Test paper – 2

1. Before beginning work on Ashwin’s financial plan, you have drafted a “letter of engagement”
and sought Ashwin’s consent on the same. Ashwin asked you about relevance of such a letter in
the context of financial planning profession, you explain about the “Letter of engagement” as a
___.
A) Professional requirement under code of ethics of FPSB India.
B) Professional requirement under practice guidelines of FPSBI India.
C) Legal contract as per contract Act 1872.
D) Document for his personal record.

Solution: B

2. Ashwin asks if you can show him the actual financial plan made of another client. Under which
of the following Code of Ethics you are prohibited to reveal one client’s details to others.
A. Code of Ethics of Professionalism
B. Code of Ethics of Fairness
C. Code of Ethics of Confidentiality
D. Code of Ethics of Integrity

Solution: C

3. Ashwin wants to buy a bigger house today Rs.65L by selling existing house. He will pay down
payment from money received from selling his existing house today. He wants to know that
what would be monthly EMI he will have to pay. (Note: He will go for tenor 25 years and
proposed interest rate will be 10.75%)

Solution:
Current house 7500000
Home loan (1540000)
Amount left 5960000

Loan to be taken = 6500000-5960000 = 540000

S E
N 25*12
I 10.75
Pv 540000
Pmt ?-5195
Fv 0
P/Y 12
C/Y 12
Option – (5159)
 4. In an unfortunate event, Mr. Ashwin lost the control of the car last week and his car
collided with another car. His own car damage estimated Rs.50,000/- and another car is
Rs.60,000/-. Mr. Ashwin has only statutory insurance cover Now, Mr. Ashwin wants to
know that how much he will get the claim from the insurance company
a. 50,000
b. 60,000
c. 1,10,000
d. NIL

Solution: Nil- only third party claim is covered.

5. Ashwin wants to protect his family by Term Insurance. He consumes 45% of the salary to
pay taxes and related expenses. His Salary is going to increase at 5% p.a. in present
scenario. So what amount of Term Insurance he should get? (Assume she will invest the
claim in Debt Scheme)

Solution:

Basic salary 60000

DA: 50% of 48000 30000
HRA 15000
Transport allowance 7500
Medical reimbursement 1250
Entertainment allowance 7500
PF and Superannuation: 12% of 48000 7200
Total salary 128450
128450*45% = 57803

128450*55% = 70647

S B
N (60-34)*12
I (7.7-5)/1.05
Pv ? 16503533
Pmt -70647
Fv 0
p/y 12
c/y 1

6. Mr. Ashwin wants to know that approximate additional life insurance (Term plan) covers
he needs in case of he dies today. He wants that his family should receive 80% of
present household expense inflation adjusted every month for the remaining expected
 life of sumedha. Assume life insurance claim proceeds are invested by sumedha equal
amount in risk free and debt instruments.

Solution:

Risk free/2+Debt/2=6/2+7/2=6.5 S.S/2 + 7.5/2 = 2.75 + 3.75 = 6.5

S B
N (82-31)*12
I (6.5-5)/1.05
Pv ?-20921387
Pmt -(60000*80%)
Fv 0
p/y 12
c/y 1
20921387-400000 = 20521387

7. Mr. Ashwin wants to know that approximate surplus/deficit amount in the retirement
corpus once he has earmark PPF a/c (Post retirement corpus will be invested in debt
fund). He wants to invest the maximum amount every year as per current guideline into
the PPF a/c beginning of every year and he will renew his PPF a/c three terms and
invests max. amount and post extended maturity entire fund will be invested in risk free
instruments till retirement. (Note: on 1/12/2017 interest rate revised 8.6%, 1/4/2019
interest rate revised 8.8%, 1/4/2020 rate revised 9%, 1/4/2021 onwards rate 8.1% for
entire lifetime)

Solution:

