Sinking fund factor formula pdf

Using the formula for the sinking fund factor, the required annual deposits. The party who sets up this kind of fund usually sets asides a certain amount of money on a regular basis and which is then used to repay the debt amount. Sinking fund refers to a fund that is set up by the particular bond issuer in order to repurchase a definite portion of the bond issue or for the replenishment of a major asset or any other similar capital expenditure. So that is known as equal payment series sinking fund factor. Sinking fund calculator payment required to reach specified value. A sinking fund is an account containing money set aside to pay off a debt or bond. Sinking fund formula how to calculate sinking fund examples. How much money would have to be placed in a sinking fund each year to. In a very simple language, sinking fund is a type of fund which is set up for repayment of debt.

In the sinking fund method of repaying a loan, the borrower agrees to make. The sinking fund method is a technique for depreciating an asset while generating enough money to replace it at the end of its useful life. Suggested solution step explanation hp10b hp12c hp17b hp19b 1 move to top menu. A sinking fund is an account earning compound interest into which you make periodic deposits. The usual way of retiring the debt is by a bond issue. The sinking fund factor is used to calculate the uniform series of equal endofperiod amounts, a, that are equivalent to a single future amount, f. Brush up on the stuff for your next or current job with this howto.

This is the reverse of the uniform series compound amount factor. These funds sit in a sinking fund account and generate interest. The sinking fund factor is a ratio used to calculate the future value of a series of equal annual cash flows. The answers arrived at using the formula versus the factor table turn out to be. As such, the bond issuer is required to contribute a certain amount of money to the sinking fund each period and the formula to calculate the sinking fund is as. Sinking fund factor how much must be deposited at the end of each year into an account that earns 4. Sinking fund factor formula pdf download tkinisbise. A sinking fund method is a technique for depreciating an asset in bookkeeping records while generating money to purchase a.

The formula for the sinking fund is obtained by solving fora in the formula for the uniform series compound amount factor. Wonderhowto as you might guess, one of the domains in which microsoft excel really excels is business math. How to calculate future value for a sinking fund in ms. In order to repay the principal at the end, the borrower is required to make.

Welcome to the interest formulas on equal payment series factors. If you make a payment of at the end of each period, then the future value after years, or periods, will be payment formula for a sinking fund. The last payment in the series occurs at the same time as f. Introduction to the formaul for sinking funds with an example. Its calculation by using microsoft excel can be done in 10 seconds. The equation for the uniform series capital recovery factor is obtained by solving for. In the formulas we introduced in earlier slides, i is the effective. Sinking fund formula you can use a sinking fund formula to calculate the amount of regular or periodic contributions that go into a particular sinking fund. Sinking funds may help pay off the debt at maturity or assist in buying back bonds on the open market. Sample problems with suggested solution keystrokes for the. Use this calculator to determine the payment required to accumulate a specified amount by. Sinking fund factor takes a single payment and spreads into a uniform series over n earlier periods.

Estimating property value with dcf assume that i o is level. The basic amortization formula relies on three variables, identified by the letters p, r and n. Suppose that an account has an annual rate of compounded times per year, so that is the interest rate per compounding. As such, the bond issuer is required to contribute a certain amount of money to the sinking fund each period and the formula to calculate the sinking fund is as shown below. Suppose that the account has an annual interest rate of compounded times per year, so that is the interest rate per compounding period. As depreciation charges are incurred to reflect the assets falling value, a matching amount of cash is invested. Through the use of this method, the issuer of the bonds can suitably prepare its assets in redeeming the bonds upon their maturity. Advanced income capitalization appraisal institute.