17. Your brother ,Jarnes , will Join University in five years from today , for his higher education His ambition is to pursue ve year course at the University of Nairobi . Tuition Fees and other costs will be Sh. Sh. 600,000 per semester and there are three semester in a year. Anticipating James's ambitions , your parents started investing Sh. 10,000 per month five years ago and will continue to do so each month for the next five years. Use 12 percent per annum as the appropriate interest rate throughout this problem and ignore ination Reun How much more will your parents have to invest each month for the next five years to have the necessary funds for the education of your brother if the cost assumed to come at the end of each semester? 18. As an investment advisor , you have been approached by a client called Kiprono , who wants some help in investment related matters . Kiprono is currently 45 years old and has Ksh. 600,000 in the bank. He plans to work for 15 more years and retire at the age of 60. Kiprono's present salary is Ksh. 400,000 per year. He expects his salary to increase at the rate of 12 percent per year undl his retirement . Kiprono has decided to invest his bank balance and future savings in a portfolio in which stocks and bonds would equally be weighted. For the sake of simplicity, assume that these proportions will be maintained by him throughout. He also believes that bonds would provide a return of 7 percent and stocks a return of 13 percent .You concur with his assessment .Once he retires at the age of 60 he would like to withdraw Ksh . 500,000 per year from his investment for the following 15 years as he expects to live up to the age of 75 years . He also wants to bequeath Ksh . 1 million to his children at the end of his life. Required: 1. How much money would he need 15 years from now? ii. How much should Kiprono save each year for the next 15 years to be able to meet his investment objectives as shown above ? Assume that the savings will occur at the end of each year. iii. Suppose Kiprono wants to donate Ksh . 200,000 per year in the last three years of his life to a charitable cause. Each donation would be made at the beginning of the year. How much money would he need when he reaches the age of 60 to meet his specific need? iv. Kiprono recently attended a seminar on human capital where the speaker talked about a person's human capital as the present value of his life time earnings. Kiprono is curious to find out the present value of his life time salary. For the sake of simplicity assume that his present salary of Ksh. 400,000 will be paid exactly one year from now, and his salary will be paid in installments .What is the present value of his life n'me salary, if the discount rate is 3 percent ? Remember that he expects his salary to increase at the rate of 12 percent per year until his retirement. (Ignore the taxation )
