I would just like someone to check this and tell me if I'm on the right track with this or totally off. Thanks!
BE2-20 Gordon Company issued $1,000,000, 10-year bonds and agreed to make annual sinking fund deposits of $80,000. The deposits are made at the end of each year into an account paying 5% annual interest. What amount will be in the sinking fund at the end of 10 years?
80,000 is deposited each year for ten years and 5% of 80,000? Which is 4,000 so, is this right?
Fund dep. Interest Total
Year 1 80,000 4,000 84,000
Year 2 80,000 4,200(5% of 84,000) 168,200
Year 3 80,000 8,410(5% of 168,200) 256,610
Before I go any further, should I be adding the 80,000 to the total before I calculate the 5% interest of just calculate the 5% on the total from the previous year. Also, does the term "sinking fund" mean something special? Please advise me if I'm on the right track here.
The solution explains how to calculate the future value of sinking fund deposits