Question

The management of Gibraltar Brokerage Services anticipates a capital expenditure of $26,000 in 2 yr for the purpose of purchasing new computers and has decided to set up a sinking fund to finance this purchase. If the fund earns interest at the rate of 11%/year compounded quarterly, determine the size of each (equal) quarterly installment that should be deposited in the fund. (Round your answer to the nearest cent.)

Answer 1

Answer:

$2,949.91.

Explanation:

The size of the quarterly installment can be determined by finding the (Payment) PMT amount using tie value of money principles.

Here I used a financial calculator to set my values and calculate PMT as :

PV = $0

N = 2 x 4 = 8

P/yr = 4

I = 11 %

FV = $26,000

PMT = ?

Therefore the (Payment) PMT is $2,949.91. The size of each (equal) quarterly installment should be  $2,949.91.