Retirement corpus

S B
N (60-34)
I 5%
Pv -70000
Pmt 0
Fv ?248897
p/y 1
c/y 1

S B
N (82-57)*12
I (7.5-5)/1.05
Pv ? 56502954
Pmt -248897
Fv 0
p/y 12
c/y 1

PPf

1/4/17-31/11/17

S B
N 8
I 7.75
Pv -(620000+150000)
Pmt 0
Fv ? 809286
p/y 12
c/y 1

1/12/16-31/3/18

S B
N 4
I 8.6
Pv 809286
Pmt 0
Fv ?831851
p/y 12
c/y 1

1/4/18-31/3/19

S B
N 1
I 8.6
Pv -(831851+150000)
Pmt 0
Fv ? 1066290
p/y 1
c/y 1
1/4/19-31/3/20

S B
N 1
I 8.8
Pv -(1066290+150000)
Pmt 0
Fv ? 1605923
p/y 1
c/y 1

1/4/20-31/3/21

S B
N 1
I 9
Pv -(902954+150000)
Pmt 0
Fv ?1147720
p/y 1
c/y 1

1/4/21 till age 56 ( including 3 terms)

S B
N 18
I 8.1
Pv -1605923
Pmt -150000
Fv ?12657066
p/y 1
c/y 1

Invest in risk free till retirement

S B
N 4
I 5.5
Pv -12657066
Pmt 0
Fv ?15679885
p/y 1
c/y 1
15679885 - 56502954 = (40823069)

8. Ashwin has accumulated additional retirement corpus of Rs.1.5 Crore at the age of 60 Yr
by statutory investment in which he has already invested. For retirement purpose
Ashwin would require no change in his current lifestyle till his lifetime and thereafter
50% of pre-retirement expenses till sumedha’s life-time. Such corpus shall generate an
inflation linked monthly stream of income, if invested in Risk-free instruments. For this
purpose he wishes to utilize his existing Balanced MF scheme of which 1/3rd is
redeemed at the end of 8th , 16th , 26th year and the amount redeemed is invested in
Debt MF along with monthly SIP of _____amount to accumulate the Retirement corpus.
The SIP amount would be?

Solution:

Ashwin

S B B
N 60-34 (80-60)*12
I 5 (5.5-5)/1.05
Pv -70000 ?-56996554
Pmt 0 248897
Fv ?248897 0
p/y 1 12
c/y 1 1

Summedha

S B B B
N 77-31 (82-77)*12 77-57
I 5 (5.5-5)/1.05 5.5
Pv -70000*50% ?-19582371 ?6711446
Pmt 0 330199 0
Fv ?330199 0 11109510
p/y 1 12 1
c/y 1 1 1

Therefore, 56996554 + 6711446 = 63708000 – 1.5 Cr = 48708000

0-8 yrs existing Balanced Mutual funds

S B
N 8
I 9.5
Pv -328000
Pmt 0
Fv ? 677933
p/y 1
c/y 1

8-16 yrs , 2/3rd in balanced fund and 1/3rd in debt fund

Balanced fund Debt

S B B
N 8 8
I 9 7
Pv -(677933*2)/3 -(677933/3)
Pmt 0 0
Fv ? 934132 ? 403026
p/y 1 1
c/y 1 1

16-26 yrs , 2/3rd in balanced fund and 1/3rd in debt fund

Balanced fund Debt

S B B
N 10 10
I 9 7
Pv -(868173*2)/3 -(868173/3)+374312
Pmt 0 0
Fv ?1370188 ?1305604
p/y 1 1
c/y 1 1
1543327 + 1472408 = 3015735

