A company establishes a sinking fund to provide for payment of ₹2.50.000 debt, maturing in 4 year Contribution to the fund are to be made at the end of each year, Find the amount of each annual deposit if interest rate is 18% p.a. [Assume (1.18) 4 ≈ 2].
Answer & explanation
Correct answer: option 2
Using formula of sinking fund
$M=\frac{A}{r}[(1+r)^n-1]$
$250000=\frac{A}{.18}[(1+.18)^4-1]=\frac{A}{.18}[(1.18)^4-1]$
$A=\frac{250000×.18}{(1.18)^4-1}=45000$ ∴(1.18)4 ≈ 2