This report is submitted in partial

fulfillment of the requirements for

the degree of

B.S. Actuarial Science and Risk

Management

Department of Statistics
University Of Karachi

“DO SERIES OF INVESTMENTS OUTWEIGH LUMP SUM

INVESTMENT IN KARACHI STOCK EXCHANGE?”

Submitted
Farheen Aqeeq Wasti

………………………
 ABSTRACT
This report is intended to introduce the concept and significance of
Investment through variable annuities in Karachi Stock Exchange. The
hypothesis following this study is, whether investment through
annuities offer improved returns than lump sum investment -- or not. It
is a widely experienced piece of evidence that investments returns in
equity markets customarily outperform risk-free investments by more
than 100% year by year. However, Underperformance of a single year
could change the directions of decade long investments into negative
zone. In order to minimize losses or to receive an early indication, an
algorithm has been designed in this report using index and volumes of
both,-- KSE All share index and KSE 100 index—as per requirement.
Data as, is the most pivotal ingredient of any research, KSE index data
has been used which is limited from year 1992 to 2008 and volumes
from December 2005 to June 2009,whereas data for all other indices is
from 1995 to 2008.
Contents

Abstract
Table of Contents

1. Introduction 1

2. Models 3

2.1 Methodology: Model 3

2.2 Strategy: Model 4
2.3 Product: Model 4

3. Analysis & Results 6

3.1 Analysis: Momentum 6
3.2 Analysis: Projections 6
3.3. Results 7
3.3.1 Comparison of Indices 7
3.3.2. Strategy 8
3.3.3 Product 8
3.4. Regulations 8
3.5 Conclusion 9
Appendix : Tables and Charts 11

References and important websites 22

Endnotes 24
 Introducti
1
on

Does a series of investments outweigh a lump

sum investment in Pakistan equity market:
Karachi Stock Exchange?

1.1 Introduction

The political driven financial drive-down that began in 2007 and

accelerated greatly in 2008, has posed a unique challenge for the
regulators of financial intermediaries. The rate of knots and severity of
the events that transpired have been quite a shock to the financial and
political system in Pakistan, and subsequently, to its markets. As
December 2008 closing level of KSE 100 describes steep loses from
index level 14077 of December 2007 to index leveled at 5865 of
December 2008 a decline of 58%. Much can be figured out from history
as right from its establishment, Pakistan inhabits a turmoil situation, a
few good years here and a few left some where are the ones on its
resume.
Stock exchange existed even before partition of sub-continent,
yet history and statistics demonstrate us that a very undersized group
of people including market makers, corporate sector and individuals
knows about it, so whether there is a gain or loss it is associated with
this small group. Financial disasters in stock exchanges aren’t the
newbie here but perceptibly their upshot on a country as whole is
negligible. Last three major calamities occurred in 1998, 2005 and
2008. Comparing these with USA and similar number of market
turnaround would be found, if not more, in the last decade but their
impact was substantial and hazardous. Therefore certainly, no market
is immune to crisis whether developed markets like in US or

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 Introducti
1
on
underdeveloped markets like in Pakistan, ( Our markets are driven by
political stability and there markets, actually driven by capital
stability).

Another crisis due, as soon we are out of current one. My

motivation behind this report is whenever next crisis happened, some
products, regulations, strategies should be in place which could
minimize individual loses.
As economic data suggests the need of derivatives, most of us
know how to trade derivatives but a very small group has information
about why we need derivatives. Even in that particular group not all
has information about several kinds of derivatives like Put and Call
options because our exchanges not started trading in them yet. One
important thing I like to mention, there are approximately 700
companies registered with Karachi Stock Exchange and probably 70
outperform market. So if an investor looks for places where he can put
his investment it has few choices to pick, than if investor wants to
safeguard his investment no options available other than future market
above all short selling is not an option. So, where to invest, in equity
directly or in mutual funds, both ways we don’t have much space.
Smart investments not only certain where to invest but they also took
care how to invest to maximize profit or minimize loss. I intend to limit
this report on a subject how to invest further emphasize whether series
of investments provide better returns than lump sum investment. To
support my hypothesis I will use data of 4 indices DOW 30, S&P 500,
Nikkei 225 and FTSE 100 and later will compare them with KSE 100.
More precisely this report is about KSE so other indices are used for
data analysis only or anyway demonstrate any mutual or contrary
trends with Pakistan economy, KSE and its indices.

