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...

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 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 could gather the following information. King Solomon wants his first retirement payment to have the same purchasing power at the time he retires as GHȼ 40,000 has today. He wants all of his subsequent retirement payments to be equal to his first retirement payment. (Do not let the retirement payments grow with inflation: King Solomon realizes that the real value of  his  retirement  income  will  decline year by year after he retires.) His retirement income will begin the day he retires, 10 years from today, and he will then receive 24  additional  annual  payments. Inflation  is  expected to be  5% per year from today forward. He currently has GHȼ 100,000 saved up, and he expects to earn a return on his savings of 8% per year with annual compounding.

Again, he wants to have a secure university education for hislovely 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 also earns 8 percent compound interest per year. He will make 5 equal deposits into the account, one deposit per annum starting one year from now  until his  daughter starts university.  These deposits will begin one year from now. (Assume that school fees are paid at the beginning of the year).

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  rate  of return on the  market for bonds  with similar  features is 18% per annum. Your  boss  had asked you  to advice  King  Solomon  based on  the  information he provided

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