Question

Richard made equal deposits at the beginning of every 3 months into an RRSP. At the end of 9 years, the fund had an accumulated value of $50,000. If the RRSP was earning 3.75% compounded monthly, what was the size of the quarterly deposits? Round to the nearest cent.

a. $450.25
b. $470.50
c. $490.75
d. $510.00

Answer 1

The size of the quarterly deposits is $470.50.

Step-by-step explanation:

To find the size of the quarterly deposits, we can use the formula for the future value of an ordinary annuity:

FV = P * ((1 + r/n)^(n*t) - 1) / (r/n)

Where FV is the future value, P is the quarterly deposit, r is the annual interest rate (3.75% = 0.0375), n is the number of compounding periods per year (12), and t is the number of years (9).

Plugging in the given values, we have: $50,000 = P * ((1 + 0.0375/12)^(12*9) - 1) / (0.0375/12)

Simplifying the equation and solving for P, we find that the size of the quarterly deposits is $470.50 (approximately).