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 Analysis &
3
Results

Annuities and Lump sum Investments

2.1 Methodology: Model

Series of payments could be termed as annuity, there are two

type of annuities fixed annuities and variable annuities. In fixed
annuities investors are protected and get fixed amount of returns no
matter how actual investment behaves. In variable annuities returns
are varied to profit gain on investment, here we are working on
variable monthly annuities having 2 time periods which are 5 years
and 10 years and their payouts are lump sum amount including returns
and principal at the end of each annuity.

Indices are benchmarks, which are Nikkei 225, S&P 500, DOW
30, FTSE 100 and KSE 100. Using monthly closings of above mentioned
indices calculated for period between years 1999 to 2008 for 5 years
annuity and time between years 1995 to 2008 for 10 years. In case of
KSE 100 index only, following time interval is used 1992 to 2008 for
both terms 5 and 10 years. Returns are calculated in between any two
time period which should be any two consecutive months through
simple difference formula, instead of log difference for no specific
reason.

Positive or negative returns are then added in current annuity

value, month by month basis. Annual returns are calculated using
Rateiii function: Rate function returns the interest rate per period of an
annuity. In summary (see table 1C and 1D) rate function being

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 Analysis &
3
Results

changed to calculate annual returns, as it is known rate function

calculates period returns and in this case retuning a monthly value.
RATE(nper,pmt,pv,fv,type)

Lump sum investment could be termed as investment being

made at the beginning of any term and no further investment done
after that. For Lump sum investment, year end closings are used to
calculate annual returns over the same terms 5 and 10 years as used
in calculating annuities returns. Yearly returns are calculated through
simple difference equation. Returns then added to investment value
over year to year basis. Time interval as mentioned above in annuities
returns remains the same for all indices. Returns after expiring the
terms will be lump sum also.

2.2 Strategy: Model

It has been assumed that abnormal variation in volumes of KSE

All share index and KSE 100 index can be an indication that market
conditions will be more volatile in near future and consequently, will
generate steep losses. Availability of data restricts to calculate the
difference of volumes of KSE all share index over KSE 100 index from
November 2005 to latest. Besides, calculated standard deviation of
KSE 100 index where differences are over certain limits, difference
greater than 25% and difference greater than 35%, for minimum at
least 5 consecutive values. Different limits are used due to a trend
seen in KSE, high volumes till 2006 than gradually decreasing volume
with increasing index. Compare them with monthly and yearly
standard deviation of available data. Due to unavailability and

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3
Results

questionable data I may not able to prove my assumption, but will

continue to look for improved data for more detailed and
comprehensive analysis.

2.2 Product: Model

Having it witnessed through data assessment, both types of

investment annuities and lump sum over similar time periods yielded
superior returns, sometime beating risk-free rate by as much as 400%.
Moreover it is observed that if ending years of annuity hit by any major
crisis in equity markets, their value momentously depreciates. Market
critical situations are too in effect quiet frequently these days ( if we
analyze KSE, about 3 since 1998). in order to minimize that, designed
here is the annuity in which payments continuously increased for first
half of the period as every year one more annuity is started, than in
second half annuities payment gradually decreased as one annuity
expiring every year. Hence investor can have part of his investment
with returns after first half and that pool will continuously increase till
annuity ends. Total Return of an extended annuity is calculated by
taking average of returns given by annuities for particular period.
Again restriction in availability of data may not able us to calculate
return over 10 years term annuities in our product (See table 2A and
2B.)

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 Analysis &
3
Results

Analysis & Results Summary

3.1 Analysis: Momentum

Positive trend can be spotted out while analyzing data of KSE

100 index. Closing index of December 2008 was 5865 points, 58%
down from last year closing. Now stand at 7400’s level up 26%. Major
rating agencies’ including Moody’s and Fitch holds the current
investment rating for Pakistan which is only a step higher than
becoming a bankrupt not a preferable situation for foreign investors
looking for investment in current global financial crisis. Political
government is more stable than 6 months before. Budget deficits and
BOP could be made through IMF and other made arrangements. About
6 month before to insure 5 years short term loans to Pakistan it cost
34% while now down to 22% but well above 2.5% level of January
2007. Since 1997 the time span in negative trend in KSE remains for 1
year only, happened in 1998, 2001 and 2008. Energy crisis could be
resolved or contained in the end of 2009. Volumes in KSE are back in
normal condition but in low side, average trading in 1st 6 months of

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Results

2009 in KSE was 163 million, while last 6 months and 1st 6 month of
year 2008 record 38 million and 220 million shares respectively.
Global recession will further ease commodities prices especially wheat
and oil, which will lower inflation. Most important P.E ratio is 6-8 times
of companies trading in KSE 100 which is down from 10-14 level back
in 2007-2008.

