Philippe is excited as he is considered a top performer at his place of employment and will receive a significant company bonus at the end of the month of $20,000. He is looking to invest this money in his Tax-Free Savings Account (TFSA). He currently has TFSA contribution room of $37,500 and the contribution of his bonus would be the first time that he contributes. In addition, to contributing his company bonus, he is looking to invest $400 a month into his TFSA (also starting at the end of the month when he gets his pay cheque). Philippe expects a rate of 6% compounded monthly and is wondering how much he will have after five years in his TFSA?
Show calculations for Philippe’s total TFSA investment: (2 marks)
1. Calculating total TFSA investment from the company bonus:
- Company bonus: $20,000
- TFSA contribution room: $37,500
- Total TFSA investment from company bonus: $20,000
2. Calculating total TFSA investment from monthly contributions:
- Monthly contribution: $400
- Number of months in 5 years: 5 years * 12 months = 60 months
- Total TFSA investment from monthly contributions: $400 * 60 months = $24,000
3. Total TFSA investment over 5 years:
- Total TFSA investment = Total TFSA investment from company bonus + Total TFSA investment from monthly contributions
- Total TFSA investment = $20,000 + $24,000 = $44,000
Therefore, Philippe will have a total of $44,000 in his TFSA after five years.