Asked by Chloe Rogahn on May 16, 2024
Verified
Quarterly contributions of $700 are made to an RRSP that earns 6% compounded monthly. How much will be in the plan immediately after the twentieth deposit?
A) $14,685.38
B) $16,198.55
C) $12,190.19
D) $16,442.74
E) $12,009.15
Compounded Monthly
Interest calculated on a principal amount and then added to that principal sum at the end of each month, effectively increasing the base for future interest calculations.
Quarterly Contributions
Payments or deposits made into an account or investment fund every three months.
RRSP
A Registered Retirement Savings Plan, which is a retirement savings and investing plan for employees and the self-employed in Canada.
- Compute the anticipated future value of various investment categories, such as single sum investments, annuities, and periodic monthly contributions.
Verified Answer
MR
Martin RodriguezMay 18, 2024
Final Answer :
B
Explanation :
The correct answer is found using the future value of a series formula: FV=P×(1+r)n−1rFV = P \times \frac{(1 + r)^n - 1}{r}FV=P×r(1+r)n−1 , where PPP is the payment amount, rrr is the monthly interest rate, and nnn is the total number of payments. Given a quarterly contribution of $700 at an annual interest rate of 6% compounded monthly, the monthly interest rate is 0.06/12=0.0050.06/12 = 0.0050.06/12=0.005 , and the total number of payments over 5 years (20 quarters) is 20. Plugging these values into the formula gives the future value immediately after the twentieth deposit, which matches option B, $16,198.55.
Learning Objectives
- Compute the anticipated future value of various investment categories, such as single sum investments, annuities, and periodic monthly contributions.