Mr. and Mrs. Fox have each contributed $1825.00 per year for the last eight years into RRSP accounts earning 6.93% compounded annually. Suppose they leave their accumulated contributions for another five years in the RRSP at the same rate of interest.
To calculate the future value of Mr. and Mrs. Fox's contributions after eight years, you can use the compound interest formula. The formula for calculating the future value (FV) of a present value (PV) investment earning compound interest at a specified interest rate (r) over a certain number of years (t) is:
FV = PV * (1 + r)^t
In this case, Mr. and Mrs. Fox have contributed $1825 each per year for eight years. So the present value (PV) for each of them is $1825 * 8 = $14,600.
The interest rate (r) is 6.93% in this case, but we need to convert it to a decimal by dividing it by 100: r = 6.93/100 = 0.0693.
Now we can calculate the future value after eight years:
FV = $14,600 * (1 + 0.0693)^8
= $14,600 * (1.0693)^8
≈ $25,293.32
Therefore, after eight years, Mr. and Mrs. Fox will have approximately $25,293.32 in their RRSP accounts.
To find the future value after an additional five years, we can use the same formula. However, this time, the number of years (t) will be 5:
FV = $25,293.32 * (1 + 0.0693)^5
≈ $32,603.43
After an additional five years, the future value of Mr. and Mrs. Fox's contributions will be approximately $32,603.43 in their RRSP accounts.