An RRSP is worth $223,000 after contributions of $2500 at the beginning of every six months for 16 years

Accounting Jun 06, 2021

An RRSP is worth $223,000 after contributions of $2500 at the beginning of every six months for 16 years. What effective rate of return (e.g., annual nominal interest rate compounded annually) has the plan earned?

11.64%
12%
10.5%
11.54%
11.2%

Expert Solution

Computation of Effective Rate of Return using Rate Function in Excel:

=rate(nper,-pmt,pv,fv,type)*2

Here,

Rate = Effective Rate of Return = ?

Nper = 16*2 = 32 Periods

PMT = $2,500

PV = 0

FV = $223,000

Type = 1 (at the beginning)

Substituting the values in formula:

=rate(32,-2500,0,223000,1)*2

Rate or Effective Rate of Return = 11.2%

So, the correct option is 5th "11.2%".

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