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Mr. Lavergne accumulated $220 000.00 in an RRSP. He converted the RRSP into an RRIF and...

Mr. Lavergne accumulated $220 000.00 in an RRSP. He converted the RRSP into an RRIF and started to withdraw $5500.00 at the end of every three months from the fund. If interest is 8.68% compounded monthly, how many withdrawals can Mr. Lavergne make? (Calculate to one decimal place, eg 12.3)

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Answer #1

Firstly we need to calculate the Effective Annual Rate (EAR) as we are given a nominal rate of 8.68% compounded monthly

EAR = [((1+(Nominal rate/Number of periods))^Number of periods] - 1

EAR=  (1+(8.68%/12))^12 - 1

EAR = 9.03%

Now we will use a BA 2 Plus financial calculator to calculate for how many quarters Mr Lavergne can withdraw $5500

I/Y ( Interest per period) = 9.03%/ 4 = 2.25%

PMT (Withrawl per period) = 5500

PV ( Amount accumulated) = $220,000

CMPT N

Number of withdrawals = 103.4

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