More Examples of Ordinary Annuities
Example 1
Zhan plans on contributing $5,500 every year (the maximum allowable contribution as of 2017) to his TFSA. The funds are forecasted to earn 3.7% compounded annually. What will the future value be after 15 years?
What type of annuity is this? (Hint: does the payment interval = compounding frequency?)
Solve the problem, then open the following spreadsheet to check your answer: FV of ordinary annuity – Zhan – Template
Example 2
Dr. Rebecca Trine just turned 35 and currently has $15,000 accumulated in her Registered Retirement Savings Plan (RRSPs). She makes monthly contributions of $500 to the plan and intends to do so until age 60. She plans to retire then and cease further contributions. The RRSP will be allowed to continue to accumulate earnings until she reaches age 65. If the RRSP earns 7.5% compounded monthly for the next 30 years, what amount will her RRSP contain when she reaches age 65?
This is a two part question. Draw a timeline to help you solve it.
Solve the problem, then open the following spreadsheet to check your answer: FV of ordinary annuity – Dr. Trine – Template
