Retirement Planning & Employee Benefits. Supplementary Workbook 

                

Dr Shivani Rajan Shirsat

Certified Financial Planner CM

1. Mr. Nirmal Kumar is a 30 year old, self employed person using PPF to accumulate Rs. 30000 per year. He has been saving for the last 5 years. He is willing to look at a lifestyle after retirement that fits into a fixed Rs. 3lakhs p.a. spend for 15 years. What is the spending opportunity for Nirmal Kumar at the time of his retirement of age 60 given his savings and assume a rate of 6% on his funds after retirement. (Compounded annually, assume beginning).

a. 14,26,890 b. 20,81,345 c. 24,94570 d. 18,54,425

Solution C Pmt = -30000, n=35, I =8%, mode = begin, fv = 5583064.439 Pmt = 300000, n =15, I =6%, mode = begin, PV = 3088495.176 5583064.439 – 3088495.176 = 2494569

2. Rajesh retired from PTC Ltd. After a service of 29 years 9months. Salary at retirement

was Rs.10500 pm, while average salary drawn for the preceding 10 months was Rs. 9800pm. The actual amount of gratuity received by him at the time of retirement was Rs 325000/-. Calculate the amount of gratuity exempt from tax, assuming that Rajesh is covered by payment of Gratuity Act 1972?

a. 315000 b. 175673 c. 181730 d. 294000

Solution C As he is covered under the gratuity act the amount of gratuity as calculated by the act will be exempt subject to a max of 350000/-. 15/26 X 10500 X 30 = 181730.769

3. Ms. Mamta is 30 and plans to retire at 58 years. Her CFP says that Mamta will require

inflation adjusted Rs.75000 in the first month after retirement. Inflation is 4%p.a. & return on investment is 6%p.a. What’ll be the corpus at the time of retirement in order to meet this? Will Mamta’s corpus be enough to fund her retirement if she saves Rs. 2lakhs pa. ? (End of year). Life expectancy 75 years.

a. Yes, Rs. 1,30,41,852 b. Yes, Rs. 17,48,948 c. Yes, Rs. 19,45,782 d. No, Rs. 15,78,498

Solution A Inflation adjusted rate = ((1.06/ 1.04)-1/) x 100 = 1.923076 /12 = 0.160256410 Mode = end, n = 17 x 12 = 204, I = 0.160256410, pmt = 75000, PV = 13041852.21 N = 28, mode = end, pmt = -200000, I = 6%, FV = 13705622.32

4. A perpetual bond of Rs.1000 is selling at Rs. 930. The coupon rate is 14.5% and the

discounted rate is 15%. What’ll be the value of this bond and YTM? a. Rs. 950 & 15% b. Rs. 966.67 & 15.59% c. Rs950 & 14.42% d. Rs.900 & 13.5%

Solution B Value of a perpetual bond = pmt / I = 145/15% = 966.67; YTM = 145/930 = 15.59%

5. Mr. Ashay 35 years wants to retire at 60; he has a life expectancy of 75 years. Current

expenses are Rs.300000 annually. He estimates no reduction of expenses post retirement. How much should he save per annum to achieve his target, if inflation is 6% and yield from investment is 10%. He does not wish to leave an estate.

a. Rs 153475 b. Rs.143789 c. Rs 128954 d. None

Solution A = 153475 Fv of expenses; n = 25, mode end, I = 6%, PV = -300000; FV = 1287561.216 Mode = begin, n = 15, I = 3.773584%, pmt = 1287561.216, PV = -15093801.73 Mode = end, n = 25, I = 10%, FV = 15093801.73, pmt = 153474.8656

6. Mr. Prasad is working with XYZ as an accountant for the last 20 years. To supplement

his earnings he was doing part time assignment in partnership entity ABC associates. He retired from both at 60 years and received Rs. 3lakh and Rs. 1 lakh as gratuity from XYZ & ABC. In the previous year. What is the maximum amount of gratuity received by him which is exempt from tax? Both the organizations are covered under the payment of gratuity act.

a. Rs. 3lakhs b. Rs. 3.5 lakhs c. Rs.1lakh d. Entire 4 lakh is exempt since it is received from 2 employers.

Solution B = 3.5 lakhs As per the gratuity act 1972, gratuity received from by an employee from more than one employer in the same previous year the maximum amount of gratuity exempt from tax u/s 10(10)(iii) cannot exceed Rs 350000/-

7. How is past service defined under EPS 1995? Solution: The past service under the EPS scheme means the period of service by a member before the eps became effective i.e. up to 15 – 11 -1995 as a member of the erstwhile Family Pension Scheme.

8. Net Worth of a client is simply the excess of assets over liabilities. 9. Defined benefit pension is determined on a percentage of pre retirement salary 10. Rate of wage to be paid to a monthly rated employee, under payment of gratuity act

is.____ for each completed year of service or part thereof in excess of six months.

a. 15 days wages b. 30 days wages c. 7 days wages d. 26 days wages

Solution: A

11. Rate of wage to be paid to a seasonal employee, under payment of gratuity act is

a. 15 days wages b. 30 days wages c. 7 days wages d. 26 days wages

Solution: C

12. A scheme providing pension benefits as per IT provision is called ____

a. Pension scheme b. Superannuation c. Retirement Scheme d. Retirement income scheme

Solution B 13. Mr. Vishal is working with A ltd from October 1

st 1993. He is entitled to a basic salary of

Rs. 6000 per month. DA is 40% of basic salary. He retired on Jan 1st 2007. Benefits

received Gratuity Rs. 98000, Pension from Jan 1st ’07 Rs. 2000pm. Payment from

recognized PF Rs. 300000. Encashment of earned leave for 150 days Rs.36000. he was entitled to 40 days leave for every completed year of service. Got 50% of his pension commuted in lumpsum w.e.f. April 1

st ’07 and receives Rs. 120000/- as commuted

pension. Vishal contributes Rs.900 per month to RPF to which his employer contributes an equal amount. What will be the amount of uncommuted pension for Vishal that will form part of his total income for Ay’07 –’08?

a. 4000 b. Nil c. 1000 d. 6000

Solution D = 6000 Pension received for Jan, Feb., & March 14. Mr. Manish is working with A ltd from October 1

st 1993. He is entitled to a basic salary

of Rs. 6000per month. DA is 40% of basic salary. He retired on Jan 1st 2007. Benefits

received Gratuity Rs. 98000, Pension from Jan 1st ’07 Rs. 2000pm. Payment from

recognized PF Rs. 300000. Encashment of earned leave for 150 days Rs.36000. he was entitled to 40 days leave for every completed year of service. Got 50% of his pension commuted in lumpsum w.e.f. March 1

st ’07. What amount of leave encashment is eligible

for tax exemption for Manish? a. Actual encashed b. Nil c. 10 months average salary d. None of the above

Solution = D Least of 10 x 8400 = 84000 Actual received = 36000 Statutory limit = 300000 13 x 40 = 520days, actually taken 150 days, 520 – 150 = 370, As per act 13 x 30 = 390, therefore balance 390 – 370 = 20, 8400 x 20/30 = 5600.