3.2 Analysis: Projections

Using forecast function KSE projected to gain 28% from last year
closing. Current gain also demonstrate same positive trend but much
better. There is a trend forming since 1994 after every six years KSE
returns positive or negative single digit growth first happened in 1994
than in 2000 than in 2006 and next term is due in 2012 which is also a
election campaign year. Rest of the years remain in double digit
territory with most gain in 2002 of 112% and losses of 2008 returns
negative 58% remain on top on other side. Average return from 1992
is 17%, for last 10 years it’s 30% and for last 5 years its 16%.

3.3 Results
3.3.1 Comparison of indices

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 Analysis &
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Results

Based on our findings, both 10 years and 5 years results exhibit

KSE 100 annuity returns are better than lump sum investment;
average gain of annuity to annuity over lump sum investment in 5 and
10 years are 220% and 56% respectively. 5-year values upholds much
deviation from mean therefore, if one value from each of the extremes
is skipped over, then average annuity gain over lump sum investment
will trim down to 14.5%. It is also noted that FTSE 100 follows S&P 500
and DOW 30, premium over risk free rate of equity investment is
adequate, DOW 30 results better returns than both of other
exchanges, Nikkei 225 still is in restructuring phase after the financial
melt down of 80’s and that is the reason it doesn’t follow the North
American exchanges as FTSE does. In case of FTSE 100, S&P 500 and
DOW 30 lump sum investment returns are better than annuity returns.
While Nikkei 225 and KSE 100 produces a trend where annuity returns
are superior to lump sum investment, initiating from 1995 Nikkei 225
dropped down almost 55% of its value yearly return of (5.5) %, S&P
500 reaped 96% with a yearly return of 4.9%; DOW 30 achieved 130%
with a return of 6% yearly; FTSE 100 gained 43% of its value with
yearly returns of 2.6%.As for KSE 100 index, it raised up to 250% of its
value and yielding returns of 7.6% annually over a time horizon of 17
years-- from 1992 to 2008. In 2008 Nikkei 225, S&P 500, DOW 30, FTSE
100 and KSE 100 lost (42%), (38%), (34%), (32) and (58%) of there
value respectively from year 2007.
KSE 100 performed exceptionally better in case of returns as it is
shown (See table 1C and table 1D) for 10 years annuity in contrast to
lump sum investment not any single term in either format of any
equity market indices including DOW 30, Nikkei 225, S&P 500 and FTSE
100 performed better than KSE 100. In case of 5 years annuities the
last term from years 2004-2008 annuity returns of KSE 100 remain the

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3
Results

lowest among all indices but lump sum investment still remains on top.
We also know that one factor producing high returns as our risk free
rate is much higher than other markets. If we add Inflation variable or
associate index value with US dollars than market returns may decline
further.

3.3.2 Strategy

In strategy model, the differences in volumes of KSE all share

index and KSE 100 may amplify the volatility. Finding of analysis
cannot be deduced as data integrity is a subject to qualm as it is
insufficient. More specific results could be concluded in future if lack of
data problem gets resolved. Though volatility did increase several
times after a period of increased differences in volumes but volatility
remains low while we are in the period. Steep decline in December
2008 also couldn’t help our results because decline was imminent due
to lower cap in index. Even before it started political uncertainty,
security situation and global financial crisis should drag down the
index.

3.3.3 Product

Limited availability of data starting from year 1992, being a

major reason, product analysis on returns can be executed on 5 years
annuities only. Analysis shows losses could be minimized while
applying given approach, as losses distributed to other annuities and

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 Analysis &
3
Results

investor may outgain losses by other annuities as it is happened in 7

out of 9 observations in table 2A.

