QUESTION 4 (7 marks)

Mr. Khalil is considering an annuity product that pay monthly payments of RM1,300.00 for 30 years and a final terminal value of RM300,000.00 at the end of 30 years.

REQUIRED:

1. How much should this product be priced if the first monthly payment is to start one month from the date of lump sum payment? Assume that the rate of return is 6%.

[5 marks]

2. If Mr. Khalil intends to retire 20 years from now, how much is the lump sum acquisition price of the annuity? Assume that the rate of return is 5.5%.