Betty is going to get an early start on saving for retirement. She is going to...

Betty is going to get an early start on saving for retirement. She is going to deposit $4,000 at the end of each year for 15 years into her RRSP. She will then make no further contributions but will let the funds stay in the RRSP for another 15 years earning interest. If the interest rate is 6% compounded annually, how much will Betty’s RRSP be worth at the end of 30 years? Louise does not want to start saving so early so she saves nothing for the first 15 years. However, after fifteen years she puts $4,000 at 6% annually at the end of each year for fifteen years. How much will be in Louise’s RRSP at the end of her 15 year saving period? How much more will Betty have in her RRSP at the end of the thirty year period compared with the amount in Louise’s RRSP?

Solutions

Expert Solution

1.
If the interest rate is 6% compounded annually, how much will Betty’s RRSP be worth at the end of 30 years?

=4000/6%*(1.06^15-1)*1.06^15
=223128.8653

2.
How much will be in Louise’s RRSP at the end of her 15 year saving period?
=4000/6%*(1.06^15-1)
=93103.8795

3.
How much more will Betty have in her RRSP at the end of the thirty year period compared with the amount in Louise’s RRSP?

=223128.8653-93103.8795
=130024.9858

jeff jeffy answered 2 years ago

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