A couple has two children, Child A and Child B. During the Covid-19 pandemic, the couple lost their jobs in the air travel industry. As compensation, they received lucrative retrenchment packages. During the couples retrenchment period, Child A was in the first year of her university studies and Child B was in Grade 8 at a local high school. To protect their retrenchment package, the couple consulted an investment advisor to draft an Investment Policy Statement (IPS) for the family. The following information was deliberated on in the meeting with the advisor: The couple is planning to buy a farm in 10 years time. After considering various economic factors to estimate the price of a medium-sized farm in 10 years time, the investment advisor recommended that the family invest R150 000 with Bank CC today and earn the prevailing interest of 12.6% on the investment, compounded monthly. The family needs to buy a new car for Child A in five years time. This is estimated to cost R160 000 in five years time. The investment advisor suggested that the family open a fixed deposit account today with Bank AA for Child A. The prevailing interest to be earned on the fixed deposit Milpark Education Financial Markets FMAR01-7 Assignment September 2022 Page 3 of 7 is 7% per annum, compounded quarterly. The investment advisor proposed that the family deposit R140 000 in a savings account with Bank BB for Child B. The savings will be used to pay for university fees once Child B completes Grade 12. Bank BB offers a nominal interest rate of 8% per annum on savings accounts, compounded daily.

Note: show all calculations and round off your final answers to two decimal places.

1.1 Given that the family will invest R150 000 with Bank CC today, how much has the advisor estimated a medium-sized farm will cost in 10 years time? (2)

1.2 To buy a new car for R160 000 in five years time for Child A, how much does the family have to put into the fixed deposit account today? (2)

1.3 If R140 000 is deposited with Bank BB at the beginning of Child Bs Grade 9 year, determine the amount that will be in the savings account at the end of his Grade 12 year. (2)

1.4 Calculate the effective annual interest rate if the family opens a savings account for Child B. (2)

1.5 If Bank EE is offering a nominal interest rate of 8.25% on savings accounts, compounded annually, which bank should the family choose in terms of an effective annual interest rate when investing Child Bs funds? Give a reason for your answer. (2)