15. Mohan is an employee having an average balance of Rs.90000 in the PF for the last 12 months. Unfortunately he dies in an accident. What will be the maximum amount of insurance cover payable to his nominee under the EDLI scheme?

a. 60000 b. 90000 c. 48750 d. 41250

Solution C 35000 + 25% (90000 – 35000) = 48750

16. If nominal rate of interest is 12% and compounding is done monthly what would be the effective rate of return?

a. 12.58% b. 12.61% c. 12.68% d. 12.75%

Solution C N = 12, I = 12%, effective rate = 12.682%

17. Given a) Personal consumption of goods & services = 150 Billion, B) Government expenditure = 70 billion C) Private sector fixed capital expenditure = 50 billion D) Export receipts = 75 billion E) Import expenditure = 80 billion. What will be the value of GDP?

a. 425 billion b. 270 Billion c. 295 billion d. 265 billion

Solution: D 150+70+50+75-80 = 265 billion

18. Kiran decides to accumulate 50 lakhs when he retires. He is 30 years old and wants to retire at 55. Interest rate is 9% pa. & inflation is 5%pa.Compounding to be done on annuity certain basis. If Kiran could save only Rs.45000 pa for the first 10 years how much does he need to save for the next 15 years to meet his retirement nest egg?

a. Rs. 85477pa. b. Rs. 79250 pa. c. Rs. 98450 Pa. d. Rs. 147008pa.

Solution A Mode = end, n = 10, i = 9%, pmt = -45000, FV = 683681.8373, PV = -683681.8373, mode = end, n = 15, I = 9%, FV = 5000000, pmt = 85477

19. Mr. Laxman, NRI working in USA for 5years. He is aged 40, and saving Rs. 8lakhs pa.

For the past 5 years and hopes to save for the next 10 years. He would like to return to India 10 years from now. The inflation adjusted monthly income requirement for Laxman is Rs. 80000 in the year in which he returns to India. Established that inflation is 3% for the next 30 years. Life expectancy is 70 years. If the estimated spend is Rs. 90000pm. For the family & inflation is 4% how long will his savings last? Investments earn 6% pa., compounding done on annuity certain basis?

a. No, lasts until 81 years old b. last until 71 years old, c. will exhaust before 71

Solution B Mode = end, n = 15, pmt = -800000, I = 6%, FV = 18620775.91; Mode = end, I = ((1.06/1.04)-1)/12, = 0.160256410, PV = -18620775.91, pmt = 90000, n =251.56 months; n =20.96 years. i.e. 50 + 20.96 = 70.96 years

20. Mr. Swapnil will start receiving a pension of Rs.12000 pa., exactly 10 years from now.

He will receive this pension for 20 years every year end. If interest rate is 12% what is the present worth of his pension?

a. Rs 32323 b. Rs.28860

c. Rs.83667 d. Rs.32257

Solution B Mode = end, I = 12%, n = 20, pmt = 12000, PV = 89633, Mode = end, I =12%, n = 10, FV = 89633, pv= 28859.5

21. Bond Face value Rs 1000 and coupon rate 8% with market rate is 10%. If the bond is

perpetual the value of the bond is ______. a. 800 b. 750 c. 1000 d. 1200

Solution A Price = 80/10% = 800

22. Ram has received gratuity of Rs. 75000/- in the year 2000. In the year 2006 he

received an additional gratuity of Rs. 300000/-. The amount exempt from tax will be _____

1. 350000 2. 275000 3. 300000 4. None of the above

Solution B, 350000 – 75000 = 275000 If an employee who has received gratuity in any earlier year from his former employer(s), receives gratuity from another employer in a later year, the afore said limit of Rs.350000/- will be reduced by the amount(s) of gratuity exempted from tax under sector 10(10)(iii) in any earlier year(s)

23. An employee contributes Rs.5200/- each month with a similar amount contributed by the employer to a recognized provident fund. What is the tax benefit available to the employee on the contributions made by the employer?

a. Amount in excess of 12% is included in gross salary. b. Exempt upto 12% of salary. c. Not exempt but also not taxable every year. d. No tax benefits available

1. All of the above 2. only C & D 3. Only A & B

Solution: 2

24. An individual invests Rs 50000/- in his PPF account. While having a deduction of Rs. 24000/- during the year as provident fund. Further insurance policies of Rs. 50000/-

premium were purchased. What is the tax benefit available at the end of the year? Solution Rs.100000/-

25. An investor buys a pension policy from an insurance company after paying a premium of Rs. 24000/- Other insurance premium paid is to the extent of Rs 94000/-. What is the total amount of benefit of tax available u/s 80c & 80 ccc?

a. 118000 b. 100000 c. 94000 d. nil

Solution B Rs 100000/- The maximum limit of benefits available under section 80C & 80CCC is Rs.100000.

26. A person has a basic salary of Rs. 35000/- per month & there is a provident fund deduction of 10% towards a recognized provident fund. How much will be the tax benefit available for the individual?

a. Deduction u/s 80C available on Employee’s contribution from gross total income subject to certain limits

b. Exemption upto 12% of salary. Amount in excess of 12% is included in gross salary.

c. Interest on Provident fund exempt u/s 10 upto 9.5% p.a. Interest credited in excess of 9.5% p.a. is included in gross salary.

d. No exemption available. 1. A B C 2. A B C D 3. A B 4. A C

Solution 1 (A B C)

27. An employee wants to decide between contributing a sum of Rs 3500/- pm either to the provident fund or the public provident fund. The tax benefit in the two cases for the employee will be _____

a. Exempt under section 80CCC b. Exempt under section 80D c. Exempt under section 80C d. No tax benefits available

Solution C Exempt under section 80C

28. An employee joined service in May1999 & left it on Jan2006. at the time of resignation

he received a sum of Rs.254000/- as accumulated balance from recognized provident fund. The amount that is taxable is ____.

a. Rs 254000 b. NIL, The entire amount is exempt c. None of the above

Solution B As he has completed more than 5 years of continuous service in the company the entire amount received is exempt.. The accumulated balance due & becoming payable to an employee participating in a recognized PF shall be exempt in the following cases

1. If the employee has rendered continuous service with his employer for a period of 5 years or more ,or

2. If, though he has not rendered such continuous service of 5 years, the service has been terminated a) by reason of such employee’s ill health or b) by the contraction or discontinuance of the employer’s business or c) or other cause beyond the control of the employee, or

3. If, on the cessation of his employment, the employee obtains employment with any other employer, to the extent the accumulated balance due and becoming payable to him is transferred to his individual account in any recognized fund maintained by such other employer.

