Part I -Time Value of Money and Valuation of Financial Assets [30 Marks] This part contains five questions. Answer any three questions. 1. Banda has inherited K45,000 from his late parent's estates and wishes to purchase an annuity from ZSIC LIFE that will provide him with a steady income over the next 10 years. He has heard that the banks are currently paying 10 percent compound interest on an annual basis. If he were to deposit his funds, what year-end equal amount would he be able to withdraw annually such that he would have a zero balance after his last withdrawal 10 years from now? Show your workings.[ 10 MARKS] 2. You need to have K500,000 at the end of 10 years. To accumulate this sum, you have decided to save a certain amount at the end of each of the next 10 years and deposit it in the bank. The bank pays 10 percent interest compounded annually for long-term deposits. How much will you have to save each year? Show your workings.| 10 MARKS] 3. You have just won a jack pot lottery worth of K 1000, 000. You have been offered the following options: [10 MARKS] - Option A: ten equal instalments payable at the end of each year. - Option B: K 200. 000 as down payment and the balance payable over fifteen equal instalments payable at the end of each year. - Option C: to be paid in two instalments over a period of 10 years Assuming a discount rate of 10%, which option would you prefer? Show your workings 4. ZESCO Company has outstanding a 10 percent (coupon rate) bond issue with a face value of K1,000000 bond and five years to maturity. Interest is payable annually. The bonds are privately held by MADISON Insurance Company. MADISON wishes to sell the bonds, and is negotiating with another party. It estimates that. in current market conditions, the bonds should provide a (nominal annual) return of 14 percent. What price should MADISON be able to realize on the sale? Compute the value of the bond. Show your workings [ 10 Marks] 5. RED SEA Company just finished making an annual dividend payment of K20 per share on its common stock. Its common stock dividend has been growing at an annual rate of -10 percent Mr Bupe requires a 16 percent annual return on this stock. What intrinsic value should Bupe place on one share of RED SEA common stock under the following three situations? [10 Marks] a. Dividends are expected to continue growing at a constant 10 percent annual rate. b. The annual dividend growth rate is expected to decrease to 9 percent and to remain constant at that level. c. The annual dividend growth rate is expected to increase to 11 percent and to remain constant at the level