1313_section5o3 - Section 5.3 Amortizations and Sinking...

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Section 5.3 – Amortizations and Sinking Funds 1 Section 5.3 Amortization and Sinking Funds To Amortize means to pay off a debt by installment payments. Amortization Formula The periodic payment R on a loan of P dollars to be amortized over n periods with interest charged at the rate of i per period is n i Pi R - + - = ) 1 ( 1 Sinking Fund A fund that is set up for a specific purpose at some future date is called a sinking fund. Sinking Fund Formula The periodic payment R required to accumulate a sum of S dollars over n periods with interest charged at the rate of i per period is 1 ) 1 ( - + = n i iS R Example 1: Kelly wishes to buy a car that costs $32,998. The car dealer tells her that they can finance the car at 6.25% per year compounded monthly for 5 years. She decides to secure the loan from the dealer. How much will her monthly payments be?
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Unformatted text preview: Section 5.3 Amortizations and Sinking Funds 2 Example 2: A person would like to have $200,000 in an account for retirement 15 years from now. How much should be deposited quarterly in an account paying 6% per year compounded quarterly to obtain this amount? Example 3: A sailboat costs $16,000. You pay 15% down and secure a loan for the remaining balance. How much are your monthly payments if 18% per year compounded monthly is charged over a period of 6 years? Section 5.3 Amortizations and Sinking Funds 3 Example 4: Christina plans to go to Disney World in two summers and wishes to have $7000 by then. How much money should she deposit monthly for the next 2 years in an account paying 3.25% per year compounded monthly to achieve this goal?...
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This note was uploaded on 02/21/2012 for the course MATH 1313 taught by Professor Constante during the Spring '08 term at University of Houston.

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1313_section5o3 - Section 5.3 Amortizations and Sinking...

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