17. Consider the following two investors saving into their RRSP earning 9% compounded annually throughout: Scully...

 

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17. Consider the following two investors saving into their RRSP earning 9% compounded annually throughout: Scully invests $275 at the end of every month from age 18 to age 35, then stops contributing until age 65 retirement. . Mulder starts his RRSP later and invests $275 at the end of every month from age 35 to age 65. a. How much more money does the person with the higher balance have at age 65? b. How much money did each investor nominally put into the RRSP? c. What time value of money concept is being illustrated? 18. Once Jason graduated college at age 22, he invested $350 into his RRSP at the beginning of every month until age 40. He then stopped his contributions and let the amount earn interest until today, when at age 62 he decided to retire. He wants his retirement money to last until age 85. If his account can earn 10.4% compounded quarterly before age 62 and 4.8% compounded annually after that, how much money can he expect to receive at the end of every quarter? 19. Amber would like her RRSP earning 5.1% compounded semi-annually to pay her $2,500 at the end of every month for 20 years once she retires at age 65. What lump-sum amount at age 25 would Amber need to invest? Suppose she can get rates of 11.2% compounded annually for the first 35 years followed by 5.9% compounded annually until she needs the money at retirement. 20. Compute the following scenarios using different interest rates of 6%, 8%, and 10% compounded annually throughout. a. What is the present value of a deferred annuity with a 10-year deferral period followed by a 10-year ordinary annuity with annual $10,000 payments? b. What is the annual annuity payment if a lump sum of $50,000 is invested for 10 years followed by a 10-year ordinary annuity? What is the term of the annuity if a lump sum of $50,000 is invested for 10 years followed by an ordinary annuity paying $20,000 annually? d. Discuss your observations from all of the above scenarios. C. 17. Consider the following two investors saving into their RRSP earning 9% compounded annually throughout: Scully invests $275 at the end of every month from age 18 to age 35, then stops contributing until age 65 retirement. . Mulder starts his RRSP later and invests $275 at the end of every month from age 35 to age 65. a. How much more money does the person with the higher balance have at age 65? b. How much money did each investor nominally put into the RRSP? c. What time value of money concept is being illustrated? 18. Once Jason graduated college at age 22, he invested $350 into his RRSP at the beginning of every month until age 40. He then stopped his contributions and let the amount earn interest until today, when at age 62 he decided to retire. He wants his retirement money to last until age 85. If his account can earn 10.4% compounded quarterly before age 62 and 4.8% compounded annually after that, how much money can he expect to receive at the end of every quarter? 19. Amber would like her RRSP earning 5.1% compounded semi-annually to pay her $2,500 at the end of every month for 20 years once she retires at age 65. What lump-sum amount at age 25 would Amber need to invest? Suppose she can get rates of 11.2% compounded annually for the first 35 years followed by 5.9% compounded annually until she needs the money at retirement. 20. Compute the following scenarios using different interest rates of 6%, 8%, and 10% compounded annually throughout. a. What is the present value of a deferred annuity with a 10-year deferral period followed by a 10-year ordinary annuity with annual $10,000 payments? b. What is the annual annuity payment if a lump sum of $50,000 is invested for 10 years followed by a 10-year ordinary annuity? What is the term of the annuity if a lump sum of $50,000 is invested for 10 years followed by an ordinary annuity paying $20,000 annually? d. Discuss your observations from all of the above scenarios. C.

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SOLUTION 17 a The person with the higher balance at age 65 is Scully with 27582514 while Mulder has 23570423 b Scully nominally put 275 into her RRSP ... View the full answer