You want to accumulate $2,500,000 in your RRSP by your retirement date,which is 35 years from now.You will make 30 deposits into your plan,with the first deposit occurring today.The plan's rate of return typically averages 9%.You expect to increase each deposit by 2% as your income grows with inflation.(That is,your second deposit will be 2% greater than your first,the third will be 2% greater than the second,etc.) How much must your first deposit at t = 0 be to enable you to meet your goal?
A)$8,718.90
B)$9,154.84
C)$9,612.58
D)$10,093.21

Question

Quizplus · Accepted Answer

To meet the goal of accumulating $2,500,000 in an RRSP in 35 years with a 9% rate of return and increasing deposits by 2% annually, we use the formula for the future value of a growing annuity. The first deposit needs to be calculated to ensure the total amount reaches the target. Given the specific growth rates for both the investment and the deposits, the calculation involves determining the present value of the desired future amount and adjusting for the growth rate of the deposits. The correct answer, $8,718.90, is derived from applying these financial principles, indicating the initial deposit amount required under these conditions.

You Want to Accumulate $2,500,000 in Your RRSP by Your