QUESTION ONE Michopo Ma Chips is considering two different savings plans. The first plan would have her deposit K5,000 every six months, and she would receive interest at 7 percent annual rate, compounded semi-annually. Under the second plan she would deposit K10,000 every year with a rate of interest of 7.5 percent, compounded annually. The initial deposit with plan 1 would be six months from now and, with plan 2, one year hence. Required A. Calculate the future value of the first plan at the end of 10 years. (10 Marks) B. What is the future value of the second plan at the end of 10 years? C. Which plan should Michopo Ma Chips use, assuming that her only concern is with the value of her saving at the end of 10 years?

QUESTION TWO Establish loan amortization schedules for a 24-month loan of K20,000 with equal instalment payments at the end of every three months. The interest rate is 2 percent per month. (25 Marks) [Total: 25 Marks]

question three

Mr Kunda is 63 years old and recently retired. He wishes to provide retirement income for himself and is considering an annuity contract with Madison Life Insurance Company. Such a contract pays him an equal-kwacha each year that he lives. For this cash-flow stream, he must put up a specific amount of money at the beginning. According to actuary tables, his life expectancy is 15 years, and that is the duration on which the insurance company bases its calculations regardless of how long he actually lives. Required A. If Madison Life uses a compound annual interest rate of 5 percent in its calculations, wha must Mr Kunda pay at the outset for an annuity to provide him with K10,000 per yea (Assume that expected payments to be made at the end of each of the 15 years). (15 Mark 3. What would be the purchase price if the compound annual interest rate is 10 percent a expected payments to be made at the start of each of the 15 years? [Total: 25Ma END OF TEST