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His family includes his wife Shefali (30) & a son Aryan (5). Till now he has invested all his business profits into business working capital & in purchasing the flat where he lives. He is now seeking advice to invest his yearly savings of about Rs. 12 Lakh into various assets other than business, which will enable him to meet his financial goals in life. At present Jay’s annual living expenses are about Rs. 10 lakh including household expenses, nursery fee, personal expenses & one vacation in India per year. They have consciously decided not to spend more than their annual savings unless in case of emergency. Jay has now requested you to prepare a Financial Plan for his family which will provide crystal clear direction for the future course of action towards achievement of his financial goals. You have gathered the couple’s personal & financial data & after analyzing set their goals into financial figures. Financial Goals of Jay and his Family: 1. To continue to save at least Rs. 12 Lakh per annum. 2. To create financial security for wife & son to enable them to earn Rs. 5 Lakh per annum without working in case Jay meets any eventuality. 3. To provide for their son’s higher education from his age of 18 years to 23 years covering his Graduation & Post Graduation levels. 4. To create old age income of Rs. 12 lakh per annum from his age of 65 years till the time he is alive. 5. To create a highly diversified investment portfolio with moderate risk. 6. To buy Mediclaim Policy for himself and his wife. 7. To pay off credit card outstanding of Rs 1 Lac 8. To buy a holiday bungalow in Khandala at his age of 65 years, approx. worth Rs. 2 Crores CURRENT NET WORTH STATEMENT of Jay Mehta (PERSONAL) a) ASSETS Residential Flat PPF Fixed Deposits Car Cash on hand Floater Mutual Fund TOTAL ASSETS AMOUNT (In lakh Rs) 75.00 1.00 1.00 5.00 1.00 3.60 86.60
b) LIABILITIES Credit Card Loan TOTAL LIABILITIES NETWORTH (a-b) 1.00 1.00 85.60
interest on his outstanding balance.35 2 . 5 lakh per annum post inflation considering Shefali’s Life Expectancy of 75 years.80 0.60 0. Gold prices reflect an annual growth rate of roughly 10% p. 60.per annum. Rs. After having implemented the above recommendations Jay’s asset allocation would be diversified sufficiently to provide ample returns over the period.000/.000/.e. ESTATE PLANNING: As part of estate planning strategy you have suggested Jay to prepare a Will & get it registered. He should also issue a power of attorney in favor of his wife Shefali.05 0. PROPOSED INVESTMENT PORTFOLIO Asset Class Equity Mutual Funds ELSS Stocks Liquid Funds Bonds Bank FD Gold Mediclaim Life Insurance Annual Investments (Rs.a. 35.) 2.00 3. This will also include accident death benefit. you have recommended the following investments keeping in view the benefits of diversified asset allocation: CREDIT CARD OUTSTANDING:Before starting any investments you have strongly suggested Jay to clear his credit card outstanding as he is paying roughly 30% p. For this the total premium comes to Rs. premium waiver benefit in the case of permanent disability. GOLD:Gold is considered to be one of the most liquid assets & the most popular mode of investment in India.00 2. 5 lakh for the whole family. A comprehensive mediclaim insurance of Rs. FAMILY’S FINANCIAL SECURITY:In case Jay Mehta meets any eventuality. Thus you recommend Jay to allocate 5% of his annual savings i.00 1.70 1.into this asset class as well. Hence at the moment you recommend Jay to go for 30 years term Life Insurance Policy with Sum Assured of Rs 70 Lakh which will be enhanced further in future .a.After discussions with Jay & his wife and on the basis of financial information provided by him.50 0. the living expenses for survivors are assumed at Rs.
19 lakh Rs.64. 81.91. He will spend six years at college beginning at age 18.36% 10. Q1 What should be the life insurance cover of Jay such that in case he meets any eventuality today.a.12.00 On the basis of above mentioned case study and the assumptions as below. 2. Returns on liquid funds estimated to be 5%.99% 10. If Jay starts investing in an equity Mutual Fund how much he need to deposit at the end of each year to pay for Aryan’s higher educational requirements? Assume that educational expenses are withdrawn at the beginning of each year and that 3 .456/Rs.26. 17 lakh Rs. Gold returns to be 10%. 2. 7.24. 15 lakh Rs. Bank FD and Bond returns to be 7%.a. 23 lakh Rs.000/Rs.12% 11. (5) A B C D Rs.213/Rs. 1. answer the questions that follow. 21 lakh Rs. The present cost structure of higher education in US is: Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Rs.5% p.a. Assumptions 1.75. All the costs are on the present cost of living. his family should receive the minimum amount of living expenses for the remaining life of Shefali? Assume life insurance proceeds of Jay are invested by Shefali in risk free instruments. Inflation is estimated to be at 4. 25 lakh The cost of education is increasing by 6% every year. 3.591/- Q2 If Jay invests as per the advised portfolio what will be the average annual returns of the portfolio at the end of 10th year (consider investments of the first year only for this purpose)? (5) A B C D 12. 1.Net Annual Investment 12. 4. Equity returns are estimated to be 15% p. Risk free rate of returns is to be at 6% p. 6.67. 5.85% Q3 The Mehta’s want to start saving for their son Aryan’s higher education.