3.4 Regulations

The regulatory authority over Karachi Stock Exchange

(Guarantee Ltd.) is SECP. Foreign investment in KSE approximately
worth 500 million US Dollari in 2008 with market capital over 50 billion
US Dollars, which now stand at 27 billion US Dollar. None of any single
foreign investment company relies heavily on KSE on its portfolio
returns. Loses or gain in KSE doesn’t greatly effect their earnings. So
whenever rating agencies downgrade Pakistan rating not necessarily
due to financial crisis mostly because of instability in government to
run the system. These foreign investment companies quickly unload
their portfolios having KSE securities because they don’t want to risk
their own rating downgrades from these agencies for having low level
securities. So in my proposal SECP should regulate these foreign
investments by not allowing bias investment directly related with
rating agencies. If it’s a financial sector to blame for rating downgrade,
if equity not performing well they can offload their portfolios but due to
rating downgrade from international rating agencies which may not
effect equities in KSE All Share they should hold their investments a
quarter or two. There should be a cool down period for all investment
funds, financial investment firms both local and international.

3.5 Conclusion

Revealed in table 1A-- 7 out of 8 terms of 10 years disclose

improved returns than those of lump sum investment. On run of the

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3
Results

mill, returns from annuity investments are 56% elevated than lump
sum investment over the years 1992 to 2008. Highest returns on
annuity and lump sum investment in years 1998-2007 are 34% and
23% respectively, is displayed whilst, investment losses with its
maximum amount in years 1992-2001 which are (2%) for annuities and
(3%) for lump sum investment is shown. Short term investment may
present higher returns in lump sum investment as it is determined by
several observations in 5-year investment plan, due to a incessant
positive growth years from 2002 to 2007, however, we also
experienced huge fall off in short term investments divergent to long
term investments as extreme losses show decline in portfolio (20%)
and (15%) in years 1994-1998 for annuities and lump sum investments
respectively. In case of equity investment, pension & retirement funds,
private investors and all other kinds of long term investments should
be invested in annuities to achieve higher returns.

11 | P a g e
 Referen
ce

Appendix: Tables and Charts

Table 1A: 10 years annuities & lump sum investment
returns
Term 92-01
KSE Monthly
Annuity 1200000 1064835 -0.02389585
KSE Yearly 1200000 906355 -0.027674426
Term 93-02
KSE Monthly
Annuity 1200000 2197671 0.116386859
KSE Yearly 1200000 2606469 0.080655161
Term 94-03
KSE Monthly
Annuity 1200000 3384473 0.196820081
KSE Yearly 1200000 2479332 0.07526459
Term 95-04
KSE Monthly
Annuity 1200000 4523382 0.250453302
KSE Yearly 1200000 3641620 0.117406872
Term 96-05
KSE Monthly
Annuity 1200000 6416160 0.315179622
KSE Yearly 1200000 7656722 0.203611042
Term 97-06
KSE Monthly
Annuity 1200000 6073188 0.304983685
KSE Yearly 1200000 8991962 0.223115083
Term 98-07
KSE Monthly
Annuity 1200000 7623635 0.347272285
KSE Yearly 1200000 9631884 0.231552697
Term 99-08
KSE Monthly
Annuity 1200000 2631453 0.150090056
KSE Yearly 1200000 7445740 0.200252618

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Table 1B: 5 years annuities & lump sum investment

returns
Term 92-96
KSE Monthly
Annuity 600000 517184 -0.058148608
KSE Yearly 600000 476982 -0.04485315
Term 93-97
KSE Monthly
Annuity 600000 648404 0.030611724
KSE Yearly 600000 846091 0.071157086
Term 94-98
KSE Monthly
Annuity 600000 358099 -0.200110945
KSE Yearly 600000 262049 -0.152682353
Term 95-99
KSE Monthly
Annuity 600000 614050 0.009114457
KSE Yearly 600000 412543 -0.072180289
Term 96-00
KSE Monthly
Annuity 600000 661852 0.038741411
KSE Yearly 600000 603937 0.001308902
Term 97-01
KSE Monthly
Annuity 600000 573461 -0.017771158
KSE Yearly 600000 570056 -0.01018677
Term 98-02
KSE Monthly
Annuity 600000 1198933 0.280903216
KSE Yearly 600000 924180 0.090237367
Term 99-03
KSE Monthly
Annuity 600000 1690431 0.428626075
KSE Yearly 600000 2838390 0.364533378
Term 2000-04
KSE Monthly
Annuity 600000 1813196 0.459614124
KSE Yearly 600000 2648174 0.345733468
Term 2001-05
KSE Monthly
Annuity 600000 2220679 0.550993421
KSE Yearly 600000 3803398 0.446785357
Term 2002-06

