A Model Based on Average Investment for Solving Complex Annuity Problems of Sinking Fund
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Undoubtedly, the basic sinking fund formula gives the futurevalue of a series of equal installments. The main underlyingassumption for using this formula is that installmentand compounding frequency must be in equal interval. Butwhen installment for a deposit scheme or any other savingsscheme and compounding frequency do not occur in an equalinterval, which is treated as the complex annuity problems inFinance Literature, the basic sinking fund formula does notgive the accurate result. As a result, the obtainable amountfrom different deposit schemes offered by different banks andfinancial institutions does not match with the amount of futurevalue calculated through the basic sinking fund formula bythe investors or savers. This study focuses the concealedfacts for such type of mismatches in values and at the sametime it provides a solution through developing a new formulaby extending the basic formula intended not only to removethose mismatches but also get the accurate future value froma sinking fund provision in case of complex annuity. Besides,since banks and financial institutions calculate the intereston the average amount of equal installments deposited withina period of time due to complex annuity, the study also formulatesan arithmetic formula for calculating the averageamount of installment.
Abstract
Undoubtedly, the basic sinking fund formula gives the futurevalue of a series of equal installments. The main underlyingassumption for using this formula is that installmentand compounding frequency must be in equal interval. Butwhen installment for a deposit scheme or any other savingsscheme and compounding frequency do not occur in an equalinterval, which is treated as the complex annuity problems inFinance Literature, the basic sinking fund formula does notgive the accurate result. As a result, the obtainable amountfrom different deposit schemes offered by different banks andfinancial institutions does not match with the amount of futurevalue calculated through the basic sinking fund formula bythe investors or savers. This study focuses the concealedfacts for such type of mismatches in values and at the sametime it provides a solution through developing a new formulaby extending the basic formula intended not only to removethose mismatches but also get the accurate future value froma sinking fund provision in case of complex annuity. Besides,since banks and financial institutions calculate the intereston the average amount of equal installments deposited withina period of time due to complex annuity, the study also formulatesan arithmetic formula for calculating the averageamount of installment.
참고문헌 (26)
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