Personal Finance Question Please Help!

Inflation Assumptions Inflation rate 4.0% Tuition inflation rate 3.0% Asset Classes INVESTMENT PROFILE OVERALL ASSET ALLOCATION Conservative 25% Equity -75% Fixed Income Moderate 40% Equity - 60% Fixed Income Balanced 60% Equity -40% Fixed Income DETAILLED ASSET ALLOCATION 75% Bonds 10% US Equity 7.5% Canadian Equity 7.5% International Equity 60% Bonds 16% US Equity 12% Canadian Equity 12% International Equity 40% Bonds 24% US Equity 18% Canadian Equity 18% International Equity 20% Bonds 32% US Equity 24% Canadian Equity 24% International Equity 0% Bonds 40% US Equity 30% Canadian Equity 30% International Equity Advanced 80% Equity -20% Fixed Income Aggressive 100% Equity Rate of Return for Asset Classes Investment Vehicle Bonds 4.90% Conservative RRSP CDN Equity 8.5% Moderate TESA US Equity 10.10% Balanced RESP International Equity 9.70% Jane (25) and Jason (26) graduated from University of Lethbridge a couple of years ago. Jason has his BA degree and is working as a purchasing manager earning $72,000 a year while Jane has an Engineering degree and is earning $84,000 a year working for a large oil & gas company. Jane and Jason were recently talking about their desire to start a family within the next three years. While they are happy with how their careers have progressed to-date and their family income, they realize they need to take control of their financial life if they want to start a family. After completing a Cash Flow analysis, developing a budget, implementing some sound money management practices and ensuring they have proper insurance, Jason and Jane realize the next step in building their financial plan is to create an Investment Plan so they can achieve their financial goals. 1) Purchase their 1st home before the birth of their first child. They would like to buy the home in two years. They have friends who just purchased their 1st home and know they will need $30,000 for a 5% down payment on a $600,000 home. Jane remembers learning about the benefits of using the Home Buyers plan to purchase your first home. She currently has $15,050 in her Group RRSP account at work. | 2) Vehicle: The couple currently gets by with one vehicle as Jane takes public transit to work due to the high cost of parking at her downtown office. However, they anticipate that they will need a second car when the baby is born in three years. They expect that they will buy a used vehicle for around $20,000 (in today's dollars). 3) Education: Having graduated a few years ago from university - where they took some Personal Finance class - with some student loans, they know full well the cost of a university education. They would like to be able to pay the tuition costs for their children to attend university. They plan on having their 1st child in 3 years and the 2nd in 5 years. They would like to start saving enough now, so that they have $10,000 available to jump start their first child education savings when the child is born in 3 years. They would also like to know how much in today's dollars they might need to contribute monthly to fund 4 years of university starting in 18 years, with an annual tuition cost of $10,000 (including books and miscellaneous), and assuming no other costs such as room and board (the child will either be living at home or working on the side to pay for their room and board on campus. Use a 3% inflation assumption. Financial Goals Projected Rate of Return Goal Investment Vehicle Overall Asset Allocation Detailed Asset Allocation Rate of Return for Asset Classes Projected Rate of Return Asset Weighted Class Average Financial Goals Required Monthly Current Amount Savings Goal Amount Needed When Projected Rate of Return Asset Allocation Investment Vehicle TVM Calc. FV N PV PMT 1/Y Short Term Goals (less than 2 years) - Down payment (a) Amount Needed (b) Invest current savings (c) Balance to fund (d) Monthly Contribution Medium Term Goals (2 to 5 years) - Vehicle (e) Amount Needed (f) Monthly Contribution Long Term Goals (5 years +) - Education (g) Monthly contribution to save $10,000 in 3 years (h) Monthly contribution for education - Option A (i) Monthly contribution for education - Option B Note: Use monthly rate for monthly contribution (a) Find the amount that will be needed in 2 years for the down payment, knowing its current value of $30,000, and the inflation rate. (b) What will be the future value of current savings by then, when invested at RRSP rate? (c) How much will then be required to complete the down payment in 2 years? (d) How much should be saved each month to reach that goal? (e) Find the amount that will be needed in 3 years to buy the car, knowing its current value of $20,000, and the inflation rate. (f) How much will be required to save per month and invest to reach that goal? (g) How much will be required to save per month at TFSA rate to have $10,000 in 3 years? (h) Use the Alterna Bank RESP calculator to determine the monthly RESP contribution required to fund university in 18 years (a slight surplus is OK. Write the estimated tuition cost amount in Amount needed (FV) (l) Repeat (h) above but change the RESP rate of return