Question

How much more will you have in your RRSP in 23 years if you start investing $1,100 at the end of each month now instead of waiting 3 years to begin contributing the same $1,100 at the end of each month? Interest is 6.6% compounded monthly.

Answer 1

How much more will you have in your RRSP in 23 years if you start investing $1,100 at the end of each month now instead of waiting 3 years to begin contributing the same $1,100 at the end of each month? Interest is 6.6% compounded monthly.

Remember that

The formula for the future value of an ordinary annuity is equal to:

$FV=P\lbrack\frac{(1+ \frac{r}{n} )^{nt} -1}{ \frac{r}{n} }\rbrack$

Part 1

start investing $1,100 at the end of each month now

we have

P=$1,100

r=6.6%=0.066

n=12

t=23 years

substitute in the given formula

$FV=1,100\lbrack\frac{(1+\frac{0.066}{12})^{(12\cdot23)}-1}{\frac{0.066}{12}}\rbrack$

FV=$708,830.05

Part 2

waiting 3 years to begin contributing the same $1,100 at the end of each month

we have

P=$1,100

r=6.6%=0.066

n=12

t=20 years

substitute in the given formula

$FV=1,100\lbrack\frac{(1+\frac{0.066}{12})^{(12\cdot20)}-1}{\frac{0.066}{12}}\rbrack$

FV=$545,981.37

Part 3

Find out the difference

$708,830.05-$545,981.37=$162,848.68

therefore

the answer is $162,848.68