Niran and Jennifer are planning to take a family vacation to Dubai in five years. They estimate the cost to be $50,000 today. They expect the vacation costs to increase by 3% per year.

They plan to use a non-registered account to save for the family vacation. The non-registered account earns a nominal before-tax rate of 5% p.a. Inflation is 2%. Their tax rate is 38%.

Required

1. What is the end of year annual savings amount needed to achieve their goal of the family vacation to Dubai? (10 marks)

2. After returning from Dubai, Niran and Jennifer have been talking about how they would like to travel more often. They are considering selling their rental property. They have an interested buyer who will pay $750,000 all in cash today. They are trying to decide whether to accept the cash offer or hold the rental property based on the continued rental income they can earn. They estimate the net rental income will be $60,000 one year from today and this amount will grow 2% every year thereafter for the next 20 years. The discount rate is 6% p.a. Ignore taxes. What do you recommend Niran and Jennifer do? (10 marks)