1. What is a Sinking Fund Factor?

Definition: The sinking fund factor is the ratio of money that must be invested each period to grow to one unit of currency with compound interest.

Purpose: It helps determine regular payments needed to reach a future financial goal, accounting for compound interest.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( F \) — Sinking fund factor (dimensionless)
• \( r \) — Annual interest rate (decimal)
• \( n \) — Compounding periods per year (dimensionless)
• \( t \) — Time (years)

Explanation: The formula calculates the periodic payment needed per unit of future value, considering compound interest.

3. Importance of Sinking Fund Factor

Details: Essential for financial planning, loan amortization, and determining regular savings needed to reach investment goals.

4. Using the Calculator

Tips: Enter the annual interest rate as a decimal (e.g., 5% = 0.05), compounding periods per year (e.g., 12 for monthly), and time in years.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between sinking fund factor and annuity factor?
A: The sinking fund factor calculates payments to reach a future value, while the annuity factor calculates payments to repay a present value.

Q2: How do I convert annual percentage rate to decimal?
A: Divide the percentage by 100 (e.g., 7.5% becomes 0.075).

Q3: What's a typical compounding frequency?
A: Common frequencies are 1 (annual), 2 (semi-annual), 4 (quarterly), 12 (monthly), or 365 (daily).

Q4: Can I use this for monthly savings calculations?
A: Yes, set compounding periods to 12 and enter the annual rate.

Q5: How does time affect the sinking fund factor?
A: Longer time periods result in smaller required periodic payments, as compound interest has more time to work.