Question

Mr. Maillet has contributed ​$81.00 at the end of each three months into an RRSP paying 6% per annum compounded annually.annually.

How much will Mr. Maillet have in the RRSP after 12 ​years?

How much of the above amount is​ interest?

Answer 1

We are given,

Annual interest rate = 6%

Quarterly interest rate(r) = 6%/4 = 1.5%

Time = 12 years

No. of periods = 12 * 4 = 48

Pmt(quarterly payments) = $81

Future value(FV) = ?

We can calculate FV by the following formula,

FV = pmt1(1+r)^1 + pmt2(1+r)^2 + pmt3(1+r)^3 + .........pmt48(1+r)^48

We can also calculate using excel,

pmt	81
no periods	48
interest	1.50%
Future Value	5634.78	(=FV(1.5%,48,-81,0,0)

Hence FV is $5,634.78. Mr. Maillet will have in $5,634.78 in the RRSP after 12 ​years.

Principal amount = 81 * 4 * 12 = $3,888

Interest amount = 5634.78 - 3888 = $1,746.78

Hence the interest amount is $1,746.78.

If you have any doubts please let me know in the comments. Please give a positive rating if the answer is helpful to you. Thanks.