Question

For a sinking fund to save $20 in 2 years with a 6% bi-annual compounded account, what should be your quarterly payment?

A) P = ( 20 × (1 + 0.06/2)^2 × 2 - 20/(1 + 0.06/2)^2 × 2 - 1 )
B) P = ( 20 × (1 + 0.06/4)^4 × 2 - 20/(1 + 0.06/4)^4 × 2 - 1 )
C) P = ( 20 × (1 + 0.06/2)^4 × 2 - 20/(1 + 0.06/2)^4 × 2 - 1 )
D) P = ( 20 × (1 + 0.06/4)^2 × 2 - 20/(1 + 0.06/4)^2 × 2 - 1 )

Answer 1

To calculate the quarterly payment for a sinking fund, you can use the formula: P = ( 20 × (1 + 0.06/4)^4 × 2 - 20/(1 + 0.06/4)^4 × 2 - 1 )

Step-by-step explanation:

To calculate the quarterly payment for a sinking fund, we can use the formula:

P = ( 20 × (1 + 0.06/4)^4 × 2 - 20/(1 + 0.06/4)^4 × 2 - 1 )

Let's break down the formula:
- (1 + 0.06/4)^4 represents the quarterly compounding over 2 years.
- 20/(1 + 0.06/4)^4 represents the present value of the savings goal at the end of 2 years.
- P = ( 20 × (1 + 0.06/4)^4 × 2 - 20/(1 + 0.06/4)^4 × 2 - 1 ) gives us the quarterly payment required to save $20 in 2 years with a 6% bi-annual compounded account.