Mango is a Government employee who receives a salary of TZS 4,500,000 per month. Mavugo expects to retire 8 years from now after working for 40 years and expect to live for 20 years after retirement. As a preparation to his retirement, Mavugo has been contributing to the XYZ private pension fund for a guaranteed pension equal to 2/3 of his current salary after retirement.

REQUIRED

i. How much does Mavugo save in the pension fund for a retirement of 2/3 of his current income when real interest rate is zero? [6 Marks]

ii. If Mavugo is expecting real rate of interest of 6% p.a., what would be the required annual savings?