Question

Your RRSP savings of $32,500 are converted to a RRIF at 3.65% compounded monthly that pays $5,274 at the beginning of every month. After how many payments will the fund be depleted? (Round to the next payment)

Answer 1

To determine the number of payments it will take for the RRIF fund to be depleted, you can use the formula for compound interest. It will take approximately 6.7 years (rounded to the next payment) for the RRIF fund to be depleted.

Step-by-step explanation:

To determine the number of payments it will take for the RRIF fund to be depleted, we can use the formula for compound interest. Given that the initial investment is $32,500, the interest rate is 3.65% compounded monthly, and the monthly payment is $5,274, we can calculate the time it takes for the fund to be depleted.

Using the formula:

Principal = Payment((1+r)^n - 1)/r

Where Principal is the starting amount, Payment is the monthly payment, r is the interest rate per period, and n is the number of payment periods.

In this case, we need to solve for n. Plugging in the values, we have:

32500 = 5274((1+0.0365/12)^n - 1)/(0.0365/12)

Simplifying the equation, we get:

n = log((32500 * 0.0365/12)/5274 + 1) / log(1+0.0365/12)

Calculating this equation, we find that it will take approximately 6.7 years (rounded to the next payment) for the RRIF fund to be depleted.