Question

Glenn has made contributions of​ $250 at the end of every three months into an RRSP for 10 years. Interest for the first 10 years was​ 4% compounded quarterly.

​(a) What is the amount in the RRSP after the first 10​ years?

​(b) After the first 10​ years, Glenn stopped making contributions. The interest rate changed to​ 5% compounded quarterly. How much will Glenn have in his RRSP three years after the last​ contribution?

​(c) Suppose Glenn then decides to withdraw the money from his RRSP. How much will he be able to withdraw in monthly amounts over the next 10​ years?

Answer 1

a	F = P * ([1 + I]^N - 1 )/I
	F	Future Value	?
	P	Payments	$                             250.00
	I	Interest rate per quarter	= 4% / 4	1%
	N	Number of instalments	= 4 quarters * 10 years	40
	F =	$                                                                                                    12,221.59		Excel Formula	$                         12,221.59
		=250 * (( ( 1 + 1% ) ^ 40 ) - 1 ) / 1%			=-FV(1%,40,250)
b	F = P * ( 1 + I ) ^ N
	F	Future Value	?
	P	Principal Amount	$                       12,221.59
	I	Interest rate per quarter	= 5% / 4	1.25%
	N	Number of instalments	= 4 quarters * 10 years	40
	F =	$                                                                                                    20,087.65		Excel Formula	$                         20,087.65
		= 12221.29 * ( 1 + 1.25% ) ^ 40			=-FV(1.25%,40,0,12221.59)
c	A = [P * I * ( 1 + I ) ^ N ] / [ ( 1 + I ) ^ N-1]
	A	Monthly Reciepts	?
	P	Amount in RRSP	$                       12,221.59
	I	Interest rate per quarter	= 4% / 4	1.00%
	N	Number of instalments	= 4 quarters * 10 years	40
	A =	$                                                                                                          372.22		Excel Formula	$                               372.22
		= ( 12221.59 * 1% * ( ( 1 + 1% ) ^ 40 ) ) / ( ( ( 1 + 1% ) ^ 40 ) -1 )			=-PMT(1%,40,12221.59)