2. 4.186/Rs. (5) A B C D Q4 Rs.700/Rs. 2.into Fund A and Rs. etc. If Fund A has a standard deviation of 20% and Nifty has a standard deviation of 11. What is the sequential process you would advise Jay regarding his Estate.2% 16. 5.000/. 1.in Nifty. 2. 3. 1. 4. A B C D Establish priorities for estate objectives.906/- Jay wants to invest in two mutual funds A and B which have given the following historical returns: Fund A 7% 12% -1% Fund B 4% 11% 21% Year 1 Year 2 Year 3 As a practicing Certified Financial Planner.0% 15. 1.0% 17. which fund will you recommend to Jay on the basis of risk? (4) A B C D Q5 Fund A Fund B They are equally risky Need more information Assume you advice Jay to invest Rs.000/. 3. 30. 5.45.74. Prepare a written plan.37. 70. 4. 3.the last deposit will be made at the beginning of the last year of Aryan’s college education. 4.00. 3. 1.5%. 2.553/Rs. 3. 4 (3) 4 . what is the standard deviation of the combined Rs. Changes in Nifty account for or explain 25% of the returns for Fund A. 2. Define problem areas including liquidity. 4 4. 1. 1.03.5% Q6 Jay wants to know how you would go about in the process of Estate Planning. Gather client information and establish objectives. taxes.000/portfolio as advised by you? (5) A B C D 15.
000/. 100/Rs. 70/Rs.000/- Assuming the projects are independent and mutually exclusive advise Jay which project he should opt for on the basis of IRR and NPV respectively at 10% rate of discount.from a friend.and this is at-the-money. He wants you to find the break even point of this covered call option.500/+4. as the whole amount in excess of Rs. 20. 4.000/. The whole amount of Rs.000/-10.000/-. 63.000. What is the total taxable amount from the above receipts for Jay? A B C D (4) Rs. 50. Q8 Generally Jay pays salary to his employees by crossed cheque.from his neighbour.100/Rs.000/+3.000/Rs. 37.000/-. 20. 13.000/-10.000/. 50.500/+2.000/. 50. as the amount received from friend in excess of Rs. 50. Gift of Rs.000/+7. 87. 5/. 2. 6.500/- Q9 Jay has entered into a covered American call option with a strike price of Rs. 20. respectively).as the aggregate value of gifts received from one person or more than one person exceeds Rs.and a premium of Rs.000 and Rs. The amount of disallowable expense is _________? (4) A B C D Rs.000/-. as the whole amount received from friend exceeded Rs.Q7 Jay received the following amounts in the FY 2006-07: 1. 85/- Q 10 Jay is considering the following investment projects: Cash Flows (Rs) Projects 1 2 3 4 C0 -10. paid to three employees A. 80/Rs.300/Rs.000/-.000/-10. 75/. (5) 5 . B and C by bearer cheque (payment being Rs. 24.000/C2 NIL +7. however.500.000/C3 NIL NIL +12. Rs.000/C1 +10.is taxable. 9. Gift of Rs. (4) A B C D Rs. 63. Salary of December 2006 is. 75/Rs.000/+10.000/-.000/+3. Rs.
You have tried to investigate. If clients are close to retirement age. 3. but have been unable to ascertain if your assumptions are correct and have not yet notified anyone within your firm of your suspicions. 2 and 4. 6 . A) B) C) D) The budget should be adjusted yearly to reflect actual expenditures. Inflation should not be considered when budgeting. budgeting is not useful. A co-owner of the firm. India. 4. Budgeting requires planning for the unexpected. Only 4. Q 12 You as a CFPCM certificant believe that there may be some illegal money laundering going on at the firm where you work. You would make timely disclosure of the available evidence to any of the following except: (3) A B C D Your direct supervisor. 2 and 4. A partner in the firm.A B C D 3 and 2 3 and 4 4 and 3 4 and 2 Q 11 Which of the following is/are correct regarding budgeting in case it is to be done for Jay? 1. 1. The FPSB. (3) Only 2. 2.