Therefore 48708000 - 3015735 = 45692265

S B
N 26*12
I 7.5
Pv 0
Pmt ? -49417
Fv 45692265
p/y 12
c/y 1

9. Ashwin has recently heard about Inflation Indexed Bonds (IIB). She is not convinced about the
real annual yield of just 1.5% in a recently issued IIB. You explain the features of such Bonds as
_____.
A. The principal amount is protected on maturity, and is repaid inflation adjusted. The annual
coupons would be 1.5% of such periodically adjusted principal amount in tune with inflation
index.
B. The principal amount would be repaid on maturity just like other bond issues. The annual
coupons would be paid at annual inflation rate plus 1.5%.
C. The inflation adjusted principal would be repaid on maturity. The annual coupons however
would be 1.5% of the face value of the bond.
D. The principal amount would be repaid on maturity just like other bond issues. The annual
coupons would be 1.5% above the cumulative percentage rise in inflation index measured
annually.

Solution: A

10. Assume that Ashwin invested in NFO of an Equity mutual fund (dividend reinvestment option)
on 5/7/2013 Rs.10,000/- and fund declared maiden 20% dividend on dated 7/9/2014 (NAV 14),
next dividend declared 25% (NAV 15.5) dated 31/12/2015, further dividend 10% (NAV 13) on
dated 31/12/2016 and present NAV dated 1/4/2017 (NAV 12.75) calculate the CAGR on
investment.

Solution: Refer excel

Date Units NAV Amount

5-Jul-13 1000 10 10000
7-Sep-14 142.8571 14 2000 5-Jul-13 -10000
31-Dec- 1-Apr-17 18223
15 184.3318 15.5 2857.143
31-Dec- 17.39%
16 102.0915 13 1327.189

1-Apr-17 1429.28 12.75 18223.33

11. You have suggested Mr. Ashwin to start a monthly investment on an immediate basis for
Prateek and Aslia’s higher education till age 18 of Prateek as below in a separate equity and
balanced fund. New investment and portfolio rebalanced as per below asset allocation on
specific intervals. 80:20 Equity: Balanced for 1st five years, 60:40 Equity: Balanced for next five
 years, 40:60 Equity: Balanced for balance nos of years and100% balanced fund post age of 18 of
Pratik.

Solution:

Age Prateek Age Aslia PV Fv (8%)

4 - 1 - 1 -
18 800000 15 - 14 800000 2349755
19 300000 16 - 15 300000 951650
20 300000 17 - 16 300000 1027783
21 300000 18 800000 17 1100000 4070020
22 - 19 300000 18 300000 1198806
20 300000 19 300000 1294710
21 300000 20 300000 1398287

Cash function

I=9.5%

1 2349755
2 951650
3 1027783
4 4070020
5 1198806
6 1294710
7 1398287
NPV= Solve = 9643434

Investment

0-5 years

Particulars Equity Balanced

S B B
N 5*12 5*12
I 11 9.5
Pv 0 0
Pmt -80 -20
Fv ?6329 ? 1524
p/y 12 12
c/y 1 1
6329+1524 = 7853

5-10 years

Particulars Equity Balanced

S B B
N 5*12 5*12
I 11 9.5
Pv -7853*60% -7853*40%
Pmt -60 -40
Fv ?12687 ? 7994
p/y 12 12
c/y 1 1
12687+7994 = 20681

10-14 years

Particulars Equity Balanced

S B B
N 4*12 4*12
I 11 9.5
Pv -20681*40% -20681*60%
Pmt -40 -60
Fv ? 14951 ? 21324
p/y 12 12
c/y 1 1
14951+21324 = 36275

(100*9643434)/36275 = 26584

12. You suggested Ashwin to start a SIP in Equity Index MF for 17 yrs, then redeem in such a
way that 1/3rd of outstanding market value be redeemed at the end of 18yrs and then
at end of every year till it’s full redemption on Prateek’s marriage. The funds so
redeemed should be invested in Liquid MF to be withdrawn for respective marriage.
What should be the SIP amount?

