Question

Find the amount of each payment to be made into a sinking fund which earns 5% compounded quarterly and produces $32,000 at the end of 2.5 years. Payments aremade at the end of each period.The payment size is $(Do not round until the final answer. Then round to the nearest cent.)

Answer 1

We have to use the following formula

$FV=PMT(\frac{(1+i)^n}{i})$

Where FV = 32,000, i = 0.05, and n = 7.5.

$\begin{gathered} 32000=\text{PMT(}\frac{(1+0.05)^{7.5}}{0.05}\text{)} \\ PMT\approx1,109.69 \end{gathered}$

Therefore, the payment after each period is $1,109.69.