Question

Claudine Corporation will deposit $5,700 into a money market sinking fund at the end of each year for the next five years. How much will accumulate by the end of the fifth and final payment if the sinking fund earns 9% interest? Multiple Choice $31,065. $34,113. $30,552. $37,183.

Answer 1

Answer:

Accumulated amount at the end of the fifth year = $34,112.85

Explanation:

Sinking Fund involves saving an series of equal amount periodically invested at certain rate of interest to accumulate a target amount in the future. The target amount might be for the purpose of financing a specific capital project or loan repayment.

Where an equal deposit is invested the sum accumulated (deposit plus interest earned) at the end of the final period is known as the Future Value (FV) of the sinking fund.

The FV is determined as follows:

FV = A × ((1+r)^(n) -  1)/n)

where FV- future value, A- annual cash flow, r-rate of return, n- number of years.

In this question, we have the details as follows;

FV-?, A-5,700, r- 9%, n- 5

So we can determine the FV;

FV = 5,700 × ((1+0.09)^(5)- 1)/0.09

FV = 5,700 × 5.9847

FV = 34,112.85

Accumulated amount at the end of the fifth year = $34,112.85