Emma (Canadian) and Eric (Australian) have just welcomed their baby Karen into the world. They are currently both aged 35 years old and have decided it is time to plan for both Karen's future and their own retirement. They plan on retiring 30 years from now in Canada. However, they want Karen to attend university in Australia when she turns 18 years old. They will also provide her a deposit to buy an apartment in Australia when she goes there for her studies. Their take-home pay (two of them together) is $120,000 and they dont expect increases more than the rate of inflation in the future. The inflation rate is 2% and investment returns are 7%. Currently, they can save 5% of take-home pay into TFSAs; 5% of take-home pay into RRSPs. In 20 years from now, their mortgage will be paid off so their saving will increase to 5% of take-home pay into TFSAs and 15% of take-home pay into RRSPs. This question is intended to be done in real dollars and future amounts are expressed in real dollars. All dollars are in Canadian ($ CDN). There is no need to consider the influence of tax in this question.

Here are the details of the savings and dates of the big expenditures Emma and Eric are saving for:

* Five years of university education starting in 18 years (but first payment at end of the year to use ordinary annuities): $12,000 p.a.

* Help Karen buy an apartment in Australia 18 years from now at the cost of $100,000.

* The money in the TFSAs will be used for Karen's education and as a deposit for the apartment. After this, Emma and Eric will keep on contributing to the TFSA and anything left over will be used to fund their retirement in addition to the RRSP money.

* They estimate they will need $60,000 a year in retirement for 25 years.

1. Draw a timeline of the events and calculate the discount rate.

2. Will Emma and Eric have enough money in the TFSAs for Karen's education and $100,000 deposit for the apartment, at the times planned? Show the calculations/solutions.

3. Will they have enough money to support their retirement plans (ignore other sources of retirement income)? Show the calculations.