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Question 24.3: SINKING FUND TO PAY A CONSULTANT With a mutual agreement, a ...

SINKING FUND TO PAY A CONSULTANT

With a mutual agreement, a city is to retire a debt to a consulting engineer by establishing a sinking fund of USD 24,000, for a 3-year period at 4% interest rate compounded annually. What is the annual amount the city must put aside to retire the debt after 3 years?

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R = Ai/[(1 + i)^{n} − 1].
R = 24,000 × 0.04/[(1 + 0.04)³ − 1] = USD 7688.36.

The annual amount that the city must put aside is USD 7688.36.

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