Asked by Misti Graham on Apr 27, 2024
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Duncan retired recently and plans to utilize other savings for a few years while his RRSP continues to grow on a tax-deferred basis. The RRSP is currently worth $142,470. How long will it be until the amount in the RRSP is large enough to purchase a 25-year annuity paying $1700 at the end of each month? Assume that the RRSP and the annuity will earn 8.75% compounded semi-annually.
Tax-deferred
Tax-deferred refers to investments or accounts that allow earnings to grow without being taxed until the investor takes distributions, typically during retirement.
RRSP
Registered Retirement Savings Plan, a type of Canadian account for holding savings and investment assets, with advantageous tax benefits.
Annuity
A financial product that pays out a fixed stream of payments to an individual, typically used as part of a retirement strategy.
- Understand and apply the concepts of time value of money to calculate present and future values of various financial instruments.
- Calculate the value of annuities and perpetuities, including ordinary annuities, annuities due, deferred annuities, and perpetuities given different compounding frequencies.
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Learning Objectives
- Understand and apply the concepts of time value of money to calculate present and future values of various financial instruments.
- Calculate the value of annuities and perpetuities, including ordinary annuities, annuities due, deferred annuities, and perpetuities given different compounding frequencies.
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