Retirement Planning Practice Questions
Posted by Prashant Shah on October 22, 2011
Here are the practice questions which I have compiled from various sources. I dont own any of the questions.
Q1  The return on equity stock for a year is 23%. The rate of inflation during the year is 5%. The real total return is

Q2  Mr. Sachin, aged 30, wants to retire at 45. He wants to maintain his present living standard. He spends Rs. 500000 a year. He is expected to live up to 75. Inflation is to be assumed at 5% and expected returns are 7% p.a. what is the real rate of return?

Q3  “X” promises to pay “Y” A Sum of Rs.30000 at the end of 3 years and another Rs.50000 at the end of 5 years. What amount should be accepted now in lieu of the above two payments if interest rate is 6%?

Q4  An employee aged 35 Years invested Rs. 10000 in a saving instrument. The interest during the first 5 years is 8% p.a. and thereafter 6% p.a. What amount would he get on retirement at the age of 58 years?

Q5  A sum of Rs 50000 is invested at a rate of 5% p.a. After 7 years the rate of interest was changed to 5% p.a. convertible half yearly. After a further period of 3 years, the rate was again changed to 6% p.a. convertible quarterly. Find the accumulated amount at the end of 15 years from commencement?

Q6  Aditi is 30 years old. She deposits 25000 at the beginning of each year in deferred annuity scheme as a part of her retirement planning. How much will be in the account after 25 years if it earns 9.5% compound annual interest?

Q7  Mr. Gupta deposited a sum of Rs. 2500000 in an annuity certain plan for 25 years providing yield of 6% p.a. What would be the amount of annuity if he wishes to receive annual annuity payments in arrears, in advance (annuity due)

Q8  Mr. Khan invested Rs 500000 in a plan allowing withdrawal of Rs 50000 at the end of each year giving return of 8% p.a. How long the money will last in the said plan?

Q9  Find the present value of an immediate annuity of Rs 1000 payable quarterly (in arrears) for 9 years at the rate of interest of 9% convertible quarterly.

Q10  Mitesh aged 25 plans to retire at age 55. His life expectancy is 75. His current annual expenditure is Rs 250000. He estimates no reduction in his expenses postretirement. If interest rate is expected to be 8.5% and inflation is 5% p.a. Estimate how much will he have to save per annum in order to achieve his target, provided he does not wish to leave an estate. (assume investment are made at beginning)

Q11  An employee aged 30 is currently spending Rs 1 lakh per annum. If the rate of inflation is 5% and he wishes to maintain the same the present standard of living through out his service , what amount would he be requiring to spend during the first year of his exit from service if the retirement age is 60 years

Q12  Suman aged 30 years is working in an MNC and wishes to set aside some fixed amount at the beginning of each year towards retirement planning. He is currently spending Rs 240000 pa and wishes to raise his standard of living by 2% per year until his retirement at age 55. The average rate of inflation is expected to be 3% all these years. If he wants to maintain 90% of his standard of living that he would be enjoying on retirement assuming no provision for inflation thereafter, then what is the annual amount of income he should manage for after retirement?

Q13  In the previous case, if Suman’s life expectancy on retirement is 25 years and he wants the same annual income as envisaged in question for all the years in advance after retirement, what accumulated amount should he have on retirement for such an arrangement ? Assume his investment on retirement would provide a yield of 6% (adjusted for inflation).

Q14  Mr Ram aged 45 saves at 9% p.a. Rs. 200000 at the beginning of the year for the first 8 years and then stops saving on account of certain financial problems. On retirement at the age of 65 years, he intends to keep aside a sum of Rs 500000 out of the accumulated amount of the above savings as liquid money for emergencies and to invest the balance amount at 6% p.a. providing withdrawal of a fixed amount at the end of every year for 20 years. Find the amount of annual withdrawal?

Q15  Under an educational loan, a person receives four annual installments of Rs. 10000 each, the first payment being made at the present moment. The loan is to be repaid in lump sum at the end of 10 years from now along with 6% interest p.a. Calculate the amount repayable.

Q16  A has invested Rs.1000 in a savings instrument maturing after 15 years. On its maturity, he receives a sum of Rs 1750. What rate of interest is realized in this transaction?

