Question

1. Tara and Todd, both 23, have graduated and started working. Tara plans on contributing $1000 to an RRSP and at the end of each of the next 10 years then won’t make further contributions until she retires at 65. Todd will wait until he is 33 to start contributing at which time he’ll contribute $1000 at the end of each year until he retires at 65. Assuming they both earn 8 % compounded annually, how much will Tara have at retirement? How much has she contributed in total? How much will Todd have at retirement? How much has he contributed in total? ( Using the financial calculator and please show your calculations).

Answer 1

Lets first calculate the amounts for Tara:

Tara's age = 23

Retirement age = 65

years till retirement = 42

years till which investments will be done = 10 years

First we will calculate the Present value of the investments made for 10 years

We shall follow the following steps

PMT = 1000

I/Y = 8

N=10

CPT > PV > 6710.08

So Present value of the $1000 invested for the next 10 years shall be $6710.08

Now we shall calculate the Future value of this amount to calculate the amount at retirement

PV = 1000

I/Y = 8

N = 42

CPT> FV > 134213.57

So the amount Tara will have at retirement =$134,213.57

Amount Tara has contributed in total = $1000 * 10 = $10000

Lets calculate the amounts for Todd:

Tara's age = 23

Age at which investment will start = 33

Retirement age = 65

years till retirement from the start of investment = 32

Amount invested = 1000

PMT = 1000

N= 32

I/Y = 8

CPT > FV > 55456.77

Amount Todd will have at the age of retirement = $55,456.77

Amount contributed by Todd = 1000 * 32 = $32,000