Which of the following is correct about the sinking fund ?

The correct answer is Option (3) → A fixed amount is deposited in the sinking fund at predefined regular intervals.

A sinking fund is set aside to meet a specific future liability, such as repaying a debt or replacing an asset. To build up the known amount by a known date, equal payments are deposited at regular intervals and earn compound interest; it is an annuity.

So a fixed amount is deposited at predefined regular intervals.

CBSE Applied Mathematics (Class XII):
Sinking Fund