Sinking Fund Factor Example

Firstly determine the required periodic contribution to be made to the sinking fund as per the company strategy. For example for i 7 and n 5 years the sinking fund factor is equal to 0 1739. The fund will also grow from additional deposits made by the issuer.

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Time Value Of Money Board Of Equalization

Lesson 1 Video 5 Sinking Fund Deposit Factor Youtube

Engenieering Economic Analysis Sinking Fund Factor And Uniform Series Compound Amount Factor A F And F A

Time Value Of Money Board Of Equalization

Money put into the sinking fund is invested to increase the value of the fund.

Sinking fund factor example. The present value of the five annual payments of 243 90 is 1000. A sinking fund is a strategic way to save a little bit every month to pay for large. Suppose that the account has an annual interest rate of compounded times per year so that is the interest rate per compounding period. Calculation of sinking fund step by step step 1.

This includes things like a new car a family vacation or new snow tires. The fund gives bond investors an added element of security. If you make a payment of at the end of each. Companies are required to disclose their.

To illustrate the concept more clearly let us consider a franchisee of 7 eleven who issues 50 000 worth of bonds with a sinking fund provision and establishes a sinking fund wherein the franchisee regularly deposits 500 with the intent of using it to buy back bonds slowly before they mature. A sinkable bond is backed by a fund that sets aside money to ensure principal and interest payments are made by the issuer as promised. The company has set up sinking up to pay off the bond. A 1000 loan at 7 interest could therefore be paid back with five annual payments of 243 90.

Sinking fund formula example 2 company xyz issued bonds worth of 5 million having a 10 coupon rate and maturing in 10 years. Here s how the example would change if you used sinking funds instead. But i recommend covering three common factors. A sinking fund is a special fund established by a bond issuing entity where it deposits regular contributions for the exclusive purpose of buying back some of the bonds.

The periodic contribution is denoted by p. Therefore five annual payments of 173 90 earning 7 interest are worth 1000 00 at the end of the fifth year. For i 7 and n 5 years the capital recovery factor is equal to 0 2439. Now the annualized rate of interest of the fund and the frequency of the periodic payment has to be determined which are denoted by r and m respectively.

Annuities and sinking funds sinking fund a sinking fund is an account earning compound interest into which you make periodic deposits. A sinking fund is an account a corporation uses to set aside money earmarked to pay off the debt from a bond or other debt issue.