Thread: Hoyt and his investments - some homework help :)

The question is:
Some people look forward to retiring from work by the age of 65. Compare the amounts at age 65 that would result from making an annual deposit of $1000 starting at age 20, or from making an annual deposit of $3000 starting at age 50, to an RRSP that earns 6% interest per annum, compounded annually. What are the totals of the deposits in each situation? What are the final amounts for both situations and state which one is more profitable.

What I have so far-Total Deposits = Age 20: 65 -20 = 45 (since the deposits are paid yearly it will be paid for 45 years)
Age 50: 65 - 50 = 15 total deposits

Age 20: P = 1000, i = 6%, n = 45
Age 50: P = 3000, i = 6%, n = 15

Which formula should I use? PV = R[1 -(1 + i)^-n] / i or A = P(1 + i)^n

The only problem is that I am getting low final amount for both ages. And I've been stuck on this question. Any help would be appreciated

1) You should not use any formula that you do not understand.

2) Why would you want to use a single-payment formula for a series of payments?

3) What do you know about RRSPs?

4) You must make up your mind what you mean. Do you make a deposit at the beginning or at the end of each period? It makes a difference. If deposits are at the end of each period, there is NO interest in the last deposit.

Thanks for your help. I managed to figure out the problem some time ago. I was using the wrong investment formula.