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 next 17 years is 2%, what will be the purchasing power (in today’s dollars) of the monthly payments at the start of the annuity?
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