Question

Li Jun had a balance of $4,000 in his RRSP. In addition to this, he invested $500 at the end of every 3 months for 8 years. His RRSP earned 4.00% compounded quarterly for the first 2 years and 4.85% compounded quarterly for the rest of the period.

a. What is the accumulated value of the balance of $4,000 at the end of the time period?

Round to the nearest cent

b. What is the accumulated value of the annuity at the end of the first 2 years?

Round to the nearest cent

c. What is the future value of the accumulated value from (b) at the end of the 8 years?

Round to the nearest cent

d. What is the accumulated value of the $500.00 annuity for the next 6 years at 4.85% compounded quarterly?

Round to the nearest cent

e. How much did he have in the RRSP at the end of the time period?

Round to the nearest cent

f. What were his total earnings?

Round to the nearest cent

Answer 1

a).

Accumulated value of $ 4000 at end of time period = 4000( 1+ 0.01)⁸ *(1 +0.0121)²⁴ = $ 5781

b).

Accumulated value of annuity at the end of first two years = 500* Future value annuity factor(1%,8) = $ 4185

c).

Future value of the accumulated value from (b) at the end of the 8 years

= 4185* (1.0121)²⁴ = $ 5585

d).What is the accumulated value of the $500.00 annuity for the next 6 years at 4.85% compounded quarterly

= 500*Future value annuity factor(1.21%, 24)= $14000

e). Balance in RRSP at the end of period = Answer a + Answer c + answer d

= 5781 + 5585 + 14000 = 25366

f). Total earnings = balance at the end - total investment made

= 25366 - (4000 + 500*4*8)

= 25366 - (20000)

= $ 5366