Ted deposited $1750 in an RRS
Ted deposited $1750 in an RRSP on March 1, 2014, at 3%compounded quarterly. Subsequently the interest rate was changedto 4% compounded monthly on September 1, 2016, and to 4.5%compounded semi-annually on June 1, 2018. What was the value ofthe RRSP deposit on December 1, 2020, if no further changes ininterest were made?
Answer:
| Particulars | Amount |
| Given APR | 3.00% |
| Given compounding frequency per year | 4 |
| Effective annual rate | 3.034% |
| (1+ 0.03/4)^4 -1 | |
| Required compounding frequency per year | 12 |
| Monthly effective rate | 0.2494% |
| (1+ 0.03033919)^1/12 -1 | |
| Required APR | 2.99253% |
| 0.00249378*12 |
| Particulars | Amount |
| Given APR | 4.50% |
| Given compounding frequency per year | 2 |
| Effective annual rate | 4.551% |
| (1+ 0.045/2)^2 -1 | |
| Required compounding frequency per year | 12 |
| Monthly effective rate | 0.3715% |
| (1+ 0.04550625)^1/12 -1 | |
| Required APR | 4.45838% |
| 0.00371532*12 |
Appropriate monthly APR rates were above for compounding ratesother than monthly given.
| Particulars | Amount |
| Deposit | 1,750.00 |
| × FVF until Sep 2016 | 1.07758 |
| Future value in Sep 1,2016 | 1,885.77 |
| × FVF until Jun 2018 | 1.07238 |
| Future value in Jun 2018 | 2,022.27 |
| × FVF until Dec 2020 | 1.11768 |
| Future value in Dec 2020 | 2,260.24 |
Answer is:
2,260.24
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