Band of Investments

Schweser pg. 348. Can any one give light on the sinking fund factor. They kind of just through that in there. Why is this part of the calculations? Is it always a future value of -1?

I think of incorporating sinking fund as mortgage payment calculation. Mortgage payment consists of interest and principal payment (principal payment -> sinking fund).

Still don’t get it. Is this in other readings? Could you go further in the explanation and why its necessary? And why does problem #8 on Schweser pg 355 not incorporate this like it did on the example problem on pg 348?

Search for plyons answer to this. You will understand it.,740843,741842#msg-741842

Pink, The BOI is a WACC measure and thus incorporates a Debt and Equity component. You will need the sinking fund factor is referred to as return of capital to lender. If you are told the there is an 8% interest rate you would then calc the sink factor and then ADD to the 8%. This will give you one of the rates needed for WACC – think the debt component. Then you will be given an equity rate – say 12% and weights – then just take the weighted avg to derive a return. This was all ripped from CFAi book – page 593 Vol 4 has a great example.