Question

Ryan deposited $700 at the end of every month into an RRSP for 8 years. The interest rate earned was 4.25% compounded semi-annually for the first 4 years and changed to 4.50% compounded semi-annually for the remaining 4 years. This monthly investment, combined with varying interest rates, significantly impacts the future value of Ryan's RRSP, and careful financial analysis is needed to determine the overall growth of the investment over the 8-year period.

Answer 1

The question pertains to the calculation of the future value of monthly RRSP contributions over an 8-year period with two different compound interest rates, demonstrating the sizable impact of compound interest on long-term savings.

Step-by-step explanation:

The question involves calculating the future value of Ryan's RRSP contributions under two different interest rates compounded semi-annually. We need to determine the growth of his investment over an 8-year period with a varying interest rate after the first 4 years.

The student is tasked with performing a financial analysis using the formula for compound interest. The first part of the analysis will calculate the total contribution compounded at 4.25% for the first 4 years, and the remaining 4 years at 4.50%. Each monthly deposit of $700 is subject to compound interest, which accumulates more interest on both the initial principal and accumulated interest.

Understanding the impact of compound interest is crucial for personal financial planning. Compound interest can significantly increase the value of savings over time, as demonstrated in the provided examples of saving early in life for long-term growth.