29. Jatin is 40 yrs old. He earns Rs 2.8lakhs a year currently. If his earnings rise 8% for the

next 15 years & he wants a replacement ratio of 80%, what will be his requirement at the time of retirement?

a. 701555 b. 710566 c. 710655 d. 701655

Solution B Mode = end, n = 15, I = 8%, PV = -280000, FV = 888207.3520, 80% x 888207.3520 = 710566

30. The current income of a person is Rs. 4lakhs pa. He wants a sum of Rs. 5lakhs at the

replacement ratio of 80% in 5 years time. By what rate should his income increase to provide such a benefit?

a. 7.33% b. 8.33% c. 9.33% d. 10.33%

Solution C Fv =500000/80% = 625000 Mode = end, n = 5, PV = -400000, FV = 625000, I = 9.33%

31. If a person wants a sum of Rs 42000/- pm at a replacement ratio of 70%, what should his

normal earning be at the time of retirement?____ a. 4.2 lakh b. 5.6 lakhs c. 6.4 lakhs d. 7.2lakhs

Solution D 42000 x 12/ 70% = 7.2 lakhs

32. A sum of Rs. 4.8lakhs at 60% replacement will mean a person has to earn before

retirement a sum of ______ a. 5lakhs b. 6lakhs c. 7lakhs d. 8lakhs

Solution D 480000/60% = 800000

33. The pension received by a person is Rs. 6000/- pm. If the other income after deductions is Rs. 1lakh for a male individual, then the pension received is taxable to the extent of ____

a. 6000 b. 12000 c. 72000 d. 44000

Solution C 6000 x 12 = 72000

34. If the income from a senior citizen savings scheme for a 63 year individual is Rs105000/- and there is no other income then the amount of ------ is taxable.

a. Nil b. 5000 c. 10000 d. 500

Solution A

35. If there is a deposit of Rs. 70000/- in a 8% pa deposit for 270 days then will there be a tax deduction at source on the interest paid?

a. No b. Yes c. Can’t say d. None of the above

Solution A

36. A person wants to invest Rs 4 lakhs in a post office monthly scheme.

a. it can be done in a single name b. it can be done in a joint name c. there is no bonus on maturity d. both a & b are correct e. only B is correct

Solution: D As per the POMIS rules up to 4.5 lakhs can be invested in a single name & up to 9 lakhs can be invested in a joint name

37. A provident fund account is closed and the amount is withdrawn by the individual after 4

years. The amount received here is ______ a. taxable b. not taxable c. none of the above

Solution A

38. A provident fund account is transferred after 4 years of operation to another employer the earning in this case is ____

a. taxable b. not taxable c. none of the above

Solution B

39. An amount of Rs.100000/- is invested in a notified pension scheme of a mutual fund --- will be allowed as a deduction under section 80c

a. 100000 b. 10000 c. Contributions to pension funds of mutual funds do not qualify for 80C

deduction. d. Nil

Solution A 40. Neha received inheritance of Rs 2.5 lakhs, wants to withdraw equal amounts at the

beginning of each month for next 7 years at 10%pa compounded monthly. What amount she should start withdrawing per month?

a. 4116 b. 2266 c. 4150 d. 2626

Solution A

Mode beginning, n = 7x12, i=10%/12, PV = -250000 PMT = 4116

41. Ram has bought the share of ABC ltd. For Rs. 80000. They grow to Rs. 90000 in

182days. a. What is the return? b. What is the annualized return?

1. 12.5%, 25.06% 2. 11.5%, 25.06% 3. 12.5%, 25% 4. None of the above

Solution A 10000/80000 = 12.5%, 12.5x 365/182 =25.06%

42. Ms. Madhu is 40 yrs old to retire at 65. Life expectancy is 75 yrs. She will require

5000 in 1st month after retirement. Inflation 4% p.a. , rate of return 7% . What is

the corpus required to meet the expenses after retirement. Will the corpus be enough to fund her retirement if she saves up to Rs. 30,000 pa (at the end of the year) a. 1478597, Yes b. 1687498, No c. 1984571, No d. 1562027 , Y

Solution D Retirement corpus pmt = 15000, n =10 x 12, I = ((1.07/1.04)-1)/12 = .24038, PV = 1562031 Savings corpus mode end, n = 25, I =7%, pmt = -30000, FV = 1897471.131

43. Nirav wants to retire at 45 and he wants to maintain his present standard of living. He spends 325000 a year. He is expected to live up to 85. Inflation 4% expected return 7% pa . How can he achieve this? He is at present 30 yr. What is the nest egg required at age 45 and what amount shall he save every year to meet this plan? His present investment is Rs.10, 00,000.

a. Nest egg and saving required will be 25100065 and 541093 resp. b. Nest egg and saving required will be 12773065 and 438300 resp. c. Nest egg and saving required will be 13785155 and 438781 resp. d. Nest egg and saving required will be 14773065 and 740530 resp.

Solution C Find FV45, n = 15, I = 4%, PV = -325000, FV = 585306.64 = pmt for 40 years, I= 2.88461545, n =40, pmt = 585306.64, PV 45 = 13785170 Savings per year I = 7%, n =15, PV = -1000000, FV = 13785170, pmt = 438781.06

44. Mira aged 30 saves Rs. 15000 per year (at the end) in Bank FD earning 8.25% P.a. compounded annually until she retires at 58. Life expectancy is 80 yrs.

Calculate the Corpus on the date of retirement? What is the fixed amount she can Withdraw at the beginning of each yr until 80 in case she wishes to exhaust her corpus completely. Inflation rate is 5% pa.

a. 1424894, 89458 b.1348974, 87498 c. 1491655, 137767 d. 1491655, 91613

Solution D Mode = end, pmt = -15000, i= 8.25%, n =28, FV = 1491655, Mode = beginning, n =22, I = 3.09%, PV = -1491655, pmt = 91612.558

45. Rekha 20 yrs retired at 45. Life expectancy is 70. She requires 55000 in the first month of her retirement. Inflation rate is 4% pa; rate of return is 6% pa. What will be the saving per year required in order to meet this.

a. 232584 b. 235789 c. 236478 d. 238615

Solution D Mode = end, n = 25 x 12, pmt = 55000, I = 0.019230769 / 12, PV =- 13091516.01 N= 6%, n = 25, FV = 13091516.01, pmt = 238615.37

46. Mr. Prakash is 35 yrs old wants to retire at 60. Life expectancy is 80 yrs. He will

require 25000 in 1st month after retirement. Inflation is 5% p.a , rate of return 8% .

