business math-annunity

missl

New member
Joined
Nov 12, 2007
Messages
33
Hi, can someone please check if I did this correctly. Thanks :wink:

How much larger will the value of an RRSP be at the end of 25 years if the contributor makes month-end contributions of $300 instead of year-end contributions of $3,600? In both cases the RRSP earns 6.8% compounded quarterly.

REQUIRED:
1. Month-end contributions.
2. Year-end contributions.

ANSWERS
1.

T : 25 YEARS I=6.8% QUARTERLY PMT 300 PER MONTH
I=6.8/4=0.017
I=(1+I) ^m/m2 -1 =(1+0.017)^4/12 -1=0.0056349554
FV=PMT [ (1+i)^n -1]
=300 [ (1+i)^25*12-1 ] = 234058.72
i



2. 25 years i=6.8/quarterly pmt 3600 per year
i=o.o17
i=(1+i)^m/m-1 =(1+0.017)^4/1-1 = 0.06797537355
FV=3600 [(1+i)^25] =226893.15
 

tkhunny

Moderator
Staff member
Joined
Apr 12, 2005
Messages
11,317
You can always check with "Basic Principles".

i = 0.068
i4 = 0.068/4 = 0.017

\(\displaystyle 300*\bigsum_{n=0}^{299}\left(1+i4\right)^{\frac{n}{3}}\;=\;234058.7186819\)

\(\displaystyle 3600*\bigsum_{n=0}^{24}\left(1+i4\right)^{n*4}\;=\;226893.1461705\)

And there you have it. Good work.
 

missl

New member
Joined
Nov 12, 2007
Messages
33
thank you :wink:
 
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