Question

2.2.3 On the Bank of Montreal website is another RRSP example. The difference between a tax-sheltered investment and a non- sheltered investment is illustrated. The example gives the follow- ing information: RSP vs. Non-RSP Investing Amount Invested Years Invested Marginal Tax Rate Average Annual Return Total Savings RSP $10,000 30 years N/A 6% $838,016.77 Non-RSP $10,000 30 years 46% 6% $510,717.60 $327,299.17 Difference Verify the total savings figures given in this example.

Answer 1

		RSP	NON RSP
	AMOUNT INVESTED	10,000.00	10,000.00
	YEARS INVESTED	30.00	30.00
	MARGINAL TAX RATE	NA	0.46
	AVERAGE ANNUAL RETURN	0.06	0.06
	TOTAL SAVING	8,38,016.77	5,10,717.60
		3,27,299.17
CALCULATION OF RSP					CALCULATION OF NON RSP
YEAR	CUMULATIVE EARNING	INVESTMENT	TOTAL AMOUNT		YEAR	CUMULATIVE EARNING	INVESTMENT	TOTAL AMOUNT
1	5.74	10,000.00	57,434.91		1	2.60	10,000.00	26,027.94
2	5.42	10,000.00	54,183.88		2	2.52	10,000.00	25,211.10
3	5.11	10,000.00	51,116.87		3	2.44	10,000.00	24,419.90
4	4.82	10,000.00	48,223.46		4	2.37	10,000.00	23,653.53
5	4.55	10,000.00	45,493.83		5	2.29	10,000.00	22,911.20
6	4.29	10,000.00	42,918.71		6	2.22	10,000.00	22,192.18
7	4.05	10,000.00	40,489.35		7	2.15	10,000.00	21,495.72
8	3.82	10,000.00	38,197.50		8	2.08	10,000.00	20,821.11
9	3.60	10,000.00	36,035.37		9	2.02	10,000.00	20,167.68
10	3.40	10,000.00	33,995.64		10	1.95	10,000.00	19,534.75
11	3.21	10,000.00	32,071.35		11	1.89	10,000.00	18,921.69
12	3.03	10,000.00	30,256.00		12	1.83	10,000.00	18,327.87
13	2.85	10,000.00	28,543.39		13	1.78	10,000.00	17,752.68
14	2.69	10,000.00	26,927.73		14	1.72	10,000.00	17,195.54
15	2.54	10,000.00	25,403.52		15	1.67	10,000.00	16,655.89
16	2.40	10,000.00	23,965.58		16	1.61	10,000.00	16,133.18
17	2.26	10,000.00	22,609.04		17	1.56	10,000.00	15,626.87
18	2.13	10,000.00	21,329.28		18	1.51	10,000.00	15,136.45
19	2.01	10,000.00	20,121.96		19	1.47	10,000.00	14,661.42
20	1.90	10,000.00	18,982.99		20	1.42	10,000.00	14,201.30
21	1.79	10,000.00	17,908.48		21	1.38	10,000.00	13,755.61
22	1.69	10,000.00	16,894.79		22	1.33	10,000.00	13,323.92
23	1.59	10,000.00	15,938.48		23	1.29	10,000.00	12,905.77
24	1.50	10,000.00	15,036.30		24	1.25	10,000.00	12,500.75
25	1.42	10,000.00	14,185.19		25	1.21	10,000.00	12,108.43
26	1.34	10,000.00	13,382.26		26	1.17	10,000.00	11,728.43
27	1.26	10,000.00	12,624.77		27	1.14	10,000.00	11,360.36
28	1.19	10,000.00	11,910.16		28	1.10	10,000.00	11,003.83
29	1.12	10,000.00	11,236.00		29	1.07	10,000.00	10,658.50
30	1.06	10,000.00	10,600.00		30	1.03	10,000.00	10,324.00
			8,38,016.77					5,10,717.60
DIFFERENCE BETWEEN RSP AND NON RSP							3,27,299.18
	$10000 INVESTED EVERY YEAR IN THE BEIGNING OF THE YEAR AND THERE RETUEN WILL BE BALANCE YEAR AVAILABLE					$10000 INVESTED EVERY YEAR IN THE BEIGNING OF THE YEAR AND THERE RETUEN WILL BE BALANCE YEAR AVAILABLE
	ANNUAL RETURN 6%					ANNUAL RETURN 6% AND TAX APPLICALE 46%
	CALCULATE CUMULATIVE EARNING					CALCULATE CUMULATIVE EARNING
	EXPAMPLE					EXPAMPLE
	YEAR 1	=1.06^30				YEAR 1	=(1+.06x(1-.46))^30
	YEAR 2	=1.06^29				YEAR 2	=(1+.06x(1-.46))^29
	YEAR 5	=1.06^26				YEAR 5	=(1+.06x(1-.46))^26
	YEAR 20	=1.06^21				YEAR 20	=(1+.06x(1-.46))^21
	YEAR 30	=1.06^1				YEAR 30	=(1+.06x(1-.46))^1