a) Sarah went to the bank to enquire on a car loan in the amount of $25,000. CIBC has proposed a loan with the principal and interest due as a lump sum in 5 years. The interest rate on the loan from CIBC would be 7% compounded monthly. Sarah decided to go to her parents and ask for a simple interest loan for the same amount (i.e. $25,000 due in a lump sum in 5 years but with simple interest of 7%). Her parents of course refused as they would be losing out on interest. What is the difference in compounding interest over simple interest?

Calculation for Sarah:

b)Yasmine took a great course in Personal Finance at Concordia where she learned about the Pay Yourself First Method. She has decided to apply this as of her first pay where she landed a fantastic job at Rogers. She is paid on the 1^st of each month. Upon receipt of her pay, she immediately contributes $500 to her Registered Retirement Savings Plan (RRSP). As Rogers does not have a pension plan, Rogers matches the same amount and contributes to her RRSP. Yasmine is 23 years old and if she continues to contribute to her RRSP until she is 60 years old, how much will she have accumulated in her RRSP for her retirement? She guesses that she could earn 6% interest compounded weekly over this period of time and has sufficient RRSP contribution room to make the RRSP contributions each year.

Calculation for Yasmine: