QUESTION You are due to meet with a potential new client, Mrs Yorkie, who will shortly turn 30 years old. She has recently opened a self-invested personal pension (SIPP), is intending to contribute 6,000 per annum to it in nominal terms and starting on her 30th birthday) and wishes to receive an annual pension of 20,000 (in real terms) from it when she retires. You have ascertained that she pays income tax at the higher rate of 40%, that inflation is expected to be 1.5% per annum and that current annuity rates are: Retirement age Annuity rate 65 4.2% 60 4.0% 55 3.8% You have already decided that you will advise Mrs Yorkie to invest her SIPP portfolio in a FTSE All-Share equity index tracker fund and one of the gilts shown in the table below. Gilt Maturity Date Market price per 100 nominal 144.90 4% Treasury 2047 14h July 2047 1.6% Treasury 2052 14th April 2052 3% Treasury 2057 14" February 2057 91.40 120.70 Each gilt pays interest on a semi-annual basis, is redeemable at its nominal value of 100 and it is your intention to advise Mrs Yorkie to undertake cash matching. The equity index tracker fund has a tracking error of 0.56% and long run historic total nominal return from UK equities is 8.1%. You are also of the opinion that low risk investors should not hold more than 50% of their portfolios in equity but that this can be increased to 75% for medium risk investors. b) Calculate the yield to maturity of each of the gilts and explain what is meant by cash matching to Mrs Yorkie. (32 marks)