What are the Advantages of Sinking Funds?
1. Brings in investors: Investors are very well aware that companies or organizations with a large amount of debt are potentially risky. However, once they know that there is an established sinking fund, they will see a certain level of protection for them so that in the case of a default or bankruptcy, they will still be able to get their investment back.
2. The possibility of lower interest rates: A company with poor credit ratings will find it difficult to attract investors unless they offer higher interest rates. A sinking fund offers alternative protection for investors so that companies can offer lower interest rates.
3. Stable finances: A company’s economic situation is not always definite, and certain financial issues can shake its stable ground. However, with a sinking fund, the ability of a company to repay its debts and buy back bonds will not be compromised.
How to Calculate Annual Installment for Sinking Fund?
Annual Installment for Sinking Fund calculator uses Annual Installment = Sinking Fund*Rate of Interest/((1+Rate of Interest)^Number of Years Money is Invested-1) to calculate the Annual Installment, The Annual Installment for Sinking Fund formula is defined as a series of amounts to be paid annually over a predetermined period of years in substantially equal periodic payments, except to the extent that any increase in the amount reflects reasonable earnings through the date the amount is paid. Annual Installment is denoted by Ia symbol.
How to calculate Annual Installment for Sinking Fund using this online calculator? To use this online calculator for Annual Installment for Sinking Fund, enter Sinking Fund (S), Rate of Interest (Ir) & Number of Years Money is Invested (T) and hit the calculate button. Here is how the Annual Installment for Sinking Fund calculation can be explained with given input values -> 60.15038 = 8000*10/((1+10)^3-1).