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Sinking Fund Factor

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The sinking fund factor is a ratio used to calculate the future value of a series of equal annual cash flows. The equation for the sinking fund factor is:

equations_sff

where:


 

 

i

= real discount rate

 

N

= number of years

For example, for i = 7% and N = 5 years, the sinking fund factor is equal to 0.1739. Therefore, five annual payments of $173.90 earning 7% interest are worth $1000.00 at the end of the fifth year.

See also

Capital Recovery Factor

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