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The management of Gibraltar Brokerage Services anticipates a capital expenditure of $27,000 in 3 yr for the purpose of purchasing new computers and has decided to set up a sinking fund to finance this purchase. If the fund earns interest at the rate of 9%/year compounded quarterly, determine the size of each (equal) quarterly installment that should be deposited in the fund.

  • Math -

    27,000 in 3yr, 9%/yr compounded quarterly

    R = Ai/(1 + i)^n - 1
    R = Payment
    A = Total needed = 27,000
    n = Number of payments = 4 * 3 = 12
    i = Interest rate = 0.09/4 = 0.0225

    R = 27000(0.0225)/((1 + 0.0225)^12 - 1)
    R = 607.50/((1.0225)^12 - 1)
    R = 607.50/(1.30605 - 1)
    R = 607.50/0.30605
    R = 1984.97

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