Question

Nikola is currently 47 years old and planning to retire at age 63. She has already saved $247,000.00 in her RRSP. If she continues to contribute $400.00 at the beginning of every month, how much money will be in her RRSP at retirement if it can earn 8% compounded monthly? No deposit is made the day she turns 63.

At retirement, Nikola’s $247,000.00 will have grown to

  and her $400.00 deposits will have grown to

  , for a total of

  in her RRSP.

Answer 1

Solution:

Monthly interest rate = 8%/12 = 0.6666666%

Nos of monthly periods = 16*12 = 192 periods

Future value of $247,000 = $247,000 * (1+0.00666666666)^192 = $247,000 * 3.58139 = $884,603

Future value of monthly deposit = $400 * Cumulative FV factor at 0.66666666% for 192 periods of annuity due

= $400 * 389.79054

= $155,916

At retirement, Nikola’s $247,000.00 will have grown to $884,603 and her $400.00 deposits will have grown to $155,916, for a total of $1,040,519 in her RRSP.