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A sinking fund is created for the redemption of debentures of ₹2,00,000 at the end of 25 years. How much money should be provided out of profits each year for the sinking fund, if investment can earn interest 5% per annum? [Given (1.05)25≈3.4(1.05)^{25}\approx3.4]

Solution

✅ Correct Option: 2

For a sinking fund, 200000=P⋅(1.05)25−10.05=P⋅2.40.05=48P200000=P\cdot\frac{(1.05)^{25}-1}{0.05}=P\cdot\frac{2.4}{0.05}=48P, so P=20000048≈4166.67P=\frac{200000}{48}\approx4166.67.

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