Rashid Wants to Use $500,000 from His RRSP to Purchase

question 222

Short Answer

Rashid wants to use $500,000 from his RRSP to purchase an annuity that pays him $2,000 at the end of each month for the first 10 years and $3,000 per month thereafter. Global Insurance Co. will sell Rashid an annuity of this sort with a rate of return of 4.8% compounded monthly. For how long will the annuity run?

---

Definitions:

Effective Annual Rate

The annual return on an investment or loan taking compounding into account, expressed as a percentage.

Compounded Annually

This is an interest calculation method where interest is added to the principal once a year.

Effective Rate

The actual interest rate of an investment or loan, taking into account the effects of compounding.

Compounded Semi-Annually

Interest calculation method where the interest is added to the principal sum twice a year, causing the interest to earn interest.