An investor had $500,000 security in maturity with the then Britz Security Fund Management and could not redeem the security before the fund management was closed down. The Government provided an option of paying the locked money in 5 years from now at zero coupon rate (option1). The Bank of America (BoA) provided a second option of buying the $500,000 from the investor today at a discount rate consistent with the 20 April 2020 treasury bill rate (91-day rate).

a. Use the inflation data presented in Figure 1 to compute the average inflation rate during the period. If the average inflation rate increases by 1.5 % each year, based on this and that of the treasury bill rate in Table 1, which of the options would you advice the investor to take? Provide all calculations to back your recommendation.

Figure1: Year on Year inflation rate, Statistical Service, August,2020

Table 1: Bank of Ghana Bill rates

Issue Date	Security Type	Discount Rate	Interest Rate
20 April 2020	91 day	13.39	13.86
27 April 2020	182 day	13.11	14.03
27 April 2020	91 day	13.55	14.03

b. Explain how payback period, NPV, and IRR criteria are used in decision making and provide example in which each is most appropriate as an appraisal tool.

Figure 3: INFLATION, August 2019 to April 2020 Yearly change rate (%) % 10.6 10 8.2 7.8 7.6 7.7 7.9 7.8 7.8 7.8 8 6 III II Aug 19 Sep-19 Oct-19 Nov-19 Dec 19 Jan-20 Feb-20 Mar 20 Apr-20 Figure 3: INFLATION, August 2019 to April 2020 Yearly change rate (%) % 10.6 10 8.2 7.8 7.6 7.7 7.9 7.8 7.8 7.8 8 6 III II Aug 19 Sep-19 Oct-19 Nov-19 Dec 19 Jan-20 Feb-20 Mar 20 Apr-20