BUAD 251- Personal Financial Planning
Emilio Macluf
Homework Assignment
3. Calculating RRSP Room. How much contribution room should you have if you have never
contributed to an RRSP plan and have $30,000 of employment income per year over the last 5
years?
$30,000 x 5 x 18% = $27,000
4. Calculating RRSP Room. Assume the same information as in question 3 except that you contributed
$3,000 to an RRSP in each of years 2 to 5 and in year 6 you decide to maximize your RRSP
contribution as your earned income increased substantially. How much can you contribute in the
sixth year based on this situation?
Year 6: You can contribute at any point up to the RRSP contribution limit (18%) if you have earned
income in that year.
5. Calculating Maximum Contributions. Jean and Dan both work. Each earns a salary of $40,000, but
only Jean is a member of a registered pension plan. Both she and her employer contribute 2 percent
of her gross salary to a defined contribution pension plan. Jean has no unused RRSP room carried
forward as she has maxed out her RRSP each year. Dan has $15,000 of unused RRSP contribution
room carried forward showing on his Notice of Assessment. Calculate the maximum RRSP
contribution that each can make this year.
Jean: ($40,000 x 18%) - ($40,000 x 2 x 2%) = $7,200 - $1,600 = $5,600
Dan: ($40,000 x 18%) + $15,000 = $22,200
Maximum RRSP contribution rate = 18%
Limit is $27230
9. Calculating Monthly Withdrawals. You have $50,000 in your retirement fund that is earning 5.5
percent per year, compounded quarterly. How many dollars in withdrawals per month would reduce
this nest egg to zero in 20 years? How many dollars per month can you withdraw for as long as you
live and still leave this nest egg intact?
BGN
P/Y=12, C/Y=4 N= 20*4= 80
I/Y = %5.5
PV= -50,000
FV= 0
PMT= $341.68
$341.68 and $227.09
$340 and $230
10. TK-14-1: Ken Anderson is 42 years old and thinks it's about time he starts to save for his retirement.
His work provides him an annual income of $95,000 but his employer has no pension plan. He will
open a money market mutual fund and make his first deposit 1 year from today. He has determined
that he will need to receive an annual amount during his retirement years equivalent to 75% of his
current income. He plans to retire in 23 years. Estimated inflation is 3% per year. Ken believes his
BUAD 251- Personal Financial Planning
Emilio Macluf
mutual fund will earn interest at 5%. Ken expects his retirement period to last for 25 years. Ignore
income taxes for this question.
a. What dollar amount (in today's dollars) will he need to receive every year during his
retirement?
$95,000 x 75% = $ 71,250
b. What dollar amount (in future dollars) will he need to receive every year during his
retirement? That is an equivalent annual amount adjusted for inflation to the
retirement date.
BGN
N=23
I/Y=3
PV= $71,250
PMT= 0
FV= $140,618.04
c. What is the dollar amount of the annual contribution he needs to make from now until
retirement so that he will have a sufficient amount in his RRSP to meet his retirement
goals.
BGN
N=25
I/Y=5
PV= $71,250
PMT= $5,055.36
FV=0