A company intends to create a sinking fund to replace at the end of $20^{th}$ year assets costing ₹2,50,000. Then the value of the amount to be retained out of profits every year if the interest rate is 5% is : (Given $(1.05)^{20}= 2.6532)$
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → ₹7,561.09
The annual payment, P
$P=\frac{A.r}{(1+r)^n-1}$
$=\frac{2,50,000×0.05}{(1+0.05)^{20}-1}≃7,561.09$