Question

What should be the amount in an rrsp that is earning 6.50% compounded semi-annually if it can be converted to an rrif that will provide $250 at the beginning of each quarter for 6 years?

Answer 1

To calculate the amount in an RRSP earning 6.50% compounded semi-annually for it to provide $250 at the beginning of each quarter for 6 years as an RRIF, the initial amount in the RRSP should be approximately $4437.38.

Step-by-step explanation:

To calculate the amount in an RRSP that is earning compound interest, we can use the formula for compound interest: A = P(1 + r/n)^(nt), where A is the amount, P is the principal (initial amount), r is the annual interest rate (expressed as a decimal), n is the number of times interest is compounded per year, and t is the number of years.

Given that the RRIF will provide $250 at the beginning of each quarter for 6 years, we can calculate the total amount needed using the formula:

A = $250 * 4 quarters * 6 years = $6000

Now we can plug this value into the formula for compound interest, along with the given interest rate of 6.50% compounded semi-annually:

A = P(1 + r/n)^(nt)

$6000 = P(1 + 0.065/2)^(2*6)

$6000 = P(1 + 0.0325)^12

Using algebra, we can solve for P:

P = $6000 / (1 + 0.0325)^12

P ≈ $4437.38