Question

Kyle is 37 years old and wants to accumulate $1,000,000 by the time he is

65. He believes he can earn 10% per year by investing in stocks and bonds.
Use the Sinking Fund Table to find the amount of the annual payment
needed. *.

Answer 1

A sinking fund is an account earning compound interest into which you make periodic deposits.

Suppose that the account has an annual interest rate of compounded times per year, so that

is the interest rate per compounding period. If you make a payment of at the end of each

period, then the future value after years, or periods, will be

We want to know how much we will have in the future, so we use the formula for the future

value of a sinking fund:

In this case and (note that 9 months is of a year). Thus, the future value is

So there will be $8,112.97 in the account after 9 months. Notice that if you just put $900 per month into your sock drawer, you would have after 9 months. The extra $12.97 is from interest. Calculator entry: To enter this problem into your TI calculator, you would enter it exactly as follows:We want to know how much we will have in the future, so we use the formula for the future