Mr Parmar Wants to Retire in 20 Years and Purchase

question 29

Short Answer

Mr. Parmar wants to retire in 20 years and purchase a 25-year annuity that will make equal payments at the end of every quarter. The first payment should have the purchasing power of $6,000 in today's dollars. If he already has $54,000 in his RRSP, what contributions must he make at the end of every half-year for the next 20 years to achieve his retirement goal? Assume that the rate of inflation for the next 20 years will be 2.5%, the RRSP will earn 8% compounded semi-annually, and the rate of return on the fund from which the annuity is paid will be 5.5% compounded quarterly.

---

Definitions:

Pure Self-Interest

A motivation based entirely on one's own benefits and gains, without regard for others' welfare.

Dictator Game

An experimental economics scenario where a participant, the "dictator," has the power to decide how to allocate a sum of money between themselves and another participant.

Behavioral Economists

Academics analyzing the influence of psychological, cognitive, emotional, cultural, and social factors on the economic choices made by individuals and institutions.

Framing Effects

A cognitive bias where people react differently based on the way information is presented or framed, affecting decision-making and judgments.