16634 Lecture Notes - Lecture 4: Sinking Fund
Document Summary
Lecture 4: topic 2 the value of money calculations (continued) A sinking fund is the periodical investment of funds to provide for the future replacement of an asset subject to wear and tear. In the real estate industry sinking funds are commonly used to provide for the replacement of items such as air conditioning, lift plant and office partitioning. As a valuer, you may be called upon to carry out calculations to determine the necessary periodical amount to be paid into a sinking fund. The formula for the sinking fund factor as an ordinary annuity (arrears) is: As can be seen from the above formula, to calculate the sinking fund factor you would simply divide 1 by the future value of per annum. Where the sinking fund payment is to be made at the beginning of each period (i. e. as an annuity due) the formula changes to reflect an extra lot of interest.
