Martina's RRSP earns 12% compounded monthly and her goal is to accumulate $1,000,000 by making deposits of $4,100 at the end of every year. How many years will it take to reach her goal?

Question

Quizplus · Accepted Answer

To solve this, we use the formula for the future value of a series of annuity payments compounded at a different frequency than the payments are made. The formula is: $FV = P \times \left( \frac{(1 + r/n)^{nt} - 1}{r/n} \right)$, where $FV$ is the future value of the annuity, $P$ is the payment amount, $r$ is the annual interest rate, $n$ is the number of compounding periods per year, and $t$ is the time in years. In this case, $P = \$4,100$, $r = 0.12$, and $n = 12$ for monthly compounding. We solve for $t$ when $FV = \$1,000,000$. This requires iterative calculation or financial calculator/financial function in a spreadsheet, and the closest answer is 29 years.

Martina's RRSP Earns 12% Compounded Monthly and Her Goal Is