Mathematics · Financial Mathematics
A corporate client needs to accumulate 50,00,000 rupees in 5 years to repay a term loan using a Sinking Fund arrangement. The prevailing interest rate is 6% per annum compounded annually, and the client makes equal annual deposits at the end of each year. Which of the following statements accurately describes the mathematical and financial characteristics of this arrangement?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The total interest earned over the 5 years will be exactly equal to the total principal invested if the rate is 6 percent.
- 2If the interest rate increases to 10 percent, the required annual installment to reach the same target will increase.
- 3The first installment will earn interest for the full 5 years because it is an ordinary annuity.
- 4The annual installment required will be less than 10,00,000 rupees because the interest earned on early installments contributes to the final target.✓
Correct answer
The annual installment required will be less than 10,00,000 rupees because the interest earned on early installments contributes to the final target.
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