How much must the shop owner put into the van…

How much must the shop owner put into the van fund each year?

Question 28

MediumOriginal question

A shop owner wants ₹5,00,000 in 4 years to buy a new delivery van. She puts an equal sum into a fund at the end of each year, earning 8% a year compounded yearly. (Take $(1.08)^{4} = 1.36049$ ; answers to the nearest rupee.)

How much must the shop owner put into the van fund each year?

₹29,401Correct answerYour answer₹1,10,960Correct answerYour answer₹1,25,000Correct answerYour answer₹1,35,000Correct answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer B

Correct answer: B

Sinking-fund payment $= \frac{F \cdot i}{(1 + i)^{n} - 1} = \frac{5{,}00{,}000 \times 0.08}{0.36049}$ .
$\frac{40{,}000}{0.36049} \approx 1{,}10{,}960$ rupees.

Worth noting

₹1,25,000 is $\frac{5{,}00{,}000}{4}$ , ignoring the interest the deposits earn.

Concept: The sinking-fund payment
Typical timeTypical: 120 s
Your timeYours: —

The rule this testsSinking funds

Practise this chapter →

Ten questions from Perpetuity, Sinking Funds & Bonds, at your own pace.

Practise this chapter →

Ten questions from Perpetuity, Sinking Funds & Bonds, at your own pace.

How much must the shop owner put into the van fund each year?

Question 28

Explanation