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Rolfe set up an RRSP for a client when the client was 30 years old. The client put $750 into the account every month until they retired at age 60. The account a veraged an annual rate of 7.6% per year compounded annually. If the client then wanted to take a monthly disbursement from the account starting at age 60 for the next 25 years, what would the monthly disbursement be if the RRSP investment retained the same terms and after 25 years would have a zero balance?

Guest Oct 1, 2017
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First, you have to convert the interest rate of 7.6% from compound annually to compound monthly.

1.076^1/12 =1.0061228738...- 1 =.0061228738 x 1200 =7.34745% compounded monthly.


Then you would use this formula to find out his accumulated retirement fund:
FV=P{[1 + R]^N - 1/ R}
FV = 750 x {[1 + 0.0061228738]^(30*12) - 1 / [0.0061228738]}
FV =$980,250.96 - This is the balance of his acct. at age 60.

 

Then you would use this formula to calculate his monthly retirement payments:
PMT=PV. R.{[1 + R]^N/ [1 + R]^N - 1}
PMT =980,250.96 x 0.0061228738{[1+0.0061228738]^300 / [1+0.0061228738]^300 - 1} 
PMT = $7,146.98 - This is the monthly payment that he will receive for 25 years or 300 months.

Guest Oct 1, 2017

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