What is the corpus required to meet the expenses after retirement. Will the corpus be enough to fund her retirement if he saves upto Rs. 48,000 pa (at the end of the year)

a. 4129874, Y b. 4784962, N c. 4566431, N d. 4378154, Y

Solution C Mode = end, n = 20 x 12, i = 2.857142857 / 12, pmt = 25000, PV = -4566431 Saving corpus; mode = end, n = 25, I = 8%, Pmt = -48000, FV = 3509085.118

47. Kalpesh wants to accumulate Rs. 50 Lakh when he retires. He is 30 yrs and wants to retire at 55 yrs. Interest rate 9 % pa, inflation 5% pa.. Compounding to be done on annuity Certain basis. After 10 yrs of his saving 45000pa. Kalpesh now realizes he can now earn12 % pa on fresh investment and also maintain a saving amount of 72000 pa for the rest of the working life. Will he be able to accumulate the amount required? What will his corpus be?

a. Y , 51.74 Lakh b. N, 48.75 Lakh c. Y, 52.5 Lakh d. N, 49.50 Lakh

Solution A Mode = end, n = 10, I =9%, pmt = -45000, FV = 683681.8373; PV = - 683681.8373, n =15, I = 9%, mode = end, FV = 2490299.1 Mode = end, I = 12%, n = 15, pmt = -72000, FV = 2684139.456 Total savings 2490299.1 + 2684139.456 = 5174438.556

48. Krishna aged 30 saves Rs. 10000 per year (at the end) in Bank FD earning 8% p.a. Comp annually until he retires at 60. Life expectancy is 80 yrs. Corpus on the date of retirement? What is the fixed amount he can withdraw at the beginning of each yr until 80. Presuming he wishes to leave his heirs an estate of Rs.200, 000 .Inflation rate is constant at 6% pa.

a. 1105694, 61375 b. 1132832, 12787 c. 1054875, 108423 d. 1132832, 59040

Solution D Mode = end, n = 30, I =8%, pmt = -10000, FV = 1132832. Mode = beginning, n =20, FV = 200000, I = 1.88%, PV = -1132832, Pmt = 59040

49. Manoj 30 yrs employee earning salary of Rs. 300000. He started saving 10 % of his salary, at the end of the year, in a saving plan which yields 6% interest pa. His Salary increases by 5% pa. If Manoj intends to prepone his retirement to the age of 55 yrs and needs to have the same amount of accumulated saving as at the age of 60 yrs. What percentage of his salary should he start saving to achieve his goal.

a. 14.04% b. 3.56% c. 15.70% d. 6.70%

Solution C = 30000 x [(1.06)^30 – (1.05)^30] / (0.06 -0.05) = 4264646.395 4264646.395 = x [(1.06)^25 – (1.05)^25]/ 0.06 – 0.05 =47096.32336 47096.32336 / 300000 = 15.698%

50. Ramesh retired from PTC completed service of 29 yrs 9 month. His salary at retirement was Rs. 10,500 p.m. While average salary of preceding 10 months worked out to Rs. 9800 p.m. The actual amount of gratuity received by him at retirement was Rs.325000. Calculate the amount of gratuity exempt from Tax assuming he is covered by provision of Payment of gratuity Act 1972.

a. 294000 b. 181730 c. 315000 d. 175673

Solution B Covered under the gratuity act therefore gratuity exempt will be least of actual received, max limit Rs.300000, or calculated as per the act as 15 X 10500 X 30 = 181730 26

51. Shinde invested Rs. 72000 at the rate of interest of 5%. After 7 yrs the ROI is 5% compounded half yearly. After 3 yrs ROI is 6% compounded quarterly. What will he get after 15 years.

a. 140000 b. 155000 c. 148251 d. 158242

Solution D Mode = end, PV = -72000, n = 7, I =5%, FV = 101311.2304, PV = -101311.2304, n = 3 X 2, I = 5% / 2, FV = 117489.9671, PV = -117489.9671, n = 5 x 4, I = 6% / 4, FV = 158241.9504

52. Harinder has heard that changes in inflation rate might have a significant impact on his real saving. Currently he would buy the car of his dreams for Rs. 3 Lakh. He wants to estimate the amount he may need to buy the car in 8 yrs time. The inflation rate for the period are expected to be 5% for 1

st four year, , 4 % for next four year value of the car is

expected to fall by 10 % every time over a period of 4 yrs. If he buys the car in 8 yrs then what would be the same real amount that he would need to have saved.

a. 345539 b. 400000 c. 383932 d. 426591

Solution A Mode = end, PV = -300000, n = 4, I = 5%, Fv = 364651.8750 PV = -328186.6875, n = 4, I = 4%, FV = 383932, Amount needed as value of car will reduce by 10% = 345539

53. Ram aged 35 saves Rs. 30000 per year (at the end) in Bank FD earning 7% p.a. comp annually until he retires at 60. Life expectancy is 70 yrs. Corpus on the date of retirement? What is the fixed amount he can withdraw at the beginning of each yr until 70. Presuming he wishes to leave his heirs an estate of Rs. 150,000.Inflation rate is constant at 5% pa.

a. 1897471, 242337 b. 2147854, 214598 c. 1745897, 192712 d. 1945875, 199145

Solution A Mode = end, n = 25, I = 7%, FV = 1897471, As inflation is constant we will use nominal rate of 7% in post retirement phase. PV = -1897471, FV = 150000, N=10, I =7%, PMT = 242337

54. An employee retires on 10th

Mar 06. Salary during 1- May-2005 to 31-Dec-2005 is Rs. 26000 pm. 1- Jan-2006 to 28-Feb-2006 is Rs. 26500 pm. Besides he receives Rs. 400/- pm. as DA. 20 % Basic Pay as DA (not part of salary for

computing of retirement benefit). He is entitled to 6% commission on sales achieved by him (during 1-May-2005 and 28-Feb-2006 turnover achieved by the employee is 2577860) . He received a gratuity of Rs.750000/- and has worked for 26 yrs and 5 month in the organization calculate the tax free and taxable amount of gratuity resp.

a. 350000, 741142 b. 350000, 400000 c. 750000, 341142 d. 750000, 400000

Solution = B ½ x 26 x 41967 = 545573, As payment is least of 350000, actual received or as calculated Least is 350000, is exempt gratuity therefore balance 400000 is taxable

55. Mohan invests Rs 10000 in mutual fund on 1/1/2000.He receives cash dividend Of Rs 200,300,200,300 on31/12/2000, 2001, 2002 & 31/12/2003.He sold the fund For Rs 15000/- on 1/1/2004.What is IRR?

