Question

Kiara opened an RRSP deposit account on December 1, 2008, with a deposit of $2500. He added $2500 on April 1, 2010, and $2500 on December 1, 2012. How much is in his account on March 1, 2016, if the deposit earns 8.8 % p.a . compounded monthly? The amount in the account is $. (Round the final answer to the nearest cent as needed. Round all intermediate values to six decimal places as needed.)

Answer 1

We need to find the value in account on March 1, 2016

Amount Added on Dec 1, 2008 = $2500 (Number of months to March 1, 2016 = 96 months)

Amount Added on April 1, 2010 = $2500 (Number of months to March 1, 2016 = 71 months)

Amount Added on December 1, 2012 = $2500 (Number of months to March 1, 2016 = 39 months)

We need to find the value in account on March 1, 2016

Monthly Interest rate = r = 8.8%/12 = 0.088/12

Hence, Future Value = Cash Flow * FV Factor

where, FV Factor = (1+interest Rate)^{number of months to maturity}

Hence, Future Value = 2500(1+0.088/12)⁹⁶ + 2500(1+0.088/12)⁷¹ + 2500(1+0.088/12)³⁹ = $12,565.74