Question

How much more will you have in your RRSP in 23 years if you start investing $1,100 at the end of each month now instead of waiting 3 years to begin contributing the same $1,100 at the end of each month? Interest is 6.6% compounded monthly.

Answer 1

How much more will you have in your RRSP in 23 years if you start investing $1,100 at the end of each month now instead of waiting 3 years to begin contributing the same $1,100 at the end of each month? Interest is 6.6% compounded monthly.

Remember that

The formula for the future value of an ordinary annuity is equal to:

`FV=P\lbrack((1+ (r)/(n) )^(nt) -1)/( (r)/(n) )\rbrack`

Part 1

start investing $1,100 at the end of each month now

we have

P=$1,100

r=6.6%=0.066

n=12

t=23 years

substitute in the given formula

`FV=1,100\lbrack((1+(0.066)/(12))^((12\cdot23))-1)/((0.066)/(12))\rbrack`

FV=$708,830.05

Part 2

waiting 3 years to begin contributing the same $1,100 at the end of each month

we have

P=$1,100

r=6.6%=0.066

n=12

t=20 years

substitute in the given formula

`FV=1,100\lbrack((1+(0.066)/(12))^((12\cdot20))-1)/((0.066)/(12))\rbrack`

FV=$545,981.37

Part 3

Find out the difference

$708,830.05-$545,981.37=$162,848.68

therefore

the answer is $162,848.68