Question

Michael turned 25 years old on March 1, 2023, and just opened a Tax-Free Savings Account (TFSA) where he deposited $6,500. Help Michael with the scenarios below. Michael is aware of the following basics regarding TFSA’s:

you can withdraw any amount from your TFSA whenever you want;

Answer 1

Michael can use compound interest to calculate the future value of his TFSA investment.

Step-by-step explanation:

Compound interest is a powerful tool for saving money in the long run. If Michael saves $6,500 in his Tax-Free Savings Account (TFSA) at age 25 and assumes a 7% annual rate of return, he can calculate the future value of his investment using the compound interest formula: Future Value = Principal x (1 + Annual Interest Rate)^Number of Years. After 40 years, his $6,500 investment would have multiplied to approximately $92,413.50. Keep in mind that this calculation assumes no additional deposits or withdrawals during the 40-year period.