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King Solomon is a rich farmer in Tetebia, a town in the Asou Municipal Assembly. He owns over 100,000 hectares of farmlands. However, he fears the worst might happen and wants to do some investments to secure his future and that of his children. He is contemplating some long-term investments he could undertake to secure his future and that if his children. He is now 50 years old and he plans to retire in 10 years from active farm work. He expects to live for another 25 years after he retires –that is, until age 85. He was advised by a friend that an investment in the financial market will help him plan his retirement well. He has no idea about financial markets and how they operate. You recently graduated from the School of Graduate Studies, University of Professional Studies, Accra and have just reported to work as an investment advisor at the brokerage firm of Cenden Ltd. King Solomon has approached your company for advice. Your boss, after a discussion with King Solomon gathered the following information. King Solomon wants his first retirement payment to have the same
Again, he wants to have a secured university education for his lovely daughter, Daisy. His daughter is now 13 years old. She plans to enroll at the University of Professional Studies, Accra, in 5 years, and it should take her 4 years to complete her education. Currently, the cost per year (for everything – her food, clothing, tuition, books, transportation, and so forth) is GH¢ 12,000 per year. This cost is expected to remain constant throughout the four-year university education. The daughter recently received GH¢ 7,500 from her grandfather’s (King David’s) estate; this money will be invested at a rate of 8% to help meet the costs of Daisy’s education. The rest of the costs will be met by money King Solomon will deposit in a savings account, which will also earn 8 percent
Again, King Solomon is interested in buying a bond issued by Zenzo Pharma Ltd. Zenzo Pharma intends to use the proceeds of the bonds to finance the production of its new vaccine for COVID 19. The bond has a face value of GH¢10,000 at a coupon rate of 12% and a term to maturity of 10 years. The bond expects to pay coupons annually. Included in the bond indenture are call and sinking fund provisions. The required
Required
- Explain to King Solomon what financial markets mean and which three (3) financial instruments he can invest in.
- To the nearest cedi, how much must he save during each of the next 10 years (with equal deposits being made at the end of each year, beginning a year from today) to meet his retirement goal? (Note: Neither the amount he saves nor the amount he withdraws upon retirement is a growing
annuity. ) ( - What will be the
present value of the cost of 4 years of education at the time the daughter Daisy turns 18?
4. What will be the value of the GH¢ 7,500 that Daisy received from her grandfather’s estate when she starts
college at 18?
5. If King Solomon is planning to make the first of 5 deposits one year from now, how large must each deposit be
for him to be able to finance his daughter’s college education?
6. Explain to King Solomon what call provisions and sinking fund provisions are and how these provisions are
expected to affect the risk of the bond
7. Which value will you place on a bond of Zenzo Pharma Ltd?
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