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Homework answers / question archive / Mrs  Martin contributes $1830

Mrs  Martin contributes $1830

Finance

Mrs  Martin contributes $1830.00 at the beginning of every three months to an RRSP. Interest on the account is 7.44% compounded quarterly.

a) What will the balance in the account be after 6 years?

b) How much of the balance will be interest?

c) If Mrs. Martin converts the balance after 6 years into an RRIF paying 5.41% compounded quarterly and makes equal quarterly withdrawals for 11 years starting three months after the conversion into the RRIF, what is the size of the quarterly withdrawal?

d) What is the combined interest earned by the RRSP and the RRIF?

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  • a.

    Quarterly Deposit n = 6*4 Qtr's r = 7.44%*(3/12) 1+r (1+r)^n [(1+r)^n] - 1 FVAF = [(1+r)^n] - 1/r FVAFdue = FVAF*(1+r) Future Worth (A*B)
    $   1,830.00 24 1.9% 1.01860 1.55628 0.55628 29.90760 30.4639 $     55,748.91

    b.

    Amount after 6 Years $       55,748.91
    Total Amount Deposited ($1,830*24) $ (43,920.00)
    Total Interest Amount $       11,828.91

    c.

    Amount in Year 6 n = 11*4 Qtr's i = (5.41%/4) 1+i (1+i)^-n 1- [(1+i)^-n] PVAF = [1- [(1+r)^-n]] /r Quarterly Withdrawl
    $       55,748.91(A) 44 1.80% 1.0180 0.4555 0.5445 30.1950(B) $ 1,846.29 (A/B)

    d.

    Total Quarterly Withdrawls ($1,846.20*44) $       81,236.93
    Amount after 6 Years $       55,748.91
    Total Interest Amount $       25,488.03
    Combined Interest($11,828.91 + $25,488.03) = $37316.93

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