Q17  Find Present Value of an annuity certain that pays 50000 at the end of the year for next 10 years, 70000 for next 10 years and 80000 for the last 10 years. Assume rate of interest to be 6% pa for 20 years and 5% pa for the last 10 years.

Q18  Mr. Rajat aged 30 years is working as an architect with an annual income of Rs 600000. He expects that after meeting his annual living expenses, he will be able to save Rs 150000 every year at the end of the year. Assume rate of interest to be 6%. What would be the amount of his accumulated savings if he retires at the age of 60 years?

Q19  If Mr. Rajat’s accumulated savings are invested at the rate of 7.5% pa on his retirement and after retirement and the impact of inflation is 5%,how long the money will last if he retires at the age of 60 and he spends Rs 650000 pa.

Q20  Mr. Rajan who is aged 42 years has got a contractual assignment in UAE for a period of 15 years. He has been on his assignment for the past 4 years and has already saved Rs 7 lakh every year. He now plans to save Rs 10 lakhs for the balance period of his assignment abroad and then come back to India and live a retired life. If his saving earn an interest of 7% pa during the accumulated stage, how much accumulated will he have when he returns to India?

Q21  What will be the effect in terms of buying power on today’s terms Rs 50,000.00 after 15 years if inflation is 8% p.a.?

Q22  If the inflation rate is 4.9% and tax rate is 30%. The required rate of return to maintain the value of an investment is:

Q23  Mr. Sam is to retire after 25 years from now. His current annual expenses are Rs. 2,40,000. If the rate of inflation is assumed to be 5% p.a. until his retirement and his standard of living is increasing by 3% p.a.

Q24  A 30 year old employee is currently earning an annual salary of Rs 300000. He has started saving 10% of his salary at the end of each year in a savings plan yielding 6% interest pa. His salary increases by 5%pa.What accumulated amount would he be having on his retirement at age 60?

Q25  Radhika is 30 years old. She deposits 25000 at the beginning of each year in deferred annuity scheme as a part of her retirement planning. How much will be in the account after 25 years if it earns 9.5% compound annual interest?

Q26  Samir, aged 25 plans to retire at age 55. His life expectancy is 75. His current annual expenditure is Rs 250000. He estimates no reduction in his expenses post retirement. If interest rate is expected to be 8.5%and inflation is 5%, estimate how much will he have to save per annum in order to achieve his target provided he does not wish to leave an estate

Q27  Mr.Bhansali estimates his opportunity cost on investments to be 12% compounded annually. Which one of the following is the best investment opportunity for Mr.Bhansali?

Q28  Karan, age 45, can refinance Rs. 114000 at a 20year rate for 8% and will incur closing cost of 4% of the mortgage amount to be financed in the new mortgage balance. What will be his new EMI on the mortgage under the circumstances to achieve his objective of no debt at retirement (age 60)

Q29  Mr. Sahai has just retired from Govt. service with a lump sum of Rs 2600000 as retirement benefits in total. Currently he is 59 and life expectancy for him is 75 years. He intends to take a world trip after 4 years, which would entail an amount of Rs 5 lakhs at current prices and wants to buy a new car of Rs 3 lakhs immediately. Calculate what amount will be available to him for post retirement living expenses in the beginning of every month, considering inflation @ 4.5 % and rate of return is 8 % p.a?

Q30  Jaishank is a young professional ageing 27 years, who has started investing in a ULIP of a Insurance company. His annual contribution is Rs 60,000 in the beginning of the year. He has opted for balanced fund looking at the bear phase of the market. He is optimistic and believes that the market will rise and like wise interested in moving to growth fund, say after 2 years and is considering to a protector fund option 5 years before retirement, which as per his company policy is 58 years. Considering rate of return for growth fund be 12 %, balanced fund be 8 % and protector fund be 6 %, what will be the accumulated value of the ULIP if initially, investible amount of the contribution is 70 %, increasing by 10 % for subsequent years?

Q31  Ms. M is 40 yrs old to retire at 65. Life expectancy is 75 yrs. She will require 15000 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 upto Rs. 30,000 pa (at the end of the year)

Q32  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 upto 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.

Q33  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.

