Question

Celebrating your 35th birthday, you have accumulated 10,000 in your RRSP account. Your goal is to reach 1million with equal contribution to your RRSP account every year till you celebrating your 65th birthday. If the interest rate is 2.5% compounded annually and your contribution starts in one year, please find the size of your contributions each year, assuming you make a contribution on your 65th birthday. PV = ____(1)____; t=____(2)____; r=____(3)____; C=____(4)____.

Answer 1

Present accumulated amount = $10,000

Future value to be reach = $ 1 million

Since, the present amount will earn interest and further a contribution will be made each year at the end of the year, Now calculating the periodic amounts each year

where, PV = Present value of Investment = $ 10,000

r = periodic interest rate = 0.025

n = no of years = 30

C = Periodic payment

C = $ 22299.86

So, periodic contribution is $ 22,299.86