Rule 72 =    ­­­­­­______72_____

                   Interest rate(absolute)

Absolute means not to take % into consideration

Rule 69 = 0.35 + 69/Interest rate (absolute)

Absolute means not to take % into consideration

e.g. In how many years an amount of Rs. 1,000/- double itself @ 10% compound rate of interest according to rule 72.

 Rule 72 =   72               =  7.2 years

                   Interest rate

e.g. An amount of Rs. 15,000 at 20% rate of interest will be double in how many years if interest compounded annually according to rule 69.

Rule 69 = 0.35 +  69/20=3.8 years

(i.e. 3 years and 9 months and 18days).

Amortization of Debt

When a specified amount of money is needed at a specified future date, it is a good system to accumulate systematically a fund by means of equal periodic deposits. Such fund is called sinking fund and is used to pay off debts, to redeem bonds/Debentures, to replace a depreciated asset, to buy a new asset. It is also one of the most important methods of depreciation.

SINKING FUND APPROPRIATION:

e.g. A company set aside some money every year for 5 years to pay off a debenture issue of Rs. 2,00,000. If the fund accumulates at 10% p.a. compounded yearly, find the annual amount to be appropriated to sinking Fund.

Answer:        Sinking fund =   2,00,000  x0 .10

                                                  [(1+10/100)⁵-1]                  =     32,759.49(approx)

Equal/Equated Yearly Installment

Loan amount x r

     [ 1-(1+r)-ⁿ]                 

e.g. A borrows Rs. 50,000 at 10% p.a. compounded annually and agrees to pay it back in 5 equal annual installments. Find the amount of each yearly installment.

  Equal yearly installment= 50000  x  .10

                                               [1-(1+10/100)-⁵]                 = 13192.61(approx)