Use of Financial Calculator TI BA II Plus required. If you wish to supplement your retirement by saving $200 000 in 25 years, how much more would you have to save monthly if you saved the money personally rather than in an RRSP? Consider that investment returns should provide a yield of 8.5 percent compounded monthly and your tax rate is 30 percent.

Question

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Using the financial calculator:

For RRSP savings:
N = 25*12 = 300 (number of months)
I/Y = 8.5/12 = 0.70833 (monthly interest rate)
PMT = -200,000/300 = -666.67 (monthly savings)
FV = 0
CPT PV = $156,570.39 (amount saved in RRSP after 25 years)

For personal savings:
N = 25*12 = 300 (number of months)
I/Y = 8.5/12 = 0.70833 (monthly interest rate)
PV = -156,570.39 (amount saved in RRSP after 25 years)
FV = 200,000
CPT PMT = $253.10 (monthly savings needed for personal savings)

The difference in monthly savings required between these two options is $253.10 - $156.57 = $96.53. However, we need to take into account the tax rate of 30%. Therefore, the effective monthly savings required for personal savings is $96.53/(1-0.30) = $137.90.
So, the additional amount that must be saved monthly for personal savings rather than RRSP savings is $137.90 - $40.19 = $97.05 (rounded to the nearest cent). The answer is C).

Use of Financial Calculator TI BA II Plus Required