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KSE Monthly
Annuity 600000 1550357 0.390804086
KSE Yearly 600000 4732141 0.511406499
Term 2003-07
KSE Monthly
Annuity 600000 1375947 0.339332194
KSE Yearly 600000 3126624 0.391184984
Term 2004-08
KSE Monthly
Annuity 600000 414260 -0.144113812
KSE Yearly 600000 786967 0.055749913

Table 1C: 10 years annuities & lump sum investment

returns

Term 92-01
-
KSE Monthly 0.0238958
Annuity 1200000 1064835 5
-
0.0276744
KSE Yearly 1200000 906355 26
Term 93-02
KSE Monthly 0.1163868
Annuity 1200000 2197671 59
0.0806551
KSE Yearly 1200000 2606469 61
Term 94-03
KSE Monthly 0.1968200
Annuity 1200000 3384473 81
0.0752645
KSE Yearly 1200000 2479332 9

Term 95-04
Total Investment End Term Total Amnt Total
Index (Rs.) (Rs.) Return %
-
NIKKEI Monthly 0.0363198
Annuity 1200000 1001498 52
-
0.0526074
NIKKEI Yearly 1200000 699006 49

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S&P Monthly 0.0519787

Annuity 1200000 1565919 46
0.1018959
S&P Yearly 1200000 3166555 3

DOW Monthly 0.0610084

Annuity 1200000 1641248 11
0.1089291
DOW Yearly 1200000 3374576 42

FTSE Monthly 0.0068914

Annuity 1200000 1242522 3
0.0461721
FTSE Yearly 1200000 1884573 92

KSE Monthly 0.2504533

Annuity 1200000 4523382 02
0.1174068
KSE Yearly 1200000 3641620 72

Term 96-05
Total Investment End Term Total Amnt Total
Index (Rs.) (Rs.) Return %
NIKKEI Monthly 0.0373030
Annuity 1200000 1451432 96
-
0.0207400
NIKKEI Yearly 1200000 973108 8

S&P Monthly 0.0377267

Annuity 1200000 1454605 52
0.0731944
S&P Yearly 1200000 2432010 33

DOW Monthly 0.0385371

Annuity 1200000 1460696 71
0.0767299
DOW Yearly 1200000 2513327 04

FTSE Monthly 0.0271948

Annuity 1200000 1377948 42
FTSE Yearly 1200000 1827598 0.0429655

KSE Monthly 0.3151796

Annuity 1200000 6416160 22
0.2036110
KSE Yearly 1200000 7656722 42

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Table 1C: 10 years annuities & lump sum investment

returns

Term 97-06
Total Investment End Term Total Amnt Total
Index (Rs.) (Rs.) Return %
NIKKEI Monthly 0.0538584
Annuity 1200000 1581284 6
-
0.0116171
NIKKEI Yearly 1200000 1067661 22

S&P Monthly 0.0470618

Annuity 1200000 1526494 27
0.0671125
S&P Yearly 1200000 2297648 44

DOW Monthly 0.0520080

Annuity 1200000 1566157 16
0.0681160
DOW Yearly 1200000 2319347 68

FTSE Monthly 0.0385723

Annuity 1200000 1460961 45
0.0424410
FTSE Yearly 1200000 1818429 63

KSE Monthly 0.3049836

Annuity 1200000 6073188 85
0.2231150
KSE Yearly 1200000 8991962 83

Term 98-07
Total Investment End Term Total Amnt Total
Index (Rs.) (Rs.) Return %
NIKKEI Monthly 0.0321369
Annuity 1200000 1413348 21
0.0003192
NIKKEI Yearly 1200000 1203836 08

S&P Monthly 0.0427367

Annuity 1200000 1492713 98
0.0422857
S&P Yearly 1200000 1815722 76

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DOW Monthly 0.0524241

Annuity 1200000 1569545 52
0.0530817
DOW Yearly 1200000 2012807 56

FTSE Monthly 0.0395291

Annuity 1200000 1468190 68
0.0234777
FTSE Yearly 1200000 1513441 95

KSE Monthly 0.3472722

Annuity 1200000 7623635 85
0.2315526
KSE Yearly 1200000 9631884 97

Term 99-08
Total Investment End Term Total Amnt Total
Index (Rs.) (Rs.) Return %
-
NIKKEI Monthly 0.0737575
Annuity 1200000 835582 1
-
0.0436413
NIKKEI Yearly 1200000 768049 99

