Question
Martin wants to contribute the maximum allowable limit to his registered retirement savings plan (RRSP). His current RRSP contribution limit is $17,250; however, Martin only
Martin wants to contribute the maximum allowable limit to his registered retirement savings plan (RRSP). His current RRSP contribution limit is $17,250; however, Martin only has $3,000. To make the contribution, Martin is considering a RRSP loan. After speaking to several banks, Martin has narrowed it down to the following options:
- Financing from MDT Bank. The financing terms are 6% p.a. compounded semi-annually, with fixed monthly repayments over a 2-year term.
- Financing from CBR Bank. The financing terms are 5% p.a. compounded daily, with fixed monthly repayments over a 2-year term.
After reviewing his cash flow, Martin estimates that he can afford to make monthly payments toward a RRSP loan in the amount of $630 dollars.
Required:
a) What is the effective annual rate for both loans? (5 marks)
b) What are the monthly payments for option 1? (4 marks)
c) What are the monthly payments for option 2? (4 marks)
d) Which option should Martin select and why? (2 marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started