Question
Download Solution PDFCalculate the years purchase for a property of useful life of 30 years and the rate of interest of 5% per annum. The rate of interest for the sinking fund is 3%.
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFConcept:
Year’s purchase is defined as the capital sum required to be invested in order to receive an annuity of Re 1.00 at a certain rate of interest.
Sinking Coefficient = \(\rm{S=\frac{i_s}{(1+{i_s})^n-1}} \)
Year’s purchase = \(\frac{{1}}{{{\bf{i}} + {\bf{s}}}}\) (Put i and s in decimals)
Where,
is = interest rate of sinking fund, i = rate of interest and S = Sinking fund coefficient
Calculation:
is = 0.03
Sinking Coefficient (s) = \(\rm{S=\frac{i_s}{(1+{i_s})^n-1}} \rm{=\frac{0.03}{(1+0.03)^{30}-1}} =0.021\)
i = 0.05
Year's Purchase = \(\rm{\frac{1}{i+s}=\frac{1}{0.05+0.021}}\)= 14.08 ≈ 14
Last updated on May 28, 2025
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