Solution: marriage expense

S B
N 27-4
I 5
Pv -2000000
Pmt 0
Fv ? 6143048
p/y 1
c/y 1
Assume pmt=100

Grow for 17 yrs in equity

S B
N 17
I 11
Pv 0
Pmt -100
Fv ?4940
p/y 1
c/y 1

Grow for 1 yr

S B
N 1
I 11
Pv -4940
Pmt 0
Fv ?5483
p/y 1
c/y 1

Grow for 1 year, 1/3rd in liquid and remaining in equity

Equity Liquid
S b b
N 1 1
I 11 6
Pv -5483*2/3 -5483/3
Pmt 0 0
Fv ?4057 ?1937
p/y 1 1
c/y 1 1

Grow for 1 year, 1/3rd in liquid and remaining in equity

Equity Liquid
S b b
N 1 1
I 11 6
Pv -4057*2/3 -(4057/3)+1937
Pmt 0 0
Fv ?3002 ?3486
p/y 1 1
c/y 1 1

Grow for 1 year, 1/3rd in liquid and remaining in equity

Equity Liquid
S b b
N 1 1
I 11 6
Pv -3002*2/3 -(3002/3)+3486
Pmt 0 0
Fv ?2222 ?4756
p/y 1 1
c/y 1 1

Grow for 1 year, 1/3rd in liquid and remaining in equity

Equity Liquid
S b b
N 1 1
I 11 6
Pv -2222*2/3 -(2222/3)+4756
Pmt 0 0
Fv ?1644 ?5826
p/y 1 1
c/y 1 1

Grow for 1 year, 1/3rd in liquity and remaining in equity

Equity Liquid
S b b
N 1 1
I 11 6
Pv -1644*2/3 -(1644/3)+4756
Pmt 0 0
Fv ?1217 ?5622
p/y 1 1
c/y 1 1
1217 + 5622 = 6839

(100*6143048)/6839 = 89824

13. Ashwin’s father had suffered loss from house property and loss from business and profession for
the previous year 2017-18 and has delayed in filling his return of before the due date. Will his
father be eligible to carry forward losses at the time of filing his belated return of income?
(Assuming he does not have any corresponding income to set of losses).

A) Yes, can he carry forward both

B) No, cannot carry forward both
C) Can carry forward only loss from house property
D) Can carry forward only loss from business and profession

Solution: C

14. An investor purchased 2,000 shares of a listed company at Rs. 125 per share on 28th August 2016.
The Company declared a dividend of Rs. 8 per share, the record date was 26th November 2016. He
sold 900 shares on 12th February, 2017 at a price of Rs. 113 per share and the balance on 27th
June 2017 at a price of Rs. 135 per share. He had no other transactions during FY 2017-18. What is
the disposition of his sell transactions for AY 2018-19 ?

Solution:
Full value consideration (900*113) 101700
-COA (900*125) (112500)
STCL (10800)
Dividend (900*8) 7200
STCL (3600)

Full value consideration (1100*135) 148500

-COA (1100*125) 137500
STCG 11000
11000-3600=7400 gain

15. Find Tax Liability for Mr. Ashwin for AY 17-18.

Basic salary 60000*12 720000

DA 360000
HRA 180000
TR (7500*12)-19200 70800
EA ( non govt) 90000
Total 1420800
IFHP (71558)
Total 1349242
-80C (150000)
Total income 1199242

IFHP

S E
N 15*12
I 8
Pv 2000000*60% = 1200000
Pmt ? 11468
Fv 0
p/y 12
c/y 12
Pm1=65*, pm2=76, total interest = 71558 , total principle = -66055 (80 C)

*Note

2011-2012 4 ( Dec , Jan ,Feb ,March )

2012-2013 12
2013-2014 12
2014-2015 12
2015-2016 12
2016-2017 12
64
64+1=65

Tax liability

0-250000 0
250000-500000 ,5% 12500
500000-1000000 , 20% 100000
1000000-199242, 30% 59773

12500 + 100000 + 59773 = 172273 + 3% of 172273

= 172273 + 5168.19

= 177441.