A sinking fund is created for the redemption of debentures of Rs 10,000 at the end of 25 years. How much money should be provided out of profits each year for the sinking fund if the investment can earn interest at the rate 4% per annum?

2408.19

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1408.19

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3408.19

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5408.19

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Solution

The correct option is A 2408.19
Using formula of sinking fund
$M = \frac{A}{r} [(1 + r)^{n} - 1]$
$⟹ 1000 = \frac{A}{0.04} [(1 + 0.04)^{25} - 1] ⟹ A = 2408.19$

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