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 oldandhe plans to retire in 10 yearsfrom 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 aninvestment 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 GH 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 GH 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 his lovely daughter Daisy. His daughter is now 13 yearsold. She plans to enroll at the University of Professional Studies, Accrain 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 grandfathers(King Davids)estate; this money will be invested at a rate of 8% to help meet the costsof Daisys education. The rest of the costs will be met by money King Solomonwill 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).

a)Explain to KingSolomon what financial markets mean and which three(3) financial instruments he can invest in. (4 marks )

b.To 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 6retirement goal? (Note: Neither the amount he saves nor the amount he withdraws upon retirement is a growing annuity

The Government of Ghana in an attempt to stimulate the Ghanaian economy after the COVID 19 pandemic has set aside GH600million as a stimulus package for businesses. These stimulus packages are to be in the form of soft loans for businesses. However, some believe that these loans must be extended to firms in industries that are worst hit by the pandemic. As the Finance Director of your company, you have been tasked to present a proposal to the Board of Directors of your company for consideration. Your proposal must address the following;

i.The negative impact of the COVID 19 pandemic on the operations of your firm, justifying why your firm needs such a stimulus package? Your arguments should be situated within the industry within which you operate.

ii.With your understanding of lessons on capital structure, which other four (4) factors should your firm consider before choosing this source of debt finance?

iii.Discuss four (4) risks that your company is likely to be exposed to if it goes ahead with this source of debt finance.

Iv.Explain how this decision will affect the return to the equity holders or shareholders of your company following the arguments of M&M proposition 2.

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 COVID 19. The bond has a face value of GH10,000 at a coupon rate of 12% and a term to maturity of 10 years. The bond expects to pay coupons annually. Included in the bond indenture are call and sinking fund provisions. The required rate of return on the market for bonds with similar features is 18% per annum. Your boss had asked you to advice King Solomon based on the information he provided.

Explain to King Solomon what call provisions and sinking fund provisions are and how these provisions are expected to affect the risk of the bond.

Which value will you place on a bond of Zenzo Pharma Ltd?