a. 12.81%, b. 10.21% c. 6.83%, d. 8.53%

Solution A Cash flow -10000, 200,300, 200,18000 IRR =12.81%

56. Amit aged 30 yrs has an estimated present expense of Rs 360,000p.a.If inflation is 5% in first ten years, 6% in next ten years, & 6.5% for rest of the years. What would be household expenses required at age 60 yrs if to maintain standard of leaving is 80% post retirement.

a. 11.5 lacs, b. 15.77lacs, c. 16.31lacs, d. 8.53lacs

Solution B Mode = end, n = 10, I =5%, PV = -360000, FV= 586402.0656 N =10, I = 6%, PV = -586402.0656, FV= 1050156.788 N= 10, I =6.5%, PV = -1050156.788, FV = 1971288.652 Retirement expenses = 80% x 1971288.652 = 15.77 lakhs

57. Mr. Kalpesh decides to accumulate Rs 50 lacs when he retires. He is at present 30 yrs old & wants to retire at 55yrs .Assume interest rate 9% and inflation 5%

compounding to be done on annuity certain basis. If Mr. Kalpesh could save only Rs 45000/- for the first ten years ,how much he need to save next 15 years to meet his retirement corpus.

a) 147008 p.a, b) 85477 p.a, c) 98450p.a, d) 79250 p.a

Solution B N=10, mode = end, I = 9%, pmt = -45000, FV = 683681.8373 N = 15, mode = end, I = 9%, PV =-683681.8373, FV = 5000000, Pmt = 85477

58. Mr. Alpesh decides to accumulate Rs 50 lacs when he retires. He is at present 30 Yrs old & wants to retire at 55yrs .Assume interest rate 9% and inflation 5%

Compounding to be done on annuity certain basis. If Mr. Kalpesh could save only Rs 45000/- for the first ten years , After this he realizes that he can now earn 12% P.a on fresh investment and also increases his investments amount to 72000/- p.a. For the rest of the working life. Will he be able to save the required amount? What will be his corpus at retirement?

a. Yes, 52.50 lacs, b. No, 48.75 lacs, c. no, 49.50 lacs, d. yes, 51.74 lacs

Solution D Mode = end, n = 10, I =9%, pmt = -45000, FV = 683681.8373 PV = -683681.8373, n= 15, mode = end, I =9%, FV = 2490299 Mode = end, I = 12%, n = 15, pmt = -72000, Fv =2684139 i.e. 2490299+2684139= 5174438.55

59. You have been appointed as financial planner of Mr. Ranjit. He is 35 yrs old at present and would be retiring at age 60 yrs. He expects to live up to 80 yrs. You have to plan in such a way that Ranjit starts getting 25000 pm from the very day he retires and keep receiving till his survival. If an expected return during accumulation is 7%p.a, what is saving required per year to meet his retirement needs.

a) 47646, b) 50982, c) 47924, d) 51280

Solution D Mode begin, n = 20 x 12, I = 7%/12, pmt = 25000, pv = -3243372.611 Mode = end, n = 25, I = 7%, FV = 3243372.611, pmt = 51279.39

60. Ms Shalini purchases a money back policy at age of 30 yrs. She gets survival benefit of Rs 1 lac each in 5,10,15th yr of policy and Rs 4,00,000 as maturity benefit at the end of 20 yrs. She invests entire benefits of this policy at 8%p.a.What is accumulated value of this investments to her at age 60 yr. a) 3037260, b) 1511247,

c) 2331730, d) 1531730

Solution C Pv = -100000, n = 25, I = 8%, FV1 = 684848 PV = -100000, n = 20, I = 8%, FV2 =466096 PV = -100000, n = 15, i = 8%, FV3 = 317217

PV = -400000, n = 10, i = 8%, FV 4 = 863570 Total 2331730

61. Mr. Sumit present age 25 yrs wants to retire at 55 yrs .Life expectancy is 70 yrs.He estimates that he will require 35000 pm after retirement. Inflation is 4.5% and return on investment is 6.5%.What will be saving required per annum?

a) 86987, b) 63358, c) 82689, d) 85479

Solution B Mode = end, n = 15 x 12, I = 0.159489633%, pmt = 35000, PV = -5472593 FV =5472593, mode = end, n = 30, I = 6.5%, pmt = 63358

62. Mr. Branden presently 30 yrs old, wants to retire at 45 yrs. He wants to maintain present standard of leaving .He is currently spends around Rs 3,25,000 p.a. He expects to survive upto 85 yrs .Inflation is 4% and expected return on investments are 7%. What will be nest egg required at age 45 yrs? What amount, he needs to save every year in the end to meet his plan of retirement. His present savings are around 10 lacs.

a). 25100065, 541093 b) 12773065, 438300 c) 13785155, 438781 d) 14773065, 740530

Solution C Mode = end, I =4%, n=15,PV = -325000, FV = 585307 Mode end, I = 2.88%, n =40, pmt = 585307, PV = -13785155 Mode = end, I = 7%, n = 15, PV = -1000000, FV = 13785155, pmt = 438781

63. Monthly pension of an employee under EPS’95, if pension able service is 30 yrs & pension able salary is Rs6000/-

a) Rs6000 b) Rs2571 c) 3000 d) 1500

Solution B Monthly pension = pensionable salary x pensionable service/ 70 = 6000x30/70 = 2571

64. Mr. Sharma is retiring at 60. He has got a nest egg of Rs 20 lacs. Inflation is around 6.5 % & interest rate is 10%. Calculate rate of growth.

a) 3% b) 3.29% c) 3.35%

d) 2.5% Solution B Real rate = 1 + nominal rate = 3.29% 1 + inflation

65. Security A 12% return & 7% SD, Security B 18% return & 8% SD. Which one

would the client prefer? a. Sec B b. Sec A

Solution A

66. Aman 25 yrs old, working with a Pvt. Ltd Co. since 2004. He receives Rs 20,000/- towards leave encashment in 2007 which is equal to 1 mths salary. What is the taxable component?

a) 4000 b) 12500 c) 20000 d) Nil

Solution C Leave encashment during service is fully taxable.

67. Anup receives Rs 62,000/- as gratuity. He retires on 31.1.2007 after completing service of 29 yrs 8 mths. The Co. is covered under Gratuity Act 1972. His salary at the time of retirement is 3100/- p.m, what is the amt of gratuity exempt from tax?

a) 53653 b) 8346 c) 62000 d) Nil

Solution B 30 x 3100 x 15/26 = 8346

68. As a person approaches the retirement date almost all his contributions to the

retirement plan should be kept in investments which offer him the _____ a) Highest safety of capital B) Mostly into equity related avenues c) In banks to provide liquidity d) None of the above

Solution A State whether true or false

69. A senior citizen savings scheme cannot be extended for next three years after maturity of account.

a. The above statement is True b. The above statement is False c. Neither of the above

Solution B Senior citizen savings scheme can be extended for 3 years after maturity of account

70. Senior Citizen Savings scheme the interest is payable monthly. a. The above statement is True b. The above statement is False c. False interest is payable Quarterly d. Neither of the above

Solution C

71. The post office recurring deposit account is normally for _____ years. a. 3 b. 6 c. 5 d. 2

Solution C

72. Can the post office recurring account be continued on maturity? a. No b. YES c. Yes for another 5 years on year to year basis d. Yes for three blocks of 5 years each.

