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