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A pumping set with a motor has been installed in a building at a cost of Rs.2500.00. Assuming the life of the pump as 15 years, work out the amount of annual instalment of sinking fund required to be deposited to accumulate the whole amount of 4% compound interest.

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A pumping set with a motor has been installed in a building at a cost of Rs.2500.00. Assuming the life of the pump as 15 years, work out the amount of annual instalment of sinking fund required to be deposited to accumulate the whole amount of 4% compound interest.

(a) Rs.355

(b) Rs.125

(c) Rs.185

(d) Rs.1950

This question was posed to me during an internship interview.

This question is from Values, Tax, Funds & Rents etc topic in section Valuation, Reports Technical and Design Data of Civil Engineering Drawing

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Correct choice is (b) Rs.125

The explanation is: The annual sinking fund, I = Si / [(1+i)n-1] = 2500*0.04/(1+0.04)15-1 = 2500*0.05 = Rs.125

The owner is to deposit Rs.125/- annually in 4% compound interest carrying investment for 15 years to accumulate Rs.2500/-.

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