You have been told that you need $45 500 today in order to have $200 000 when you retire 25 years from now. Required: Based on the information provided, answer the following from a) e):

a. What rate of interest was used in the present value computation if it is assumed interest is compounded annually?

b. If you wish to retire in 20 years with the same $200 000, how much money would you need to invest now?

c. Assume that you were offered two (2) other alternative investments in the securities market: Option 1 pays an interest rate of 9% p.a. (per year), compounding quarterly. Option 2 pays an interest rate of 8.95%, compounding weekly. Which option should you choose by calculating the EAR of the two investment options?

d. Assume that you changed your mind and decided to put an identical amount of money into a superannuation fund at the end of each month for 25 years at the interest rate of 10% to reach the target of $200,000 saved when you are retired. What will be your monthly payment?

e. You are offered the chance of an investment in an education group with a return of $10 000 for the first year, and then the payment will increase 2% per year forever. What is the maximum amount you should be prepared to pay for such an investment if the required rate of return of 8%? (2 marks)