Anil's Retirement Benefits . Pooja is likely to get married 3 1/2 years hence.e. Leave encashmentRs. Suman. considering he has (5) 7 .5. is studying in First year MBBS.per month w. He shall be retiring on 31/03/2010.38. HDFC Prudence Fund (75% in Equity) Rs. Dr.000/.20.140/d) None of the above. The couple has three children.00.50. His income will increase 10% pa. His wife Dr. Assume Inflation Rate is 6. Eldest daughter. His basic being Rs.000/-.22.000/.80.000/-. Dr.000/-. 2. What is the Commuted pension that Dr.Rs.50.on Dr.000/.000/-.5. So far he has put in 32 years of service.Case Study – 2 Back ground Dr.This a/c was opened on 15/03/2000 in name of Dr.35.02.4. 2.e.000/-.3% and Long term rate of Return is 9%.000/-. cars. has her own clinic and operates her cases in a private hospital. They stay in their own house in Delhi which is worth Rs.000/-.25.f.13.50.00.Value of their personal effects i. is a practicing Gynecologist.00.000/b) Rs.000/. and Rs. is studying in Final year MBBS at Manipal.00.50. After 15 years post retirement. Hosp. Pension.tax.000/-. Suman expects to practice till her age of 60 years.00. 01/04/2010 which is inflation linked. Magnum Tax Gain Fund.000/-. i.00.2.) Dr. Money market mutual funds. one son and two daughters. married to a CA and well settled in Mumbai. and is currently aged 57 years..000/-.50. in Chennai.3. and expected expenditure in marriage is likely to be Rs.per month and DA Rs.Rs.000/.5.5.18. 2.000/.on Dr.55.000/. aged 52 years.50. Q.Rs. Suman earns Rs.Cash in hand.55.per month pre .000/-. Suman.000/c) Rs.000/.00.Gratuity. Dr.30.000/. Anil's name and Rs. Anil gets total emoluments of Rs. She is confident her post tax income will rise every year by 5%.00.500/.000/. Dr.in today’s value.yearly for Pooja’s studies for next 2 years.50.000/.00. Magnum Balanced Fund (65% in Equity) .Rs.per month. Anil. in Delhi. Praveen.000/-.Rs.57.Rs.e. Magnum Contra Fund (100% in Equity) . Provident Fund. is Rs.Rs. full pension will be restored. Their son.4. Children.45. Dr.15. The Assets of the Couple :. Anil will get at the time of retirement commuted 15 years of pension? a) Rs.000/.Rs.000/-.3.) and 150 shares of Reliance Industries (value as on 31/03/2007 is Rs.50.000/-.50. PPF a/c Rs. Anil also has 100 shares of Infosys (value as on 31/03/2007 is Rs.50. Anil's name is Rs. Second daughter. Suman's name. Bank Balance S/B a/c.1.per month post .00..Rs. Dr.tax. Suman. is working in a Govt.00. Car loan pending as on 01/04/2007 on Dr.Rs. Dr. house hold goods. is a doctor. till she finishes her internship. This pension is after 40% commutation allowed.yearly for next 5 years for Praveen's studies.00. Pooja.000/. Suman has a Plot on her name purchased in Feb 1995 for Rs. Tina. Their monthly living expenditure is Rs. They expect to spend Rs.Anil Kumar Dr Anil Kumar.15. electric gadgets etc.2.
