Question

Laurence contributed $4,295 at the end of every 6 months to an rrsp fund earning 8.73% compounded semi-annually for 11 years. What was the future value of the fund at the end of the term?

a) $45,689.52
b) $47,893.26
c) $49,731.84
d) $51,677.35

Answer 1

To find the future value of Laurence's RRSP fund, the future value of an annuity formula should be used along with the given 8.73% compounded semi-annually interest rate, $4,295 semi-annual contributions, and the period of 11 years.

Step-by-step explanation:

Laurence is trying to calculate the future value of his RRSP fund, which he has contributed to every six months. To solve this, we utilize the future value of an annuity formula. This specific type of problem is an application of compound interest, where periodic contributions are taken into account along with the compounded return rate.

Let's calculate the future value of an annuity, considering an 8.73% yearly interest rate compounded semi-annually, and semi-annual contributions of $4,295 over 11 years.

The formula is as follows:

FV = P × { [(1 + r)n - 1] / r }

Where FV is the future value, P is the periodic payment, r is the interest rate per period, and n is the number of periods.

In this case, P is $4,295, r is 8.73%/2 (since it's compounded semi-annually), and n is 11 × 2 (number of years times two for semi-annual periods).

With these values and formula, we can calculate the future value (FV), which will give us the correct option from the multiple choices provided by the student.