Question

In the following ordinary annuity, the interest is compounded with each payment, and the payment is made at the end of the compounding period. Find the amount of time needed for the sinking fund to reach the given accumulated amount. (Round your answer to two decimal places.) $295 monthly at 5.6% to accumulate $25,000.

Answer 1

Please refer to following excel screenshots for calculation of number of periodic(monthly) payment at $ 295 to accumulate $ 25,000 at 5.6% p.a (equivalent monthly interest rate 5.6%/12 )

formula reference -

Thus, 71.57 periodic payment required to accumulate $ 25,000.

Please note-

Use following following formula in excel for number of periodic payment

=NPER(rate,pmt,pv,fv,type)

where,

rate = interest rate

pmt = monthly payment or periodic payment

pv = present value (it should be Zero in our case as we are calculating for future value)

fv = future Value ( put a minus sign before this, as this formula is designed for loan and this is an annuity investment.)

type = 0 (at the end ) or 1 ( at the beginning) for payment.