a c) d.16.940/- 8 .35. Anil wants to finish his car loan on 31/03/2010/-.15. (3) a) Rs. Dr.900/- Q. Assume 50% of the required amount shall be taken from Dr.65172/b) Rs.40.000/-. you as CFP. Calculate the monthly EMI he should pay in order to finish his car loan as desired.02.15. Anil.97.000/-(approx) b) Rs. Suman.93. Anil will pay on his Salary for financial year 2006-2007.137/c) Rs.16000/d) Rs.30. b.18.000/-(approx) c) Rs. Rate of interest is 10% pa. b) b.000/-.93.5. a.237/b) Rs.000/-(approx) Q.98.pm in his provident fund.14.51672/c) Rs. b) Health insurance. pays fee of Rs. b. c. d) b. Anil’s Financial Goal of Pooja's marriage. What would be the corpus required by him at the time of Retirement if future earnings from pension are taken into consideration? (4) a) Rs. d. e. a) a. What is the monthly saving required for Dr. Anil wants to cater for 25 years of life post retirement and does not want to compromise his present standard of living in that period. Dr. (5) a) Rs. e) Property Insurance. e. (4) a) Rs. e. c) Disability and accident insurance.000/-(approx) d) Rs. He wants to pay EMI at the end of each month. c. c.13. a. c. d. e. buy's Mutual Fund (ELSS) HDFC Tax Saver for Rs.750/d) Rs.40.per annum for his son's education. What appropriate insurances.77.16134/- Q. Anil's retirement benefits. d) Professional liability insurance for Dr.60. (4) a) Life insurance for Dr.17. He intends to deposit Rs.He also takes a mediclaim policy for his family and pays a premium of Rs.000/.000/.38. d. Q.61. Calculate the Income tax Dr. would recommend to the family? List from topmost priority.50.Q.
230/c) Rs. What is the basic liquidity ratio of the couple? (4) a) 18.970/c) Rs. Dr.410/d) Rs.00.960/Q. Suman go for a holiday to UK and USA and spend Rs.spent from Dr.000/.00.in addition to their normal living expenses. Suman? (4) a) Rs.22. to 31/07/2010.67 d) 17.per share. 9 .10.02. What is the Net worth of Dr. d) Buy a 2010 Put Option.500/b) Rs.retirement savings/ balances except Rs. Pooja's marriage.850/d) Rs.40.65.000/. Anil and Dr.27.b) Rs.00. Suman from 01/04/2010.000/.2. At present it is Rs. out of this Rs.19. 2010 Put is Rs.63.960/b) Rs. He wants to protect his gains. (5) a) Buy a 2010 Call Option b) Buy a 1980 Call Option c) Sell a 2010 Call option.04. What will be the cash balance at the end of July 2010 ? Ignore all other pre.55.60 and 1980 Put is at Rs.23.saved for Dr.000/. Marriage of Dr.20. Suman's professional income.23. Data to be considered is – 1). Consider cash flow of Dr.500/Q.02.97.20.000/.00. Dr.21.500/d) Rs.20.10.200/Q.28 c)12.retirement savings 5). 4). (5) a) Rs.81.1.05. Anil’s Provident Fund and Gratuity received in Apr’ 2010 and other retirement funds received in May 2010. Suman.500/c) Rs. Dr.Anil and Dr.Anil and Dr.4 Q.000/-. What would you advise him as the best Option? Assume Rate of 2010 Call is Rs 50.82. 2).57 b) 4. Anil's pre .per share.1.23. Pooja in May 2010. 1. In June Dr. During June there is no Income for Dr.25.55.24. Anil's average purchase rate of Infosys share is Rs. money spent Rs.02. 1980 Call is at Rs. Assume that ten days are left for expiry of the Option. Anil's Pension. Dr.1. 3).88.4.
50.Anil’s brother is an NRI working in US.23.24. (4) a) Long Term Capital Gain Rs. d) He should wait for some time before investment as the markets may come down still further.10. 1995-96 281.000/. He has approached you to direct his investment in some good equity scheme of any of the top five Funds. Tax Rs 10.06.695/d) Long Term Capital Gain Rs.950/-.000/b) Long Term Capital Gain Rs 86.and pays a brokerage of 2%.1. Tax Rs 15.Q. Tax Rs 8. b) He should make a portfolio of different funds depending upon his financial goals and investment tenure.1994-95 259. He has been hearing about the phenomenal returns being generated by the Indian Stock markets.and Tax Rs. c) Being NRI he cannot invest in Mutual Funds . 2006-07 519. What will be the Capital Gain / Loss and tax on the capital gains? Cost Inflation Index for various years is as follows.652/- Q. What would you suggest to him? (3) a) He can choose any of the existing diversified equity schemes and invest in bulk amount.5. Dr. 10 . 2005-06 497. Dr.00. Suman sells her Plot on 31st Dec’ 2006 for Rs.262/-.695/c) Long Term Capital Gain Rs.78.1.000/.950/-.10.
Keys for Challenge Status exams Note: No negative marks for wrong answers STAGE .2 S No: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Correct C B D A C C D B A C C C A D B B A A C B A C D B Marks 5 5 5 4 5 3 4 4 4 5 3 3 5 3 4 4 4 5 5 4 4 5 4 3 Total 100 11 .
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