# Return of capital sinking fund

• MHB
• logicandtruth
In summary, the present value of an investment with an annual income of £10,000 over the next four years at a return rate of 5% per annum is £35,460. This can be calculated using the formula PV = C x ((1-(1+r)^-n)/r). The figures in the column titled 'return of capital (sinking fund)' represent the amount of money that needs to be set aside each year to ensure the original investment amount is returned. This can be calculated using the formula R = PV x (r/(1-(1+r)^-n)).
logicandtruth
Hi All - Would appreciate some help on this please.

Query on level annuities

Q. What is the present value of an investment with an annual income of £10,000 over the next for years at a return of 5% per annum?

A - first image below. I appreciate that the second equation though gives the same correct answer of £35,460, it would be used if the remunerative and accumulative rates were different.

The below image provides a return on and of capital broken down year-by-year. Please could you advise how the figures in the column titled 'return of capital (sinking fund)' are calculated

?

Hi there,

To calculate the present value of an investment with an annual income of £10,000 over the next four years at a return of 5% per annum, you can use the following formula:

PV = C x ((1-(1+r)^-n)/r)

Where:
PV = Present value
C = Annual income
r = Return rate
n = Number of years

In this case, the present value would be £10,000 x ((1-(1+0.05)^-4)/0.05) = £35,460.

As for the figures in the column titled 'return of capital (sinking fund)', this refers to the amount of money that needs to be set aside each year to ensure that the original investment amount is returned at the end of the four years. This is calculated using the following formula:

R = PV x (r/(1-(1+r)^-n))

Where:
R = Annual return of capital
PV = Present value
r = Return rate
n = Number of years

In this case, the annual return of capital would be £35,460 x (0.05/(1-(1+0.05)^-4)) = £8,865.

I hope this helps clarify the calculations for you. Let me know if you have any further questions. Good luck with your research!

## What is a return of capital sinking fund?

A return of capital sinking fund is a financial tool used by companies to set aside money to pay back investors or shareholders their initial investment. This fund is usually set up when a company issues stocks or bonds and wants to ensure that they have the necessary funds to pay back investors when the investment reaches maturity.

## How does a return of capital sinking fund work?

A return of capital sinking fund is typically funded by regular contributions from the company, which are invested in low-risk securities such as government bonds or money market funds. When the investment reaches maturity, the company can use the funds from the sinking fund to pay back investors their initial investment.

## What is the purpose of a return of capital sinking fund?

The main purpose of a return of capital sinking fund is to provide a guarantee to investors that their initial investment will be paid back in full. This can help attract more investors and improve the company's financial stability.

## What are the benefits of having a return of capital sinking fund?

Having a return of capital sinking fund can provide several benefits to a company. It can help build trust with investors, improve the company's creditworthiness, and ensure that the company has the necessary funds to pay back investors when the investment reaches maturity.

## Are there any risks associated with a return of capital sinking fund?

While a return of capital sinking fund can provide several benefits, there are also some risks associated with it. If the company faces financial difficulties, it may not be able to make regular contributions to the fund, which can result in a failure to meet its obligations to investors. Additionally, the fund's investments may not perform as expected, resulting in a lower return for investors.

• Precalculus Mathematics Homework Help
Replies
16
Views
4K
• Calculus and Beyond Homework Help
Replies
1
Views
2K
• Cosmology
Replies
4
Views
2K
• Programming and Computer Science
Replies
29
Views
3K
• General Discussion
Replies
2
Views
5K
• Precalculus Mathematics Homework Help
Replies
13
Views
4K
• Mechanical Engineering
Replies
1
Views
3K
• Biology and Medical
Replies
4
Views
3K
• General Discussion
Replies
99
Views
12K
• Atomic and Condensed Matter
Replies
4
Views
6K