Asked by Mitchell Balmas on Apr 29, 2024
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Jack Groman's financial plan is designed to accumulate sufficient funds in his RRSP over the next 28 years to purchase an annuity paying $6,000 at the end of each month for 25 years. He will be able to contribute $7,000 to his RRSP at the end of each year for the next 10 years. What year-end contribution must he make for the subsequent 18 years to achieve his objective? For these projections, assume that Jack's RRSP will earn 7.5% compounded annually and that the annuity payments are based on a return of 7.5% compounded monthly.
Compounded Annually
The method by which interest is calculated once per year on both the initial principal and the accumulated interest from previous periods.
Compounded Monthly
Compounded monthly refers to the process of accruing interest on an investment or loan where the interest earned is added to the principal amount at the end of each month, allowing the interest to itself earn interest in subsequent months.
RRSP
A savings and investment account designed for the retirement of both employees and self-employed individuals in Canada, known as Registered Retirement Savings Plan.
- Gauge the future capital amount of investments under distinct compounding timeframes.
- Utilize present value fundamentals to compute the amounts of periodic payments or contributions.
- Develop financial plans such as allocating funds for educational endeavours, home buying, or retirement readiness by assessing needed monetary contributions.
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Learning Objectives
- Gauge the future capital amount of investments under distinct compounding timeframes.
- Utilize present value fundamentals to compute the amounts of periodic payments or contributions.
- Develop financial plans such as allocating funds for educational endeavours, home buying, or retirement readiness by assessing needed monetary contributions.
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