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4.2 Sinking
Instruction: Use the following tutorial to help
introduce or reinforce the concept of Sinking Funds.
Read through the introduction, then study and familiarize
yourself with the definitions of terms. Next, use
the incremental calculator to study each step of
the process of determining Sinking Funds.
Finally,
use the calculator for examples to quiz yourself.
A sinking fund is a fund that
is set up to up for a specific purpose at some future date.
The periodic payment R
required to accumulate a sum of
S dollars over n
periods with interest charged at the rate of
i per period..
An example of a sinking fund would be a company that
wants to save up enough money to by new computers. The
company would want to have enough money to buy the new
computers at a predicted time that their old computers
would be obsolete. With the formula they know exactly
how much money to put into an account periodically to
reach their goal for new computers.
The following is the formula for the sinking fund value:
R = iS/((1+i)n-1)
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Definitions
Incremental Calculator
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