Question: User: answer these questions:(a) Distinguish between a fixed-interest security and an index-linked security. (2) (b) A retirement fund receives a single contribution of K48 million to provide income benefits to members. The fund earns interest at 6.2% per annum effective and starts paying benefits of K4.2 million per annum, payable semi-annually in arrears for 20 years. After the initial contribution has been recovered, any further benefit payments are regarded as surplus and are invested at 3.5% per annum effective. (i) Calculate the net present value (NPV) of this arrangement at the outset. (4) (ii) Determine the time (in years) at which the fund exactly recovers the initial contribution, showing all working. c) The value of assets in a pension fund was K18 million on 1 January 2025. On 31 March 2025, the value had fallen to K14.6 million. On 1 April 2025, a contribution of K3.5 million was received and benefits of K900,000 were paid out. On 31 December 2025, the fund value stood at K22.4 million. Calculate the annual TWRR and MWRR for the year 2025 and briefly comment on the difference between the two measures. (7) (d) A corporate bond with nominal value K4 million is issued paying coupons quarterly in arrears at a rate of 7.2% per annum. The bond will be redeemed at K108 per K100 nominal on a coupon date between 9 and 13 years after issue, at the discretion of the issuer. An investor is subject to income tax at 30% and capital gains tax at 25%. Determine the maximum price the investor should pay to obtain a minimum net effective yield of 4% per annum. (7

1. **Problem Statement:** (a) Distinguish between a fixed-interest security and an index-linked security. 2. **Explanation:** - A fixed-interest security pays a fixed rate of interest throughout its life, regardless of inflation or other economic factors. - An index-linked security pays interest and/or principal that is adjusted according to an inflation index or other specified index, protecting the investor against inflation. **Final answer:** - Fixed-interest security: fixed payments. - Index-linked security: payments adjusted by an index.