In this chapter, you learned that saving is an important part of personal financial planning and that without savings you cannot make investments. One way to invest your savings is to open a tax-free savings account (TFSA) and make a contribution. Let's assume that you have $5,000 to invest and are considering a high-interest savings account or a guaranteed investment certificate (GIC) to be placed in your TFSA.

Instructions

(a) Go to the website of your Canadian financial institution and find the current rates of return that each investment-a savings account or a GIC-is providing.

(b) If you invested the $5,000 in a savings account or a GIC, how much would each of these alternatives be worth after two years if the current rate of return continued? Assume that the contribution is made through monthly payments of $416.67.

(c) Assume that you continue to invest $5,000 every year for 40 years. What rate of return would you require to reach $1 million? How does this compare with the rate of return provided in a savings account or a GIC?