Question

Since the birth of his daughter, 16 years ago, Ali has deposited $75 at the beginning of every month into a Registered Education Savings Plan (RESP). The interest rate on the plan was 5.80% compounded monthly for the first 8 years and 3.60% compounded monthly for the next 8 years.

a. What would be the accumulated value of the RESP at the end of 8 years?

b. What would be the accumulated value of the RESP at the end of 16 years?

c. What is the amount of interest earned during the 16 year period?

Answer 1

What would be the accumulated value of the RESP at the end of 8 years

=(75*(((1+(5.80%/12))^(8*12)-1)/(5.80%/12)))*(1+(5.80%/12))

=9178.32

What would be the accumulated value of the RESP at the end of 16 years

=((75*(((1+(5.80%/12))^(8*12)-1)/(5.80%/12)))*(1+(5.80%/12)))*(1+(3.60%/12))^(8*12)+(75*(((1+(3.60%/12))^(8*12)-1)/(3.60%/12)))*(1+(3.60%/12))

=20590.92

What is the amount of interest earned during the 16 year period

=20590.92-(75*16*12)

=6190.92