Question 01 A person “A” has decided to start saving for his retirement. Beginning on his twenty first birth day. He plans to invest Rs.2,000 each birthday into a saving investment earning 7% compound annual rate of interest. He will continue this saving program for a total of 10 years and then stop making payments. But his savings will continue to compound at 7% for 35 more years, until he retires at age 65. Another person “B” also plans to invest Rs.2,000 a year, on each birthday, at 7% and will do so for a total of 35 years. However, she will not begin her contributions until her thirty first birthday. How much will A’s and B’s savings programs be worth at the retirement age of 65? Who is better off financially at retirement, and by how much? Question 02 SME Steels Corporation issued a new series of bonds on January 1, 1981. The bonds were sold at par value of Rs.1,000. The bonds have a 12% coupon rate and mature in 30 years, on December 31, 2010. Coupon payments are made Semiannually i.e. on June 30 and December 31. Required: What was the price of the bond on January 1, 1986, five year later, assuming that the level of interest rates had fallen to 10%? Calculate the current yield and capital gains yield on the bond on January 1,1986, given the price as determined in part (a).