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annuity and a sinking fund

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What is the difference between an annuity and a sinking fund? If you were to set up an annuity today to purchase something in 7 years what would it be for? If you were getting 6% compounded annually what would your payments need to be to reach your goal? What type of payments would you want to make (monthly, quarterly, yearly, etc) and why?

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Solution Summary

A contrast is made between an annuity and a sinking fund.

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Compound and simple interest, PV, annuities, FV, sinking funds

Congratulations! You have been hired by XYZ Advertising. You have been placed on an advertising team with your first big client, a local financial institution; however, you are somewhat nervous to join the advertising team as your financial knowledge and background are somewhat limited. Thus, before putting together an ad campaign with your fellow team members, you need to brush up on the particular terms and calculations that you are unfamiliar with that are listed in the advertising layout guide.

There are many terms used in the world of financial mathematics. It is important that these terms and their calculations are understood before working with the financial institution and the advertising team.

For this Discussion Board, use the library, Internet, and other resources to discuss the following financial terms, and give an actual calculated example of each:

Compound Interest and Simple Interest
1) Present Value, Annuities, and Amortization
2) Future Value and Sinking Funds
3) Give examples of specific organizations or individuals that may wish to utilize these concepts. Explain how and why they may want to use these concepts.

Objective: Illustrate compound interest formulas, using them to find future values and present values of a dollar; explain annuities and find the future value or present value of an annuity; illustrate amortization of certain types of installment loans and sinking funds.

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