Question

Since the birth of her daughter, 18 years ago, Robert has deposited $50 at the beginning of every month into a Registered Education Savings Plan (RESP).

The interest rate on the plan was 5.20% compounded monthly for the first 11 years and 3.80% compounded monthly for the next 7 years.
a. What would be the accumulated value of the RESP at the end of 11 years? Round to the nearest cent
b. What would be the accumulated value of the RESP at the end of 18 years? Round to the nearest cent

Answer 1

The accumulated value of the RESP at the end of 11 years would be $9709.86 when rounded to the nearest cent.

Step-by-step explanation:

To find the accumulated value of the RESP at the end of 11 years, we need to calculate the future value of the monthly deposits compounded monthly at an interest rate of 5.20%.

Using the formula for compound interest:

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

Where:
P is the principal (monthly deposit)
A is the accumulated value at the end of the period
r is the interest rate per period
n is the number of compounding periods per year
t is the number of years

For our calculation, P = $50, r = 5.20% = 0.052, n = 12 (monthly compounding), and t = 11 years.

Substituting the values into the formula, we get:

A = $50 / (1 + 0.052/12)^(12*11) = $9709.86

Therefore, the accumulated value of the RESP at the end of 11 years would be $9709.86 when rounded to the nearest cent.