchase a. Suppose that the account has an annual interest rate of compounded times per year, so that is the interest rate per compounding period. Third is this sinking fund factor it multiplies a single amount at n to give the.
Sinking fund formula how to calculate sinking fund examples. The formula for the sinking fund is obtained by solving fora in the formula for the uniform series compound amount factor. Estimating property value with dcf assume that i o is level. Introduction to the formaul for sinking funds with an example. The equation for the uniform series capital recovery factor is obtained by solving for. As such, the bond issuer is required to contribute a certain amount of money to the sinking fund each period and the formula to calculate the sinking fund is as shown below. A sinking fund is an account containing money set aside to pay off a debt or bond. The party who sets up this kind of fund usually sets asides a certain amount of money on a regular basis and which is then used to repay the debt amount. How much money would have to be placed in a sinking fund each year to. Suggested solution step explanation hp10b hp12c hp17b hp19b 1 move to top menu.
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