-
S&P Monthly 0.0573815
Annuity 1200000 903841 15
-
0.0303445
S&P Yearly 1200000 881771 19

-
DOW Monthly 0.0353547
Annuity 1200000 1006259 98
-
0.0045016
DOW Yearly 1200000 1147061 91

-
FTSE Monthly 0.0369812
Annuity 1200000 998250 75
-
0.0287835
FTSE Yearly 1200000 896069 7

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KSE Monthly 0.1500900

Annuity 1200000 2631453 56
0.2002526
KSE Yearly 1200000 7445740 18

Table 1D: 5 years annuities & lump sum investment

returns
Term 92-96
-
KSE Monthly 0.0581486
Annuity 600000 517184 08
-
0.0448531
KSE Yearly 600000 476982 5
Term 93-97
KSE Monthly 0.0306117
Annuity 600000 648404 24
KSE Yearly 600000 846091 0.0711570

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86
Term 94-98
-
KSE Monthly 0.2001109
Annuity 600000 358099 45
-
0.1526823
KSE Yearly 600000 262049 53
Term 95-99
KSE Monthly 0.0091144
Annuity 600000 614050 57
-
0.0721802
KSE Yearly 600000 412543 89
Term 96-00
KSE Monthly 0.0387414
Annuity 600000 661852 11
0.0013089
KSE Yearly 600000 603937 02
Term 97-01
-
KSE Monthly 0.0177711
Annuity 600000 573461 58
-
0.0101867
KSE Yearly 600000 570056 7
Term 98-02
KSE Monthly 0.2809032
Annuity 600000 1198933 16
0.0902373
KSE Yearly 600000 924180 67
Term 99-03
Total Investment End Term Total Total
Index (Rs.) Amount (Rs.) Return %
-
NIKKEI Monthly 0.0504895
Annuity 600000 527444 69
-
0.0506070
NIKKEI Yearly 600000 462787 99

-
S&P Monthly 0.0117634
Annuity 600000 582308 25
-
0.0198603
S&P Yearly 600000 542739 55

DOW Monthly 0.0262245

Annuity 600000 641252 7
0.0262985
DOW Yearly 600000 683156 78

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-
FTSE Monthly 0.0572973
Annuity 600000 518315 48
-
0.0531493
FTSE Yearly 600000 456624 17

KSE Monthly 0.4286260

Annuity 600000 1690431 75
0.3645333
KSE Yearly 600000 2838390 78

Table 1D: 5 years annuities & lump sum investment

returns
Term 00-04
Total Investment End Term Total Amnt Total
Index (Rs.) (Rs.) Return %
NIKKEI Monthly 0.0045810
Annuity 600000 607024 52
-
0.0950916
NIKKEI Yearly 600000 364061 8

S&P Monthly 0.0332849

Annuity 600000 652798 82
-
0.0377774
S&P Yearly 600000 494913 68

DOW Monthly 0.0380767

Annuity 600000 660743 78
-
0.0127433
DOW Yearly 600000 562732 4

-
FTSE Monthly 0.0045184
Annuity 600000 593146 58
-
0.0702688
FTSE Yearly 600000 416810 63

KSE Monthly 0.4596141

Annuity 600000 1813196 24

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0.3457334
KSE Yearly 600000 2648174 68
Term 01-05
Total Investment End Term Total Total
Index (Rs.) Amount (Rs.) Return %
NIKKEI Monthly 0.1612562
Annuity 600000 897922 39
0.0316707
NIKKEI Yearly 600000 701224 18

S&P Monthly 0.0564502

Annuity 600000 692039 42
-
0.0111512
S&P Yearly 600000 567284 77

DOW Monthly 0.0370565

Annuity 600000 659044 56
-
0.0013104
DOW Yearly 600000 596079 3

FTSE Monthly 0.0718995

Annuity 600000 719401 79
-
0.0202040
FTSE Yearly 600000 541788 81

KSE Monthly 0.5509934

Annuity 600000 2220679 21
0.4467853
KSE Yearly 600000 3803398 57
Term 02-06
Total Investment End Term Total Total
Index (Rs.) Amount (Rs.) Return %
NIKKEI Monthly 0.1696884
Annuity 600000 916679 43
0.1031796
NIKKEI Yearly 600000 980353 61

