John D. Investor owns an apartment building. Each apartment has certain items, such as refrigerators, garbage disposals, and carpets, that are expected to require replacement in 15 years. The total cost of replacement at the end of 15 years is expected to be $75,000. How much must John deposit monthly in an account earning 6 percent per year (compounded monthly) to have the required $75,000?
A sinking fund is established by an individual or a corporation for the purpose of accumulating funds to meet one large future obligation. For example, a company that faces a large bond payment at maturity might establish a sinking fund to repay the par value.
Answer and Explanation: 1
The account balance is the future value of the monthly payments. To solve this problem, we will need to recall the annuity formula, given as:
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fromChapter 21 / Lesson 15
An annuity is a type of savings account that pays back the investor in the future. Learn the formula used to calculate an annuity's value, and understand the importance of labeling specific numbers to calculate an output over time.