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Sinking Fund Provision each year = $100,000,000

The company would need to set aside $6.9 million at the end of each year to ensure that there are enough funds ($10 million) to retire the bonds at maturity.

V. Effect Of Annuities At The Beginning Of Each Year

The annuities considered thus far in this chapter are end-of-the-period cash flows. Both the present and future values will be affected if the cash flows occur at the beginning of each period instead of the end. To illustrate this effect, consider an annuity of $ 100 at the end of each year for the next 4 years, with a discount rate of 10%.

Contrast this with an annuity of $100 at the beginning of each year for the next four years, with the same discount rate.

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