Question 1.

Consider the following retirement fund R which involves contributing on your birthdays over the years 2020 to 2060:

An employee aged 25 years plans to contribute 4% of his salary to R starting on his 25thbirthday. Then he plans, on his 45thbirthday, to up his contribution to 8% of his salary until he is 65. His salary at age 25 is $42,000. An assumption is made that his salary will increase by 2% on average per year.The employer will contribute 3% of the employee's salary to R over the complete time periodconsidered. The growth of this retirement fund R is estimated to be 3.5% per annum. The annual fund R cost has been estimated at $200 per annum.

Calculate how much the employee will have saved for his retirement through this fund when he turns 65.

Mention any assumptions you have made.

Question 2.

(a) Construct an amortization schedule for a loan of $11,800 to be repaid by an 8-payment

annuity-immediate at an effective interest rate of 4.5% per year

(b) What would be the difference between an amortization schedule and a sinking fund

schedule for the loan repayment in (a)?