Belinda (Canadian) and Max (Australian) have just welcomed baby Siena into the world. They are currently aged 35 years old and have decided it is time to plan for both Siena’s future and their own retirement. They want to retire in 30 years from now in Canada. However, they want Siena’s to attend university in Australia when she is 18 years old. They will also provide her a deposit to buy a condo in Australia when she starts studying. Their take-home pay (two of them together) is $120,000 and they don’t expect increases more than the rate of inflation in the future. The inflation rate is 2% and investment returns are 7%. Currently, they can save 5% of take-home pay into TFSAs; 5% of take-home pay into RRSPs. In 20 years from now, their mortgage will be paid off so their saving will increase to 5% of take-home pay into TFSAs and 15% of take-home pay into RRSPs. You will do this problem in real dollars and future amounts are expressed in real dollars. All dollars are in Canadian ($ CDN). You do not need to consider the influence of tax in this problem. Here are the details of the savings and dates of the big expenditures they are saving for:

• Allow 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 Siena with a condo in Australia 18 years from now at the cost of $100,000.
• The money in the TFSAs will be used for Siena’s education and as a deposit for a condo. After this, they 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 need $60,000 a year in retirement for 25 years.

Required:

• Draw a timeline of the events and calculate the discount rate. (5 marks)
• Will they have enough money in the TFSAs for Siena’s education and $100,000 deposit for a condo, at the times planned? Show the calculations (10 marks)
• Will they have enough money to support their retirement plans (ignore other sources of retirement income)? Show the calculations.