Mathematics of FinanceMCQPYQ Jun 23Question 1463 of 512
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Sinking fund factor is the reciprocal of:

Options

APresent value interest factor of a single cash flow
BPresent value interest factor of an annuity
CFuture value interest factor of an annuity
DFuture value interest factor of a single cash flow
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Correct Answer

Option cFuture value interest factor of an annuity

All Options:

  • APresent value interest factor of a single cash flow
  • BPresent value interest factor of an annuity
  • CFuture value interest factor of an annuity
  • DFuture value interest factor of a single cash flow

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Detailed Solution & Explanation

The Sinking Fund Factor (SFF\displaystyle SFF) is used to calculate the periodic payment needed to accumulate a target future value. The formula for the periodic payment A\displaystyle A to accumulate a future value FV\displaystyle FV is: A=FV×i(1+i)n1A = FV \times \frac{i}{(1+i)^n - 1} The term i(1+i)n1\displaystyle \frac{i}{(1+i)^n - 1} is the Sinking Fund Factor. The Future Value Interest Factor of an Annuity (FVIFA\displaystyle FVIFA) is: FVIFA=(1+i)n1iFVIFA = \frac{(1+i)^n - 1}{i} Comparing the two formulas, the Sinking Fund Factor is the reciprocal of the **Future Value Interest Factor of an Annuity** (FVIFA\displaystyle FVIFA). Hence, **Option C** is the correct answer.

About This Chapter: Mathematics of Finance

Paper

Paper 3: Quantitative Aptitude

Weightage

12-16 Marks

Key Topics

Simple & Compound Interest, Annuity, Perpetuity

The most important mathematical chapter in the entire syllabus. It covers Simple Interest (SI), Compound Interest (CI), Nominal vs Effective rates, Present and Future Value, Annuities (Ordinary and Due), Sinking Funds, and Perpetuities. The concepts learned here are applied heavily in CA Intermediate and Final.

View Official ICAI Syllabus

Exam Strategy Tip

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