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Since the birth of his granddaughter, 19 years ago, Joshua has deposited $100 at the beginning of every month into a Registered Education Savings Plan (RESP)
Since the birth of his granddaughter, 19 years ago, Joshua has deposited $100 at the beginning of every month into a Registered Education Savings Plan (RESP). The interest rate on the plan was 3.75% compounded monthly for the first 10 years and 4.25% compounded monthly for the next 9 years.
a. What was the accumulated value of the RESP at the end of 10 years?
b. What was the accumulated value of the RESP at the end of 19 years?
Expert Solution
a) Computation of accumulated value of the RESP at the end of 10 years using FV Function in Excel:
=fv(rate,nper,-pmt,pv,type)
Here,
FV = Accumulated value of the RESP at the end of 10 years = ?
Rate = 3.75%/12
Nper = 10 years*12 = 120
PMT = $100
PV = 0
Type = 1 (at the beginning)
Substituting the values in formula:
=fv(3.75%/12,120,-100,0,1)
FV or Accumulated value of the RESP at the end of 10 years = $14,577.92
b) Computation of accumulated value of the RESP at the end of 19 years using FV Function in Excel:
=fv(rate,nper,-pmt,pv,type)
Here,
FV = Accumulated value of the RESP at the end of 10 years = ?
Rate = 4.25%/12
Nper = 9 years*12 = 108
PMT = 0
PV = $14,577.92
Type = 1 (at the beginning)
Substituting the values in formula:
=fv(4.25%/12,108,0,-14577.92,1)
FV or Accumulated value of the RESP at the end of 9 years = $21,356
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