What sinking fund payment would you need to make at the END of each three months, at 12% interest compounded quarterly, to amount to $3,500 in 4 years? (Use Table 12-1 from your text)
A) $232.93
B) $732.32
C) $481.05
D) $173.64

Question

Quizplus · Accepted Answer

To find the sinking fund payment, we use the formula for the future value of an annuity: $FV = P \times \frac{(1 + r)^n - 1}{r}$, where $FV$ is the future value, $P$ is the payment, $r$ is the interest rate per period, and $n$ is the number of periods. Given a 12% annual interest rate compounded quarterly, $r = 0.12 / 4 = 0.03$ (3% per period). With the goal of $3,500 in 4 years and quarterly payments, $n = 4 \times 4 = 16$ periods. Rearranging the formula to solve for $P$, and using the given or calculated values, we find that the correct payment is closest to the value given in option D, $173.64.

What Sinking Fund Payment Would You Need to Make at the END