Question

Since the birth of her daughter, 20 years ago, Devin has deposited $150 at the beginning of every month into a Registered Education Savings Plan (RESP). The interest rate on the plan was 4.80% compounded monthly for the first 10 years and 5.20% compounded monthly for the next 10 years.

a. What would be the accumulated value of the RESP at the end of 10 years?

Answer 1

The accumulated value of Devin's Registered Education Savings Plan (RESP) at the end of 10 years would be $26,176.43.

Step-by-step explanation:

To calculate the accumulated value of the RESP after 10 years, we use the compound interest formula:

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

Where:

P is the principal amount deposited each month,

r is the annual interest rate,

n is the number of times interest is compounded per year,

t is the time in years.

For the first 10 years with an interest rate of 4.80%, the monthly interest rate (r/n) is 0.048/12, and the total number of compounding periods (nt) is 12 × 10. After the initial 10 years, the interest rate changes to 5.20% for the next 10 years. Using the same formula with the updated interest rate values, we calculate the accumulated value.

After computation, the accumulated value after 10 years is $26,176.43. This total comprises both the monthly deposits and the compounded interest over the specified period. The variations in interest rates during the two decades play a significant role in determining the final value of the RESP