Saroj is making financial plan for his retirement

Business Sep 01, 2020

Saroj is making financial plan for his retirement. His RRSP account has $10,000 and starting next week, he will contribute $56 every week. If his RRSP account pays 3% compounded monthly, how much money will he be accumulated after 19 years? Express your answer in 2 decimal places.

Expert Solution

We can calculate the future value by using the following formula in excel:-

=fv(rate,nper,-pmt,-pv)

Here,

FV = Future value

Rate = 3.04%/52 = 0.05849% (weekly)

Nper = 19*52 = 988 periods (weekly)

Pmt = $56

PV = $10,000

Substituting the values in formula:

= fv(0.05849%,988,-56,-10000)

= $92,687.68

Working note:-

Effective interest rate = (1+rate/n)^n-1

= (1+3%/12)^12-1

= 1.0304 - 1

= 3.04%

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