Time Value of Money - Six Functions of a Dollar
Using Assessors’ Handbook Section 505 (Capitalization Formulas and Tables)
Appraisal Training: Self-Paced Online Learning Session

# Lesson 5: Sinking Fund Factor

In order to solve the following problems you will need to refer to AH 505 to look up the factors in the compound interest tables. Before you start, please print the problems using the "Print Questions" button below so you can work through the problems on your own. After you work through the problem, the solution can be viewed by clicking on the blue plus sign immediately following the question. Additionally, when you have completed all the problems, you may print all of the solutions using the "Print Questions with Answers" button below.

## Problem 1

Using the sinking fund factor (SFF), given the future value provided below, solve for the amount of the periodic (annual) payment that will compound to that future value.

Solution

## Problem 2

Windpower Inc. has just issued bonds with a face value of \$100 million that become due in 25 years. The bond contract contains a provision that Windpower must make equal payments at the end of each year into a sinking fund that will be used to retire the bonds after 25 years. How much must Windpower set aside each year if the annual interest rate is 7%?

Solution

## Problem 3

Johnny will enter college in 10 years. At that time, you would like to have a balance of \$100,000 in his college fund. Assuming an earnings rate of 8%, how much must you invest at the end of each month to fund Johnny´s education?

Solution

## Problem 4

You expect to replace the roof of your investment property in 15 years. The estimated cost of the replacement is \$800,000. Assuming that you can earn an annual rate of 4%, how much should you set aside at the end of each year in order to fund the future roof replacement?

Solution

## Problem 5

Pete likes to plan ahead. When he retires 30 years from now, he would like to have \$1,000,000 in his 401k retirement account. If he expects to earn an annual rate of 15%, how much should he deposit at the end of each month in order to reach his goal?

Solution