2 Timing Question One [Total 20 Marks] (i) Table 1 shows the nature of cash flows in terms of their timing and amount to be received by the investor. Name an example of an asset for each 1, 2, 3, and 4 and describe how the cash flow fits the classification Table 1: Nature of cash flows Amount Certain Uncertain Certain 1 Uncertain 3 4 [6 marks] (ii) Use the table 2 below to calculate the value as at 15 June 2018 of an annuity of K500 per annum based on a quoted rate of interest of 10% per annum made on 15 June 2015 under the following Table 2: RPI data Date retail price index (RPI) 1st June, 2015 100 1st June, 2016 1st June, 2017 111 1st June, 2018 108 (a) The real rate of interest [3 marks] (b) The money rate of interest. [2 marks] (c) State the principle of consistency [1 mark] (d) Using the formula for consistencies and the growth in the RPI for the accumulation factor, verify whether the following is true for the data in Table 2 above. A(0,3) = A(0,1)A(1,2) A(2,3) [2 marks] 104 (iii) Calculate the present value of K100 due in ten years' time at the following terms. (a) a rate of interest of 15% per annum convertible monthly [2 marks] (b) a rate of discount of 15% per annum convertible monthly [2 marks] (c) a force of interest of 15% per annum [1 mark] (d) Comment on the relationship between the answers in (a), (b) and (c). [1 mark] 2 Timing Question One [Total 20 Marks] (i) Table 1 shows the nature of cash flows in terms of their timing and amount to be received by the investor. Name an example of an asset for each 1, 2, 3, and 4 and describe how the cash flow fits the classification Table 1: Nature of cash flows Amount Certain Uncertain Certain 1 Uncertain 3 4 [6 marks] (ii) Use the table 2 below to calculate the value as at 15 June 2018 of an annuity of K500 per annum based on a quoted rate of interest of 10% per annum made on 15 June 2015 under the following Table 2: RPI data Date retail price index (RPI) 1st June, 2015 100 1st June, 2016 1st June, 2017 111 1st June, 2018 108 (a) The real rate of interest [3 marks] (b) The money rate of interest. [2 marks] (c) State the principle of consistency [1 mark] (d) Using the formula for consistencies and the growth in the RPI for the accumulation factor, verify whether the following is true for the data in Table 2 above. A(0,3) = A(0,1)A(1,2) A(2,3) [2 marks] 104 (iii) Calculate the present value of K100 due in ten years' time at the following terms. (a) a rate of interest of 15% per annum convertible monthly [2 marks] (b) a rate of discount of 15% per annum convertible monthly [2 marks] (c) a force of interest of 15% per annum [1 mark] (d) Comment on the relationship between the answers in (a), (b) and (c). [1 mark]