Achieving Financial Goals with RRSP Account
What monthly payment is required to achieve Mrs. Satterlee's goal?
Mrs. Satterlee wants to accumulate $839,000 in her RRSP account. She is ready to make 251 equal monthly payments at the beginning of each month, and the account earns interest of 5% compounded monthly. What amount of monthly payments does she need to make to achieve her goal?
Monthly payment = $___
The amount of monthly payment required to achieve the goal is $2583.56.
To calculate the monthly payment needed to achieve Mrs. Satterlee's goal, we can use the formula for the present value of annuity due.
Formula:
P(1 + i) × (1 - (1 + i)^-n) / i = FV
Where:
P = Monthly Payment
i = Rate of Interest per period (5% compounded monthly)
n = Number of Payments (251 monthly contributions)
FV = Future Value of Annuity ($839,000)
Substituting the values into the formula:
P(1 + 0.05/12) × (1 - (1 + 0.05/12)^-251) / (0.05/12) = $839,000
Solving further:
P(1.00417) × (1 - 0.32445) = $839,000 × 0.05/12
P(0.67555) = 1747.91667
P = $2583.56
Therefore, the amount of monthly payment needed to achieve Mrs. Satterlee's goal is $2583.56.