You made an investment in your RRSP account of $3,000 in an ETF that pays quarterly dividends.The price of each unit the day you made the investment is $60.The following year you invested another $2,000 in your RRSP account at a price of $ 70 per unit.How much would you have in your account two years after your initial investment if you know that the annual income yield of the ETF is 5% and an ETF unit is trading at $75 today?
A)$6500.00
B)$6292.86
C)$5992.86
D)$6042.86

Question

Quizplus · Accepted Answer

First, let's calculate the number of units purchased in each investment:
- Initial investment of $3,000 at $60 per unit: 50 units
- Second investment of $2,000 at $70 per unit: 28.57 units (rounded)

For the first year, the 5% annual income yield would result in quarterly dividends of:
- $60 x 0.05 / 4 = $0.75 per unit
- $0.75 x 50 units = $37.50 in total dividends for the first year

At the end of the first year, the total value of the account would be:
- $3,000 + $2,000 = $5,000 (principal)
- 50 units x $75 per unit = $3,750 (current value of initial investment)
- 28.57 units x $75 per unit = $2,142.75 (current value of second investment)
- $37.50 in total dividends received during the year

Total value at the end of the first year: $5,000 + $3,750 + $2,142.75 + $37.50 = $10,930.25

For the second year, we need to calculate the dividends received and the increase in value based on the increase in unit price:
- $75 - $60 = $15 increase per unit
- $15 / $60 = 0.25 = 25% increase in unit price
- 25% x 50 units = 12.5 units increased value for initial investment
- 25% x 28.57 units = 7.1435 units increased value for second investment
- $75 x 0.05 / 4 = $0.9375 per unit
- $0.9375 x 50 units = $46.875 in total dividends for the second year

Total value at the end of the second year: $10,930.25 + ($15 x 50) + ($15 x 28.57) + $46.875 = $12,937.86

Therefore, the best choice is B.

You Made an Investment in Your RRSP Account of $3,000