assumption to 5% 4 Inflation Assumptions Inflation rate 4.0% Tuition inflation rate 3.0% Asset Classes INVESTMENT PROFILE OVERALL ASSET ALLOCATION Conservative 25% Equity -75% Fixed Income Moderate 40% Equity - 60% Fixed Income Balanced 60% Equity -40% Fixed Income DETAILLED ASSET ALLOCATION 75% Bonds 10% US Equity 7.5% Canadian Equity 7.5% International Equity 60% Bonds 16% US Equity 12% Canadian Equity 12% International Equity 40% Bonds 24% US Equity 18% Canadian Equity 18% International Equity 20% Bonds 32% US Equity 24% Canadian Equity 24% International Equity 0% Bonds 40% US Equity 30% Canadian Equity 30% International Equity Advanced 80% Equity -20% Fixed Income Aggressive 100% Equity Rate of Return for Asset Classes Investment Vehicle Bonds 4.90% Conservative RRSP CDN Equity 8.5% Moderate TESA US Equity 10.10% Balanced RESP International Equity 9.70% Jane (25) and Jason (26) graduated from University of Lethbridge a couple of years ago. Jason has his BA degree and is working as a purchasing manager earning $72,000 a year while Jane has an Engineering degree and is earning $84,000 a year working for a large oil & gas company. Jane and Jason were recently talking about their desire to start a family within the next three years. While they are happy with how their careers have progressed to-date and their family income, they realize they need to take control of their financial life if they want to start a family. After completing a Cash Flow analysis, developing a budget, implementing some sound money management practices and ensuring they have proper insurance, Jason and Jane realize the next step in building their financial plan is to create an Investment Plan so they can achieve their financial goals. 1) Purchase their 1st home before the birth of their first child. They would like to buy the home in two years. They have friends who just purchased their 1st home and know they will need $30,000 for a 5% down payment on a $600,000 home. Jane remembers learning about the benefits of using the Home Buyers plan to purchase your first home. She currently has $15,050 in her Group RRSP account at work. | 2) Vehicle: The couple currently gets by with one vehicle as Jane takes public transit to work due to the high cost of parking at her downtown office. However, they anticipate that they will need a second car when the baby is born in three years. They expect that they will buy a used vehicle for around $20,000 (in today's dollars). 3) Education: Having graduated a few years ago from university - where they took some Personal Finance class - with some student loans, they know full well the cost of a university education. They would like to be able to pay the tuition costs for their children to attend university. They plan on having their 1st child in 3 years and the 2nd in 5 years. They would like to start saving enough now, so that they have $10,000 available to jump start their first child education savings when the child is born in 3 years. They would also like to know how much in today's dollars they might need to contribute monthly to fund 4 years of university starting in 18 years, with an annual tuition cost of $10,000 (including books and miscellaneous), and assuming no other costs such as room and board (the child will either be living at home or working on the side to pay for their room and board on campus. Use a 3% inflation assumption. Financial Goals Projected Rate of Return Goal Investment Vehicle Overall Asset Allocation Detailed Asset Allocation Rate of Return for Asset Classes Projected Rate of Return Asset Weighted Class Average Financial Goals Required Monthly Current Amount Savings Goal Amount Needed When Projected Rate of Return Asset Allocation Investment Vehicle TVM Calc. FV N PV PMT 1/Y Short Term Goals (less than 2 years) - Down payment (a) Amount Needed (b) Invest current savings (c) Balance to fund (d) Monthly Contribution Medium Term Goals (2 to 5 years) - Vehicle (e) Amount Needed (f) Monthly Contribution Long Term Goals (5 years +) - Education (g) Monthly contribution to save $10,000 in 3 years (h) Monthly contribution for education - Option A (i) Monthly contribution for education - Option B Note: Use monthly rate for monthly contribution (a) Find the amount that will be needed in 2 years for the down payment, knowing its current value of $30,000, and the inflation rate. (b) What will be the future value of current savings by then, when invested at RRSP rate? (c) How much will then be required to complete the down payment in 2 years? (d) How much should be saved each month to reach that goal? (e) Find the amount that will be needed in 3 years to buy the car, knowing its current value of $20,000, and the inflation rate. (f) How much will be required to save per month and invest to reach that goal? (g) How much will be required to save per month at TFSA rate to have $10,000 in 3 years? (h) Use the Alterna Bank RESP calculator to determine the monthly RESP contribution required to fund university in 18 years (a slight surplus is OK. Write the estimated tuition cost amount in Amount needed (FV) (l) Repeat (h) above but change the RESP rate of return assumption to 5% 4