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Financial Management

Notes 11. The XYZ company is establishing a sinking fund to retire 5,00,000 8% debentures 10
years from today. The company plans to put a fixed amount into the fund each year for 10
years. The first payment will be made at the end of current year. The company anticipates
that the fund will earn 6% a year. What equal annual contributions must be made to
accumulate 5,00,000, 10 years from now.

12. Calculate the price of 10% debentures having face value of 100, to be redeemed after 10
years at par and paying interest after every six months, assuming the market rate of
interest of debentures of similar risk and maturity period is (a) 10%, (b) 12%, (c) 8%
Answers: Self Assessment
1. interest 2. accumulated interest
3. compounding 4. compounding

5. discounting 6. smaller
7. Annuity 8. present value
9. future value 10. perpetuity

11. rate of interest 12. present value
13. gr = Vo(1 + r)n = Vn 14. interest
15. Doubling

2.9 Further Readings

Books Dr Pradeep Kumar Sinha, Financial Management, New Delhi, Excel Books, 2009.
Van Horne, J.C. and Wachowicz, Jr, J.M., Fundamentals of Financial Management,
New Delhi, Prentice Hall of India Pvt. Ltd., 1996, p. 2.
Chandra, P., Financial Management—Theory and Practice, New Delhi, Tata McGraw
Hill Publishing Company Ltd., 2002, p. 3.

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