Question

Shayla is going to deposit $6,000 at the end of each year for 18 years into RRSP. Shayla will make no contributions but she will let the funds stay in RRSP for another 18years earning interest. The compounded annual interest rate is 6%. how much Shyla's RRSP be worth at the end of 40 years?

Answer 1

FV of Annuity = P*[{(1+i)^n}-1]/i

Where, P = Annuity = 6000, i = Interest Rate = 0.06, n = Number of Periods = 18

Therefore, FV = 6000*[{(1+0.06)^18}-1]/0.06 = 6000*1.854339/0.06 = $185433.92

Future Value = Present Value*[(1+Interest Rate)^Number of Periods]

Therefore, FV of above FV of Annuity after 18 more years = 185433.92*[(1+0.06)^18] = 185433.92*2.854339 = $529291.28

Note: FV after 40 years is to be calculated, where as Annuity is made for 18 years and it is kept invested for another 18 years i.e. Total 36 years. So, either investment is started 4 years from now, or, investment is realized 36 years from now and it is kept as it is for 4 years. In any case, FV will remain the same.

Therefore, FV after 40 years = $529291.28