Cynthia currently has $31,000 in her RRSP. She plans to contribute $5000 at the end of each year for the next 17 years, and then use the accumulated funds to purchase a 20-year annuity making month-end payments.
a. If her RRSP earns 8.75% compounded annually for the next 17 years, and the fund from which the annuity is paid will earn 5.4% compounded monthly, what monthly payments will she receive?
b. If the rate of inflation for the next17year sis2%, what will be the purchasing power (in today’s dollars) of the monthly payments at the start of the annuity?