Janet is 25 and her marginal tax rate is 32%. She is planning to invest $5,000 per year into her RRSP until she retires at 65. The money will be invested in a Canadian ETF that is expected to return 10% per year. Assume that she will withdraw her RRSP in one lump sum at 65 and that the marginal tax rate at 65 is 50%.                             

1.  
2. Instead of making the annual RRSP contribution in (A), she would use the $5,000 per year to service an interest-only investment loan to create her self-created tax shelter. The rate of interest on the loan is 6%. She will invest the money in the same Canadian ETF that earns 10%. The expected rate of return of 10% on the mutual fund is all capital gains and no dividends.
3.  

 

Required

1. How much money will she have after taxes if she invests in the RRSP?
2. How much money will she have after taxes if she invests in the tax shelter? 
3.  
4. In (B), if the expected rate of return on the mutual fund is only 6% (i.e., the same as the rate of interest on the loan), how much money after taxes will she have at 65? 
5.