King Solomon is a rich farmer  in  Tetebia, a  town  in  the  Asou Municipal Assembly.  He  owns over 100,000 hectares of farmlands. However, he fears the worst might happen and wants to do some investments to secure his future and that of  his  children.  He  is  contemplating  some  long term investments he could undertake to secure his future and that if his children.  He  is  now  50 years old and he plans to retire in 10 years  from active  farm work.  He expects to live for another 25 years after he retires  –that  is,  until age  85.  He was advised by a friend that an investment in the financial market will help him plan his retirement well.  He  has  no  idea  about  financial markets and how they operate. You recently graduated and have just reported to work as an investment advisor at the brokerage firm of Cenden Ltd. King Solomon has approached your company for advice. Your boss after a discussion with King Solomon could gather the following information. King Solomon wants his first retirement payment to have the same purchasing power at the time he retires as GHȼ 40,000 has today. He wants all of his subsequent retirement payments to be equal to his first retirement payment. (Do not let the retirement payments grow with inflation: King Solomon realizes that the real value of  his  retirement  income  will  decline year by year after he retires.) His retirement income will begin the day he retires, 10 years from today, and he will then receive 24  additional  annual  payments. Inflation  is  expected to be  5% per year from today forward. He currently has GHȼ 100,000 saved up, and he expects to earn a return on his savings of 8% per year with annual compounding. Again, he wants to have a secure university education for hislovely daughter Daisy. His daughter is now 13 years old. She  plans  to enroll at the  University of  Professional Studies, Accra in 5 years, and it should take her 4 years to complete  her education.  Currently, the  cost per year (for everything – her food, clothing, tuition,  books,  transportation,  and  so  forth)  is  GH¢  12,000 per year. This cost is expected to remain  constant  throughout the four-year university education. The daughter recently received GH¢ 7,500 from her grandfather’s (King David’s) estate;  this money will be invested at a  rate  of  8%  to help meet the costs  of Daisy’s education. The rest of  the costs will  be  met  by  money  King  Solomon will deposit in a savings  account which also earns 8 percent compound interest per year. He will make 5 equal deposits into the account, one deposit per annum starting one year from now  until his  daughter starts university.  These deposits will begin one year from now. (Assume that school fees are paid at the beginning of the year). Again, King Solomon is interested in buying a bond issued by Zenzo Pharma Ltd. Zenzo Pharma intends  to use  the  proceeds of the  bonds  to finance  the  production of its  new vaccine for COVIDTo the nearest cedi, how much must he save during each of the next 10 years (with equal deposits being made at the end of each year, beginning a year from today) to meet his retirement goal? (Note: Neither the amount he saves nor the amount he withdraws upon retirement  is  a growingannuity.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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King Solomon is a rich farmer  in  Tetebia, a  town  in  the  Asou Municipal Assembly.  He  owns over 100,000 hectares of farmlands. However, he fears the worst might happen and wants to do some investments to secure his future and that of  his  children.  He  is  contemplating  some  long term investments he could undertake to secure his future and that if his children.  He  is  now  50 years old and he plans to retire in 10 years  from active  farm work.  He expects to live for another 25 years after he retires  –that  is,  until age  85.  He was advised by a friend that an investment in the financial market will help him plan his retirement well.  He  has  no  idea  about  financial markets and how they operate. You recently graduated and have just reported to work as an investment advisor at the brokerage firm of Cenden Ltd. King Solomon has approached your company for advice. Your boss after a discussion with King Solomon could gather the following information. King Solomon wants his first retirement payment to have the same purchasing power at the time he retires as GHȼ 40,000 has today. He wants all of his subsequent retirement payments to be equal to his first retirement payment. (Do not let the retirement payments grow with inflation: King Solomon realizes that the real value of  his  retirement  income  will  decline year by year after he retires.) His retirement income will begin the day he retires, 10 years from today, and he will then receive 24  additional  annual  payments. Inflation  is  expected to be  5% per year from today forward. He currently has GHȼ 100,000 saved up, and he expects to earn a return on his savings of 8% per year with annual compounding.

Again, he wants to have a secure university education for hislovely daughter Daisy. His daughter is now 13 years old. She  plans  to enroll at the  University of  Professional Studies, Accra in 5 years, and it should take her 4 years to complete  her education.  Currently, the  cost per year (for everything – her food, clothing, tuition,  books,  transportation,  and  so  forth)  is  GH¢  12,000 per year. This cost is expected to remain  constant  throughout the four-year university education. The daughter recently received GH¢ 7,500 from her grandfather’s (King David’s) estate;  this money will be invested at a  rate  of  8%  to help meet the costs  of Daisy’s education. The rest of  the costs will  be  met  by  money  King  Solomon will deposit in a savings  account which also earns 8 percent compound interest per year. He will make 5 equal deposits into the account, one deposit per annum starting one year from now  until his  daughter starts university.  These deposits will begin one year from now. (Assume that school fees are paid at the beginning of the year).

Again, King Solomon is interested in buying a bond issued by Zenzo Pharma Ltd. Zenzo Pharma intends  to use  the  proceeds of the  bonds  to finance  the  production of its  new vaccine for COVIDTo the nearest cedi, how much must he save during each of the next 10 years (with equal deposits being made at the end of each year, beginning a year from today) to meet his retirement goal? (Note: Neither the amount he saves nor the amount he withdraws upon retirement  is  a growingannuity.

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