Solution C

73. Which post office savings scheme earns rebates for 6 to 12 months advance Deposits?

a. Post office Time deposit account b. Post office savings account. c. Post office recurring deposit scheme d. There is no such a scheme

Solution C

74. Monthly pension of an employee under EPS’95, if pension able service is 35 yrs & pension able salary is Rs6000/- Ans a) Rs6000 b) Rs2571 c) 3000 d) 1500 Solution C Monthly pension = pensionable salary x pensionable service/ 70 = 6000x35/70 = 3000

75. .The current yield of a bond, with coupon rate of 7.5% & market price of Rs.105 is ___

a. 7.143% b. 7.413% c. 6.143%

d. Nil Solution A 7.5 / 105 = 0.0714285 X 100 = 7.143

76. The current yield of a bond with coupon rate of 11.5% is 10.773%. How much is the price of this bond.

a.. 100 b. 106.75 c. 107.76 d. Nil

Solution B 11.5 / 10.773 = 1.06748 X 100 = 106.75

77. Calculate the bonds price with face value of 100 & coupon rate of 11.5% maturing in 3

years, if the ytm is 9%. a. 106 b. 106.3208 c. 100 d. 105

Solution B Fv = 100, I = 9%, n = 3, pmt = 11.5, PV = 106.3208

78. What is the price of a bond whose face value is 100 coupon is 10% maturing in 3 years if the ytm is 14%

a. 90.717 b. 90 c. 91 d. 100

Solution A N = 3, I = 14%, FV = 100, pmt = 10 ,PV = 90.717

79. Post retirement your client would require 70% of his current personal annual expenses

adjusted for inflation in the beginning of the first year of his retirement. He also wants to leave Rs.25 lakh cash, at then prices for both his daughters each as estate. He wants to know what monthly amount towards his retirement corpus and estate is required to be invested in an equity oriented Mutual fund from today onwards till his retirement. In the distribution phase, the corpus is invested in a pension fund yielding annual inflation adjusted annuity yielding 100 basis points above risk free rate. To help him in his financial planning he has provided you with the following information;

a. current age 49 years, b. working in an Indian Multinational company and drawing an annual salary of

Rs. 24 lakh, c. his present personal monthly expenses are Rs.65,000,

d. his basic salary is Rs. 80,000pm and DA is Rs. 30,000pm of which 100% is included for retirement purposes.

e. The current inflation rate is 5.5% p.a. and is expected to remain same throughout.

f. Return on Equity / Equity based Mutual fund is 6%p.a, g. Risk free rate is 6%p.a. h. Retirement @: 62years of age i. Life expectancy: 80 years of age.

A. Rs. 74121 B. Rs. 51058 C. Rs. 37075 D. Rs.53125

Solution: D Current monthly personal expenses: Rs. 65000 so annual expenses will be 65000 x 12 = 780000. He wants 70% i.e 780000 x 0.70 = 546000 First find the rupee value of the expenses in the first year of retirement i.e after 13 years i.e find FV of 546000 at inflation rate of 5.5% after 13 years this is Rs. 1095153. This is the annuity required every year for 18 years i.e (80 – 62). The rate of annuity is 100 basis points i.e 1% above risk free rate of return = 6% + 1% = 7% Inflation is 5.5%p.a Real rate = [1.07/1.055]-1x 100 = 1.421800948 So corpus required at the time of retirement; mode begin, n= 18, i% = 1.421800948, pmt = 1095153, so PV = 17530545.91 [A] Corpus to leave an estate of 50 lakh for daughters Mode = begin, n = 18, i% = 7, FV = 5000000, so PV = 1479319.58 [B] Total corpus required at retirement = A + B = 19009858 To accumulate this corpus he wants to invest monthly in an equity MF at 12% p.a. rate. Now find the monthly effective rate APR using the CNVR function i.e n= 12, i%=12, find APR = 11.38655152, now find the monthly rate i.e 11.38655152/12 = 0.9488792935 Now find the PMT using mode = begin, n=13x12, i% = 0.948879293, Fv = 19009858, pmt solve = 53124.85

80. NAV of a fund on march31’2001 was 14.45. 3 months later the NAV had grown to 15.25. using the percentage change in NAV method find out the annualized return

A .22.145 B .22 C .21.145 D .nil

Solution A (15.25 -14.45)/14.45 *100 = 5.536% *12/3

81. NAV of a fund on Jan ’2001 was 15.865. 6 months later the NAV had grown to 16.35. Using the percentage change in NAV method find out the annualized return

A. 6.114 B. 6 C. 5.114

D. 5 Solution A (16.35 -15.865)/15.865 *100 = 3.057% *12/6

82. Mahesh bought units of a mutual fund for 18.225 at the end of the year the worth of his holding was 18.725 & he had received a dividend of 12 % compute his return using simple total return method

A.9.238% B. 9.328% C. 9 D. Nil

Solution B Dividend received 10 * 12% = 1.20, ((18.725-18.225) + 1.20)/18.225 =.9.328

83. Mohan bought units of a mutual fund for 23.75 he receives a dividend of 12.5% Which he reinvests in the fund at the then prevailing NAV of 23.5 at the end of the year the worth of his holding was 24.65. Compute his return using reinvestment method

A. 9.3102% B. 9.13% C. 9% D. Nil

Solution A Dividend received = Rs.1.25, extra unit purchased = 1.25/ 23.5 = 0.05319, total units = 1.05319, value of holding at the end of the year = 1.05319 x 24.65 = 25.96117, HPR = (25.96117 – 23.75)/ 23.75 = 9.3102%

84. Mukesh retired from 30

th June 2007. He received pension of 6000pm till 31

st Dec 2007,

since 1st Jan 08 he gets 60% of pension commuted for 90000. Calculate amount of

pension includable in salary income for AY 08 – 09. Assume no gratuity received. B. 52800 C. 58200 D. 58000 E. Nil

Solution B Uncommuted pension from June to dec’07 = 6000 X 6 =36000 Total pension = 90000/60% = 150000, can commute 50% as gratuity not received i.e. 75000 as exempt amount, but commutes 90000 therefore 90000 – 75000 = 15000 = taxable.; reduced pension from Jan to March = 2400 x 3 = 7200, total pension 36000 + 15000 + 7200 = 58200

85. Amar is 30 years old wants to retire at 45 years. He deposits 25000pa at the yearend for 15 years, earning an interest rate of 5%. He wants 75000 pa post retirement. How long will his corpus suffice him?

