A firm anticipates an expenditure of ₹10,000 for a new equipment at the end of 5 years from now. How much should the firm deposit at the end of each quarter into a sinking fund earning interest 10% per year compounded quarterly to provide for the purchase? {Use $(1.025)^{20}=1.7$}
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → ₹357.14
Sinking fund formula:
$FV=R×\frac{(1+r)^n-1}{r}$
$FV = 10,000$
$R$ = Quarterly deposit
$r$ = Interest rate = 2.5%
$n$ = Total periods = 20
$10,000=R×\frac{(1.025)^{20}-1}{0.025}$
$10,000=R×28$
$R=\frac{10,000}{28}=357.14$