S&P Monthly 0.1013137

Annuity 600000 774246 37
0.0431798
S&P Yearly 600000 741220 17

DOW Monthly 0.0892952

Annuity 600000 751392 77
0.0445719
DOW Yearly 600000 746179 38

FTSE Monthly 0.1106089

Annuity 600000 792353 43

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0.0364775
FTSE Yearly 600000 717713 8
Table 1D: 5 years annuities & lump sum investment
returns
Term 02-06
KSE Monthly 0.3908040
Annuity 600000 1550357 86
0.5114064
KSE Yearly 600000 4732141 99

Term 03-07
Total Investment End Term Total Total
Index (Rs.) Amount (Rs.) Return %
NIKKEI Monthly 0.0836247
Annuity 600000 740824 84
0.1227824
NIKKEI Yearly 600000 1070605 18

S&P Monthly 0.0857404

Annuity 600000 744751 64
0.1078672
S&P Yearly 600000 1001359 16

DOW Monthly 0.0879946

Annuity 600000 748956 67
0.0972108
DOW Yearly 600000 954117 07

FTSE Monthly 0.1017166

Annuity 600000 775023 46
0.1044989
FTSE Yearly 600000 986229 41

KSE Monthly 0.3393321

Annuity 600000 1375947 94
0.3911849
KSE Yearly 600000 3126624 84

Term 04-08
Total Investment End Term Total Amnt Total
Index (Rs.) (Rs.) Return %
-
NIKKEI Monthly 0.1596255
Annuity 600000 397905 84
-
0.0366249
NIKKEI Yearly 600000 497884 74

S&P Monthly 600000 430813 -

Annuity 0.1290014

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49
-
0.0407167
S&P Yearly 600000 487400 64

-
DOW Monthly 0.0970561
Annuity 600000 467907 7
-
0.0343777
DOW Yearly 600000 503718 95

-
FTSE Monthly 0.0794052
Annuity 600000 489685 02
-
0.0037913
FTSE Yearly 600000 588712 06

-
KSE Monthly 0.1441138
Annuity 600000 414260 12
0.0557499
KSE Yearly 600000 786967 13

Table 2A: 9 years annuities plan consisting of 5 years annuities

1992- 1995- 1998-

2000 2003 2006
120 1200 120 1200 120 1200
1 00 0 1 00 0 1 00 0
240 3600 240 3600 240 3600
2 00 0 2 00 0 2 00 0
360 7200 360 7200 360 7200
3 00 0 3 00 0 3 00 0
480 1200 480 1200 480 1200
4 00 00 4 00 00 4 00 00
-
600 1800 0.058 600 1800 0.009 600 1800 0.280
5 00 00 15 5 00 00 11 5 00 00 90
480 2280 0.030 480 2280 0.038 480 2280 0.428
4 00 00 61 4 00 00 74 4 00 00 63
3 360 2640 - 3 360 2640 - 3 360 2640 0.459
00 00 0.200 00 00 0.017 00 00 61

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11 77
240 2880 0.009 240 2880 0.280 240 2880 0.550
2 00 00 11 2 00 00 90 2 00 00 99
120 3000 0.038 120 3000 0.428 120 3000 0.390
1 00 00 74 1 00 00 63 1 00 00 80
-
1993- 0.035 1996- 0.147 1999- 0.422
2001 96 2004 92 2007 19
120 1200 120 1200 120 1200
1 00 0 1 00 0 1 00 0
240 3600 240 3600 240 3600
2 00 0 2 00 0 2 00 0
360 7200 360 7200 360 7200
3 00 0 3 00 0 3 00 0
480 1200 480 1200 480 1200
4 00 00 4 00 00 4 00 00
600 1800 0.030 600 1800 0.038 600 1800 0.428
5 00 00 61 5 00 00 74 5 00 00 63
- -
480 2280 0.200 480 2280 0.017 480 2280 0.459
4 00 00 11 4 00 00 77 4 00 00 61
360 2640 0.009 360 2640 0.280 360 2640 0.550
3 00 00 11 3 00 00 90 3 00 00 99
240 2880 0.038 240 2880 0.428 240 2880 0.390
2 00 00 74 2 00 00 63 2 00 00 80
-
120 3000 0.017 120 3000 0.459 120 3000 0.339
1 00 00 77 1 00 00 61 1 00 00 33
-
1994- 0.027 1997- 0.238 2000- 0.433
2002 88 2005 02 2008 87
120 1200 120 1200 120 1200
1 00 0 1 00 0 1 00 0
240 3600 240 3600 240 3600
2 00 0 2 00 0 2 00 0
360 7200 360 7200 360 7200
3 00 0 3 00 0 3 00 0
480 1200 480 1200 480 1200
4 00 00 4 00 00 4 00 00
- -
600 1800 0.200 600 1800 0.017 600 1800 0.459
5 00 00 11 5 00 00 77 5 00 00 61
480 2280 0.009 480 2280 0.280 480 2280 0.550
4 00 00 11 4 00 00 90 4 00 00 99
360 2640 0.038 360 2640 0.428 360 2640 0.390
3 00 00 74 3 00 00 63 3 00 00 80
-
240 2880 0.017 240 2880 0.459 240 2880 0.339
2 00 00 77 2 00 00 61 2 00 00 33
-
120 3000 0.280 120 3000 0.550 120 3000 0.144
1 00 00 90 1 00 00 99 1 00 00 11
0.022 0.340 0.319

