Sinking Fund Payment (Compounding) Formula
Hi! Can someone please help explain the logic and reasoning behind this formula?
Example:
An apartment complex’s parking lot needs to be resurfaced 3 years from now with an estimated cost of $50,000. How much must be invested at the end of each month for 3 years into an account earning 10% annual rate to have $50,000 at end of year 3?
Answer:
Monthly payment is $1,196.69
What is the logic behind this following formula for calculating sinking fund payments?
Payment per period = Future value * (rate per period / [(1 + rate per period)^number of periods - 1 )]
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