Question

In: Finance

Eleni contributed ​$150.00 every three months into an RRSP for 10 years. What nominal annual rate...

Eleni contributed ​$150.00 every three months into an RRSP for 10 years. What nominal annual rate of interest will the RRSP earn if the balance in Eleni's account just after she made her last contribution was $ 10, 000.00 ? The nominal annual rate of interest is % compounded quarterly.

Solutions

Expert Solution

Amount deposited quarterly 150
Time = 10 Years it means total quarters 10*4 = 40
Future value of Amount deposited= 10000
Future value of annuity = P * { (1+r)^n - 1 } / r  
10000 = 150 * Cumulative p.V.f. at rate of interest for 40 periods
Cumulative p.V.f. at rate of interest for 40 periods 66.66667
Assume, rate is 4%, C.P.V.F. = 95.02552
Assume, rate is 2%, C.P.V.F. = 60.40198
It means rate is between 4 and 2.
Quarterly rate = 4 -( 2 * (95.02552-66.66667) /(95.02552 - 60.40198))
   4 - 1.638
2.36 or 0.024
P.V.F. @ 2.40 for 40 periods = 65.92708
P.V.F. @ 2.45% for 40 periods = 66.6599
So, Quarterly interest rate is 2.45%
Nominal annual rate of interest compounded quarterly = 2.45 *4 = 9.80%
Note : We have performed trial and error method for finding exact rate of interest.
Cumulative pvf formula = 150 * (((1+0.0245)^40)-1)/0.0245

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

Adrian invested $1,600 at the beginning of every 6 months in an RRSP for 11 years....
Adrian invested $1,600 at the beginning of every 6 months in an RRSP for 11 years. For the first 7 years it earned interest at a rate of 4.50% compounded semi-annually and for the next 4 years it earned interest at a rate of 5.60% compounded semi-annually. a. Calculate the accumulated value of his investment after the first 7 years. b. Calculate the accumulated value of her investment at the end of 11 years. c. Calculate the amount of interest...
Sophie invested $2,100 at the beginning of every 6 months in an RRSP for 11 years....
Sophie invested $2,100 at the beginning of every 6 months in an RRSP for 11 years. For the first 9 years it earned interest at a rate of 3.70% compounded semi-annually and for the next 2 years it earned interest at a rate of 5.50% compounded semi-annually. a. Calculate the accumulated value of her investment at the end of the first 9 years. b. Calculate the accumulated value of her investment at the end of 11 years. c. Calculate the...
Glenn has made contributions of​ $250 at the end of every three months into an RRSP...
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...
10) FV of $800 paid each 6 months for 5 years at a nominal rate of...
10) FV of $800 paid each 6 months for 5 years at a nominal rate of 7% compounded semiannually. Do not round intermediate calculations. Round your answer to the nearest cent. $   FV of $400 paid each 3 months for 5 years at a nominal rate of 7% compounded quarterly. Do not round intermediate calculations. Round your answer to the nearest cent. $   These annuities receive the same amount of cash during the 5-year period and earn interest at the...
Steve Lee contributes $1035 at the end of every 3 months into an RRSP. Interest on...
Steve Lee contributes $1035 at the end of every 3 months into an RRSP. Interest on the account is 6% compounded monthly. a) What will be the balance after nine years? b) How much of the balance will be interest? c) If Steve converts the balance after nine years into an RRIF earning 5% compounded monthly and makes equal withdrawals at the end of every three months for eight years, what is the size of the withdrawal?
Glenn has made contributions of $250 at the end of every 3 months into an RRSP...
Glenn has made contributions of $250 at the end of every 3 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 monthly. How much will Glenn have in his RRSP three years after the last contribution? (c)Suppose Glenn then decides to withdraw the money...
Belle and the Beast want to retire in 10 years and can save $2,000 every three months.
  Belle and the Beast want to retire in 10 years and can save $2,000 every three months. They plan to deposit the money at the beginning of each quarter into an account paying 4% compounded quarterly. How much will Belle and the Beast have in 10 years?
The annual nominal rate is jm = 0.15pa. What is the effective annual rate as a...
The annual nominal rate is jm = 0.15pa. What is the effective annual rate as a percentage to two decimal places? The number of compounding periods is 8. Enter your answer as a decimal eg 17.42% = .1742 to four decimal places. Accuracy of one basis point. Tip: use excel to get the required accuracy.
If Paige has accumulated $6200 by saving $80 every month for six ​years, what nominal annual...
If Paige has accumulated $6200 by saving $80 every month for six ​years, what nominal annual rate of interest compounded semi-annually has been​ earned? The nominal annual rate of interest is _____%compounded semi-annually
You receive $4,000 every three months beginning three months from today for 7 years and an...
You receive $4,000 every three months beginning three months from today for 7 years and an additional $1,200 7 years from today. If the interest rate is 3.0% (EAR), which of the following is closest to the present value (PV) of this stream of cash flows? How should I solve this using the hp10bii+ calculator? If you could show me the steps that would be great!
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT