Question

Annual contributions of $2,100 will be made to a TFSA for 20 years. The contributor expects investments within the plan to earn 6% compounded annually. What will the TFSA be worth after 20 years if the contributions are made: a. At the end of each year? (Round your answer to 2 decimal places.) TFSA's worth $ b. At the beginning of each year? (Round your answer to 2 decimal places.) TFSA's worth $ c. By what percentage does the answer to Part (b) exceed the answer to Part (a)? (Do not round intermediate calculations and round your final percentage answer to 1 decimal place.) Percent difference %

Answer 1

The TFSA will be worth $85,563.33 if contributions are made at the end of each year and $89,080.60 if contributions are made at the beginning of each year. The answer in part (b) exceeds the answer in part (a) by 4.11%.

Step-by-step explanation:

To calculate the worth of the TFSA after 20 years, we can use the formula for compound interest:

FV = P (1 + r/n)^(nt)

Where:

• FV is the future value of the investment
• P is the principal amount (annual contribution)
• r is the annual interest rate (6% or 0.06 in decimal form)
• n is the number of times the interest is compounded per year (annual contributions are made)
• t is the number of years (20)

a. If the contributions are made at the end of each year, the future value of the TFSA is calculated as:

FV = 2100 * (1 + 0.06/1)^(1*20) = $85,563.33

b. If the contributions are made at the beginning of each year, the future value of the TFSA is calculated as:

FV = 2100 * (1 + 0.06/1)^(1*20-1) = $89,080.60

c. To calculate the percentage difference between the answer to part (b) and part (a), we can use the formula:

Percentage Difference = ((Value B - Value A) / Value A) * 100

Where:

• Value B is the value from part (b) ($89,080.60)
• Value A is the value from part (a) ($85,563.33)

Plugging in the values:

Percentage Difference = (($89,080.60 - $85,563.33) / $85,563.33) * 100 = 4.11%