Question

You have decided to set up a fund for the education of your future child. What is the amount that will be accumulated in this sinking fund at the end of 20 years if you deposit $1000 in the fund at each of the 20 years? Assume interest rate is 10%.

Answer 1

Answer:

$  $47,275.00

Explanation:

A sinking funds entails setting aside for investment an equal amount of money invested at a certain rate of interest over a definite period of time to accumulate at target future amount.

The accumulated amount could either be for the repayment of a loan amount or to finance the acquisition of  a capital asset.

The total amount hat will accumulate in the fund at the end of 20 years will be determined using the formula below

FV = A × ( (1+r)^n - 1 )/r

A- 1000, n - 20, r = 10%

FV = 1,000 × ( (1.1^20) - 1 )/ 0.1

FV =1000   ×  47.2749

FV =$  47,275.00

FV =   $47,275.00