Hi.
I just don't get how to do annuity due in a sinking fund. I assume I am supposed to throw in a (1+ i) because payments come at the beginning, hence the (due)!! Ok, so here is the question:
"A company wishes to set up a fund to replace equipment which will cost $75,000 five years from now, making equal sized payments at the beginning of each of the next five years. If money is worth 12% annually, what is the size of the monthly payment?"
I have $9,838.11 as an answer, but I'm not really sure.
Also, the following question asks:
"Calculate the interest and increase into the fund described in [the previous question] during the 4th payment period."
To find the answer to this, I just made n=3, using the future value formula. Now, where I'm really confused is in the text book it tells me how to find this annuity due, but it makes no sense and I am hoping someone can clarify for me, please.
Thanks
I just don't get how to do annuity due in a sinking fund. I assume I am supposed to throw in a (1+ i) because payments come at the beginning, hence the (due)!! Ok, so here is the question:
"A company wishes to set up a fund to replace equipment which will cost $75,000 five years from now, making equal sized payments at the beginning of each of the next five years. If money is worth 12% annually, what is the size of the monthly payment?"
I have $9,838.11 as an answer, but I'm not really sure.
Also, the following question asks:
"Calculate the interest and increase into the fund described in [the previous question] during the 4th payment period."
To find the answer to this, I just made n=3, using the future value formula. Now, where I'm really confused is in the text book it tells me how to find this annuity due, but it makes no sense and I am hoping someone can clarify for me, please.
Thanks