F. 8 years

G. 9 years H. 8.59years I. 7 years

Solution C Mode = end, n = 15, pmt = -25000, FV = 539464.09 Mode = beginning, I = 5%, pmt = 75000, PV = -539464.09, N =8.59 years

86. Seema aged 35 years requires 20lakhs at age 55. If she starts today using an annual stepped up method. Calculate how much she needs to save in first year to ensure that her investment plan corresponds with salary growth. Assume interest rate 8%, growth 10% and inflation 4%.

J. 17596 K. 17922 L. 17900

M. 18900 Solution B FV = 2000000, n = 20, I = 8%, PV = -429096.4148 N=20, rate = (8-10)/1.10 = -1.8181, PV = -429096.4148, pmt = 17922 Alternate method use Goal seek in excel

87. Mr. Prakash is working in an MNC from 1st July 1986 and has given a notice on 31st Dec 2008 to his employer for relieving him from his job by 31st July 2009. Prakash is eligible to receive Gratuity from his company. His company calculates gratuity as per the Payment of Gratuity Act, 1972 and pays higher amount, if eligible, to its employees than the statutory limit as per the act. Prakash wants to know the amount of Gratuity he is likely to get from the company and what amount will be taxable out of the same. His basic salary p.m. is 80000 with DA 30000 p.m. of which 100% is included for retirement purposes.

N. Rs. 12,24,194 and Rs. 8,74,194 O. Rs.14,59,615 and Rs. 11,09,615 P. Rs.9,20,000 and Rs 5,70,000 Q. 12,65,000 and Rs 9,15,000

Solution: B Basic salary: 80000; DA: 30000; no. of years of service: 23; gratuity as per the act = 110000 x 23 x 15/26 = 1459615; max exempt = 350000; so taxable gratuity = 1109615.

88. What is the present value of an investment that will be worth Rs 10000 in 10 years based on an inflation rate of 4% pa?

R. 3855 S. 5584 T. 6756 U. 8203

Solution C FV = 10000, n = 10, I = 4%, PV =6756

89. Ajay opens a saving account on 15th

April 2003 with a deposit of Rs.2000, there after he deposits Rs.80 into the account fortnightly. How much will the account have on 15

th

April ’08? Interest rate of 8.3% A. 13933 B. 14933 C. 15933 D.16933

Solution C PV = -2000, r = 8.3%/26, n = 5 x 26, FV = 3026.7402 Pmt = -80, r = 8.3%/26, n = 5 x 26, FV = 12906.2474 Total accumulation = 3026.7402 + 12906.2474 = 15932.9876

90. Jagan, a 45 years old executive earns a salary of Rs. 68000 pa. He will retire at the age of 55 years & his life expectancy is 76 years. He expects his current salary to grow by 6% pa. The inflation rate is expected to be 4% pa. throughout his lifetime & the expected return on investment is 5% pa. during retirement. If Jagan’s target replacement ratio is 70% of his last drawn salary. Calculate how much he needs as his retirement fund. ( Assume salary increments are given at the beginning of each year.)

A. 1613980 B. 1629499 C. 197321 D. 1992183

Solution B FV of salary = 68000 x (1.06^10) = 121777.6434 Expected expenses = 70% x 121777.6434 = 85244.35 Capital requirement for retirement = pmt = 85244.35, I = (5%-4%) / 1.04 = 0.9615, n =21, PV = 1629499.2989

91. To avail the withdrawal from the PF for the purchase of a ready built house / flat or Construction of a house the member should have completed 5 years of membership of the fund and the purchase should be in favour of

A. Member or member & spouse with minimum balance in members account should be Rs.1000/-

B. Member only with minimum balance in members account should be Rs.1000/- C. Spouse only with minimum balance in members account should be Rs.1000/- D. Member & spouse with minimum balance in members account should be

Rs.1000/- Solution A

92. _____ is a single premium market linked deferred pension plan from ICICI Prudential

Life Insurance Company.

A. Forever life B. Life link Pension C. Life time Pension D. New Jeevan Dhara I

Solution B

93. Profit Sharing plans are ______ A. Defined Benefit Plans B. Defined Contributions Plans C. Hybrid Plans D. None of the above.

Solution B

94. Profit sharing plans are a. Generally not structured to provide a monthly pension benefit at retirement b. It’s aimed at offering the employees a way of participation in the company’s profit

A. Both statement are false B. Both statements are True C. Only A is true D. Only B is true

Solution: B

95. The administrative charges for the EPS are paid by a. The employer only b. The employer & the government c. The Central Government only d. No administrative charges are paid.

Solution C

96. Definition of "Family" for the Employee’s Pension Fund means (i) wife in the case of male member of the Employees' Pension Fund; (ii) husband in the case of a female member of the Employees' Pension Fund ; and (iii) sons and daughters of a member of the Employees' Pension Fund ; (iv)The expression "sons" and "daughters" shall include children 2[legally adopted by the member].

a. None of the above b. All of the above c. Only 1 & 2 d. Only 1,2,& 3

Solution B

97. Administrative expenses for Employees Provident Fund scheme payable by the employer every month will be ______

a. 1.10% of total wages on which Provident fund is recovered b. a minimum of Rs 5/- payable by the employer every month.

A. Only A B. Only B C. Both A & B D. None of the above

Solution C

98. Arun has taken a loan of Rs.450000/-, with a down payment of 20% and installments to be paid for 15 years at the rate of 12% per annum. Calculate the estimated monthly installment.

a. 4300 b. 4320 c. 3240 d. 4000

Solution = B Find PMT PV = (450000 – 90000) = 360000, n = 15 x12, i = 12/12 = 1%, pmt = 4320.605

99. Rajan aged 46 years wants to purchase an annuity when he retires at age 60 years; to be paid to him or his wife Sumitra aged 43, till any one of them is alive. Life expectancy of Rajan & Sumitra is 80 & 77 years. What should be the term of this annuity?

a. 20 years b. 15 years c. 21 years d. 18 years

Solution: A Rajan current age 46, age at retirement 60, Sumitra’s age at Rajans retirement = 57, Sumitra’s life expectancy = 77 years so annuity required for 77 – 57 = 20 years

100. In current times of recession, Sujit’s company is going through financial crisis. Due to continuous losses the management has decided to offer Voluntary retirement to its employees on 1-4-2009. The company has got the VRS scheme approved through IT Authorities. He has asked for your advice on net tax proceeds out of his VRS amount of Rs. 20 lakh. The same will be----

a. Rs. 13.21 lakh b. Rs. 17.60 lakh c. Rs 14.90 lakh d. Rs. 15.50 lakh

Solution: C Exempt amount 5lakh so tax on balance amount of 15 lakh @ 33.99% = 509850; therefore the net proceeds receivable is 1500000 – 509850 + 500000 = 1490150.

