Alice keeps meaning to invest more in her RRSP. Her original plan was to invest $6000 eight months ago and an additional $7000 in four months. Unfortunately due

Question

Alice keeps meaning to invest more in her RRSP. Her original plan was to invest $6000 eight months ago and an additional $7000 in four months. Unfortunately due to unforseen circumstances, she was not able to make her original payment and wants to restructure her payments. She is now hoping to invest $8000 in six months and make another payment in one year. If her RRSP earns 6% compounded monthly, how much should her second payment be in order to have the same value as her original plan?

Answer 1

Dylan, this is not the place to have your homework done for free and I do see your name way too much.  I will help you with this one problem.  Let's first agree on a timeframe to evaluate the two investments; assume we are standing at the beginning of a year and we will evaluate the two approaches at the end of the year, i.e. in 12 months.  First calculate a monthly rate = >06/12

= .005.

Now had she invested $6,000 eight months ago this investment would have 20 months to compound so at the end of the year it will be worth

$6,000 ( 1 + .005 )²⁰ = $6,629.37

If she invests another $7,000 in four months it will have eight months to compound and it will be worth

$7,000 ( 1 + .005 )⁸ = $7284.95  Added together we have the original plan worth the sum of these two investment returns

$13,914.32

 

Plan B calls for her to invest $8,000 in six months so this investment would have six months to compound and be worth

8,000 ( 1 + .005 )⁶ = $8,243.02 at the end of the year.

 

The difference between $13,914.32 and $8,243 is $5,671.30 and what she would have to invest at the end of the year to make the two approaches the same.  Call me at 310-573-2002 if you are interested in some real help