Mary and John, a young couple, come to you asking for financial advice. They recently graduated and have found entry-level positions in their chosen professions. They never received any formal financial education, but someone did give them a couple of The Wealthy Barber, and they read it. Now they want to take action and begin saving for their future.

Recently Mary received an inheritance of $40,000 (PMT= 0, PV=40000) from her grandmothers estate. She wants to keep her inheritance money separate from John.

On the other hand, John also wants to save $1000/month (PMT= 1000, PV=0) for the next 40 months. There will be no further contribution after 40 contributions.

They know how the Tax-Free Savings Account (TFSA) works and consider themselves low risk-takers as both of them have a 5-year time horizon. They want to take a conservative approach to their investment as they will use these funds for house purchases. Assume their return on investment is 4% every year.

Your answer should address the following:

1. You will explain both the terms in simple language to the couple. (2 Marks)
2. Explain the advantage and disadvantages of both strategies. (2 Marks)
3. Who will have more money at the end of 5 years? Show your calculation. (2 Marks)

(Hint: For John, this is a two-stage calculation. 1-stage involves the first 40 months and the 2-stage involves the last 20 months).

4. Recommend one strategy based on the discussion. (1.5 Marks)

There is no right or wrong answer here. Marking will be given based on your argument and conclusion. You may also assume a bear market in the financial market which may change the outcome in question C.