Suman deposited $95 000.00 in an RRSP on April 1, 2016, at 8.22% compounded quarterly. Subsequently the interest rate was changed to 8.5% compounded monthly on September 1, 2016, and to 8.8% compounded semi-annually on June 1, 2017. What was the value of the RRSP deposit on December 1, 2017, if no further changes in interest were made?
A) $97446.55
B) $103837.72
C) $108406.58
D) $101734.20
E) $112975.44

Question

Quizplus · Accepted Answer

To solve the problem, we need to calculate the value of the RRSP deposit at each change in interest rate and then use the future value formula to find the value of the RRSP on December 1, 2017.

First, we can calculate the value of the RRSP deposit on September 1, 2016, when the interest rate changed to 8.5% compounded monthly. Using the formula for monthly compounding, we get:

$95,000 x (1 + 0.085/12)^(12/4) = $98,685.81

Next, we can calculate the value of the RRSP deposit on June 1, 2017, when the interest rate changed to 8.8% compounded semi-annually. Using the formula for semi-annual compounding, we get:

$98,685.81 x (1 + 0.088/2)^(2/12) = $102,415.18

Finally, we can use the future value formula to calculate the value of the RRSP on December 1, 2017:

FV = PV x (1 + r/n)^(n*t)
where PV is the present value (the value of the RRSP on June 1, 2017), r is the interest rate, n is the number of times the interest is compounded per year, and t is the number of years.

FV = $102,415.18 x (1 + 0.088/2)^(2/12)
FV = $108,406.58

Therefore, the value of the RRSP deposit on December 1, 2017, was $108,406.58. The best choice is C.

Suman Deposited $95 000