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18 47 33

Table 2B: 19 years annuities plan consisting of 10

years annuities

1992-2000
1992 1 12000 12000
1993 2 24000 36000
1994 3 36000 72000
12000
1995 4 48000 0
18000
1996 5 60000 0
25200
1997 6 72000 0
33600
1998 7 84000 0
43200
1999 8 96000 0
10800 54000
2000 9 0 0
12000 66000 -
2001 10 0 0 0.0239
10800 76800 0.1163
2002 9 0 0 87
86400 0.1968
2003 8 96000 0 2
94800 0.2504
2004 7 84000 0 53
10200 0.3151
2005 6 72000 00 8
10800 0.3049
2006 5 60000 00 84
11280 0.3472
2007 4 48000 00 72
11640 0.1500
2008 3 36000 00 9
11880
2009 2 24000 00
12000
2010 1 12000 00
Avera
ge
Note:
Incomplete data, period returns could be calculated if data was available prior to 1990 or will

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be calculated after
2010 retrns.

Chart 1A Abbreviations

KSE Karachi stock exchange

KSE All share Index comprise of all companies listed in KSE
KSE 100 Index comprise of top 100 companies listed in KSE sorted by market
capital
KSE 30 Index comprise of top 30 companies listed in KSE sorted by their floating
share capital
SECP Security exchange commission of Pakistan
SBP State bank of Pakistan

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References
• Annual Report 2007-2008 (Volume I & II) SBP
• The State of Pakistan’s Economy Quarterly Reports(2007, 2008 & 2009) SBP
• Handbook of Statistics on Pakistan Economy 2005 SBP
• Financial Markets Review SBP
• Financial Stability Review 2007-2008 SBP
• International Energy Outlook 2009 Energy Information Administration (EIA)
• “Prospects for the Global Economy” www.worldbank.org/globaloutlook
• “The Theory of Interest” 2nd Edition by Stephen G Kellison
• “The Handbook of Fixed Income Securities” 7th Edition by Frank Fabozzi
• “Fixed Income Securities” 2nd Edition by Bruce Tuckman

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References and websites

KSE www.kse.com.pk
SBP www.sbp.org.pk
SECP www.secp.gov.pk
Ministry of Finance www.finance.gov.pk
Business Recorder www.brecorder.com
Yahoo Finance finance.yahoo.com
Variable Annuities www.sec.gov/investor/pubs/varannty.htm
Bloomberg News www.bloomberg.com
Forbes www.forbes.com
Resource www.wikipedia.org
Investors guide www.investopedia.com
New York Stock Exchange www.nyse.com
NASDAQ Stock Market www.nasdaq.com
Tokyo Stock Exchange www.tse.or.jp/english/
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FTSE The Index Company www.ftse.com

CIA- The World Fact book www.cia.gov/library/publications/the-world-factbook/
World Economic Data www.imf.org/external/data.htm
Energy Information www.eia.doe.gov

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es

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i
SBP economic report, CIA-The world fact book and other economic reports
ii
”The theory of interest” chapter 3 “Basic annuities” 2nd edition by Stephen G Kellison
iii
For “rate” and “forecast” functions see “Microsoft Office Excel help”