Mini$-$Case A: $(8$ marks$)$

Lucie and Luc can$$t believe their luck! They just bought their first lottery ticket together and won! They are, however, reading the fine print and see they have two options under which they have one week $($by July $30,2024)$ to decide how they wish to receive the funds. Under either scenario, Lucie, who is an investment advisor knows that she can invest their money and confidently earn $5\%$ compounded monthly.

Option A: They can receive the winnings of $$500,000$ over $20$ years $($i$.$e$.$ $$25,000$ per year starting July $30,2025).$

OR

Option B: They can take a lump$-$sum payment now $($July $30,2024)$ of $$375,000.$

a$)$ Explain why Option B is favorable. $(1$ mark$)$

Option B is favorable because receiving a lump$-$sum payment of $$375,000$ now allows them to immediately invest the entire amount at a $5\%$ annual interest rate, compounded monthly. This enables them to potentially grow their investment significantly over time due to the effects of compound interest. In contrast, Option A spreads the payments over $20$ years, reducing the immediate availability of funds and the potential for investment growth. By taking the lump sum now, they can take full advantage of compounding interest and potentially accumulate a larger amount of money over the same period.

b$)$ Taking Option B$,$ Lucie and Luc would like to split the winnings equally and invest by first maximizing their contributions towards their Tax$-$Free Savings Accounts $($TFSAs$),$ second, their Registered Retirement Savings Plan $($RRSP$),$ and third, any remaining funds to their savings accounts for a down payment on a home. As of July $30,2024,$ calculate the amounts each can contribute $($if any$)$ to their respective three accounts to determine how much they will have for a downpayment on a home. Do not forget to consider contribution room from previous years. $(5$ marks$)$

Age:

Lucie: currently age $23,$ birthday on January $2$nd

Luc: currently age $26,$ birthday on August $15$th

TFSA:

Lucie: has never made a TFSA contribution

Luc: to date, has contributed $$6,000$ to his TFSA account

RRSP:

Lucie: on May $15,2024,$ she received her $2023$ Notice of Assessment $($NOA$)$ from filing her $2023$ Federal and Quebec personal income tax returns;

$-$Her $2023$ Federal NOA confirms her $2024$ RRSP contribution room, including carryover contribution room from previous years for a total of $$87,000$;

$-$Her $2023$ Federal NOA does not take into consideration the recent RRSP contribution that Lucie made in the amount of $$2,000$ on May $30,2024,$ for which she used her company bonus to make a contribution.

Luc: filed his $2023$ personal taxes late and has not yet received his $2023$ NOA which now requires him to calculate his $2024$ RRSP contribution room;

$-$He has never made an RRSP contribution to date;

$-$His $2022$ Federal NOA confirmed his $2023$ RRSP contribution room including carryover contribution room from previous years for a total of $$57,200$;

$-$His gross salary in $2023$ was $$110,000$ and in $2024$ is $$120,000$;

$-$He has never been part of a company pension plan, so he does not have a Pension Adjustment $($PA$).$

Lucie and Luc$$s calculations $(5$ marks$)$

TFSA Contribution for Lucie: $(1$ mark$)$

TFSA Contribution for Luc: $(1$ mark$)$

RRSP Contribution for Lucie: $(1$ mark$)$

RRSP Contribution for Luc: $(1$ mark$)$

Allocation of Winnings: $(1$ mark$)$ Lucie Luc

TFSA $ $

RRSP $ $

Savings account for home down payment $ $$\_\_\_\_\_\_\_\_\_$

Total $ $

c$)$ Lucie and Luc wish to buy a home. Based on your calculation in b$)$ for their down payment, what is the home value they could purchase for a conventional mortgage? $(1$ mark$)$

Home value under a conventional mortgage $(1$ mark$)$

d$)$ Based on your calculation in c$),$ what is the mortgage amount needed? $(1$ mark$)$

Mortgage $(1$ mark$)$