101. Your client Rani wants to invest regularly on a quarterly basis an amount of Rs. 6,000 in her PPF A/c for the rest of its tenure. The amounts are proposed to be deposited in the first five days of July, October, December & April, respectively. She has not made any transactions in her PPF A/C since April this year. She has approached you on 31st May 2009 for advice on the same and wants to know the maturity amount on 1st April 2015 when the account matures. The current balance in her PPF a/c on 31st May 09 is Rs. 450000/-.(Use the current rate of interest earned by the PPF a/c).

a. Rs.8.95 lakh b. Rs. 8.89 lakh c. Rs. 8.76 lakh d. Rs. 8.85 lakh

Solution: B

DateOutstanding Balance

Contribution during the year Interest

closing balance end of year Calculation of interest

1‐Jul‐09 450000 18000 36760 504760((450000)+(6000*9/12)+(6000*6/12)+(6000*4/12))*0.08

1‐Apr‐10 504760 24000 41621 570381((504760+6000)+(6000*9/12)+(6000*6/12)+(6000*4/12))*0.08

1‐Apr‐11 570381 24000 46870 641251((570381+6000)+(6000*9/12)+(6000*6/12)+(6000*4/12))*0.08

1‐Apr‐12 641251 24000 52540 717791((641251+6000)+(6000*9/12)+(6000*6/12)+(6000*4/12))*0.08

1‐Apr‐13 717791 24000 58663 800455((717791+6000)+(6000*9/12)+(6000*6/12)+(6000*4/12))*0.08

1‐Apr‐14 800455 24000 65276 889731((800455+6000)+(6000*9/12)+(6000*6/12)+(6000*4/12))*0.08

1‐Apr‐15 889731

102. Anuradha aged 31 years is working with a real estate company in Lavasa. The company is covered under the provisions of Payment of Gratuity Act, 1972 she is drawing a basic salary of Rs. 30000p.m., DA Rs.15000 p.m., HRA 15000 p.m. Transport allowance Rs. 2000 p.m. she had joined this company on 01-08-2002. Anuradha wants to know that in case she resigns from her job on 31st March 2009, what gratuity she will receive from her employer. She has availed maternity leaves from 1st November 2003 to 28th February 2004 and from 1st December 2007 to 15th February 2008.

a. Rs. 158500 b. Rs. 155770 c. Rs. 119545 d. Rs. 181731

Solution: D Completed years of service = 6 years 8 months; last drawn salary = 30000+15000 = 45000; Gratuity payable = 45000 x 7 x 15/26 = 181731

103. Vinaya was recently divorced and has two children. The divorce decree requires that she pay 1/3 of the college tuition cost for her children. The tuition cost is currently Rs. 15,000 per year and has been increasing at 7% per year. Her son and daughter are 12 and 16 respectively and will attend college for four years beginning at age 18. How much should she save each month, beginning today for the next five years to finance education for both the children (in nearest rupee)? Assume that her after-tax rate of return will be 9% and that general inflation has been 4% p.a.

A) Rs. 750 B) Rs. 745 C) Rs. 2,500 D) Rs. 2750 E) Rs. 2,235

Solution: B years son daughter amt required

0 12 16 01 13 17 0 RR [1.09/1.07]‐1 x1002 14 18 5000 1.8693 15 19 50004 16 20 50005 17 21 50006 18 50007 19 50008 20 50009 21 5000NPV with RR 36,159.26Find PMT with investment rate 9% 745.02

104. You and your spouse have found your dream home. The selling price is Rs 220,000; you will put Rs 50,000 down and obtain a 30-year fixed-rate mortgage at 7.5% APR for the balance. Assume that monthly payment begins today. What will each payment be?

A) 1188 B) 1181 C) 1359 D) 1529 E) 1538

Mode = begin; PV = 220000-50000= 170000, n=30 x12, i%= 7.5/12, so pmt = 1181

105. Avinash pays his mortgage of Rs. 12 Lakh for 15 years at an interest rate of 7%. Avinash makes the payments on a monthly basis. What is the total amount of interest Avinash will pay over the term of the mortgage? (Select closest answer)

A) Rs 647000 B) Rs 741470 C) Rs 776300 D) Rs 730210 E) Rs 697000

Solution: B First find monthly pmt with mode = end, n= 15 x 12; i% = 7/12=.58333333; PV = 1200000, pmt = -10785.93925. Now in AMRT; set = end, PM1 = 1, PM2 = 180;n = 180;i% = 0.58333333;PV=1200000, PMT = -10785.93925;∑INT = SOLVE = 741469.065 In excel use cumipmt function to get total interest paid.

106. The cash purchase price of an item is Rs. 2, 00,000. The selling company however offers installment plan, which allows an immediate payment of Rs. 10,000 and a series of 5 half-yearly payments thereafter. The first installment is payable after one and a half year. If the company wants rate of interest of 10% P.A. compounded half-yearly, what will be the half-yearly installment?

A) Rs 50802 B) Rs 45678 C) Rs 29412 D) Rs 48383 E) Rs 43885

Solution: A First find the FV of the cost price after 1.5 years i.e n=3 half years; i% = 10/2, PV= -190000; FV = 219948.75. Now calculate the pmt with PV = -219948.75, n =5; i% = 10/2; pmt = 50802.61813

107. A client has the need to provide for his child's college education costs. He

envisages that four annual payments of Rs 20,000/- , in current money terms, would be needed beginning 15 years from now. Assuming level of inflation rate at 5% per annum and that the fund earns 8% per annum returns throughout; calculate the present value to be placed on this liability when carrying out a needs analysis for this client. (Round of your answer to the nearest '000')

A) 23000 B) 50000 C) 24000 D) 34000 E) 49000

Solution: B

0 01 02 03 04 05 06 07 08 09 0

10 0 RR [1.08/1.05]‐1 x100 2.8571411 012 013 014 015 2000016 2000017 2000018 20000

NPV 50,285.96

108. The debt mutual fund of your client has generated returns of 11% p.a. in 3 years. He wants to know the actual return of his portfolio, after tax and inflation, if his income tax slab is 30%.and inflation is 6%p.a.

a. 1.70% p.a. b. 4.70% p.a. c. 3.50% p.a. d. 1.60% p.a.

Solution: D Return after tax = 11 x (1- 0.30) = 7.7%, Return after inflation = [1.077/1.06]-1 x100 = 1.60377