Q34  Mitesh retires from service received Rs 10 Lakh in total tax free retirement benefit. He will receive Rs. 10,000 p.m. as pension but his proposed expenditures are 200% of what he receives. He is a senior citizen and wants to invest his lump sum amount in a scheme which provides safety of principle, regular and max. Interest. He is open to invest in MF (MIP) or like fund but only as second option. Assuming return on debt and MF (MIP) is around 8% pa. What is the maximum amount he should put in Post Office Senior citizen Saving Scheme so that his tax liability remains NIL without requiring to invest under section 80C. If he invests rest of his fund in MF (MIP) by what % he needs to reduce his proposed monthly expenditure to meet the deficit in interest earning.

Q35  Sushil has an accumulated amount of Rs 75 lakh at the time of his retirement. Also, just before retirement, his household expenses are Rs. 2.40 lakh pa and he wishes to maintain the same standard of living after retirement. If inflation is 6.5% p.a. and interest on investment is 9% pa, how long would this money last if he gives Rs. 25 lakh to his son out of the accumulated amount? .

Q36  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’)

Q37  Vinita 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 aftertax rate of return will be 9% and that general inflation has been 4% p.a.

Q38  Laxman is an NRI who has been working in the US for the past 5 years. He is aged 40. He has been saving Rs. 8 lakh per annum for the past 5 years and hopes to save the same amount for the next 10 years that he plans to live in the US. He would like to return to India 10 years from now. The inflationadjusted monthly income requirement for Laxman, as estimated by the planner, is Rs. 80,000 in the year in which he returns to India. It is estimated that inflation would remain at an average of 3% p.a for the next 30 years. His life expectancy is placed at 70 years. However if the estimated spend per month, for his family is Rs. 90,000 p.m., and the rate of inflation is 4% p.a, how long will his savings last? Assumption: His investments will earn a rate of interest of 6% pa. Compounding to be done on annuity certain basis throughout the problem.

Q39  Alok, age 25 years, plans to retire at age 60 and his life expectancy is 75 years. His current expenditure is Rs. 2,00,000 annually. He estimates no reduction of expenses post retirement. How much will he save per annum to achieve his target, if inflation rate is 6% and expected yield from investment is 10%? Assume he wishes to leave an estate of 10% of his savings at the time of retirement.

Q40  Ajay and Bela Mahera have two children ages 5 and 7. The Mehera’s want to start saving for their children’s education. Each child will spend 6 years at college and will begin at age 18. College currently costs Rs. 20000 per year and is expected to increase at 6% per year. Assuming the Maheras can earn an annual compound return of 12% and inflation is 4%, how much must the Mehera’s deposit at the end of each year to pay for their children’s educational requirements until the youngest is out of college? Assume that educational expenses are withdrawn at the beginning of each year and that the last deposit will be made at the beginning of the last year of the younger child’s college education.

Q41  Mr. Nirav, an affluent broker, wants to retire at 45. He wants to maintain his present living standard. He spends Rs. 3.25 lakh a year. He is expected to live up to 85. Inflation is to be assumed at 4% and expected returns are 7% p.a. How can he achieve this? He is at present 30 years old. What is the nest egg required at age 45 and what amount shall he save every year to meet his plan? His present investments are Rs. 10 lakh.

Q42  Nitish is a 30 yearold self employed youth and has been using the PPF account to accumulate Rs. 30,000 per year, for his future needs. The PPF account provides a compounded return of 8% p.a. He does not have a clear view yet on financial goals and needs but has been saving as a habit, for the last 5 years. Nitish is willing to look at a lifestyle after retirement that fits into a fixed Rs. 3,00,000 per annum spend, for an estimated 15 years. What is the spending opportunity for Nitish, at the time of his retirement at 60 years, given his saving and assuming a rate of 6% on his funds after retirement? (Assumption: All computations for interest spend and savings compound annually, assuming beginning of the period investment. Answers to be rounded off to the nearest 5 rupees).

Feel free to ask solutions.
Hari Om Tripathi said
Sir,
Kindly provide me the solutions.
Best Regards
Hari Om Tripathi
Kanpur\
Prashant Shah said
Dear Hari Om,
Regret for late reply.
The whole idea was to make the exercise interactive and hence I did not put the solutions.
I request you to start solving the questions, and wherever you have doubts, just ask me.
Thank you.
Vinayak said
Good selection of questions. Can you pls. provide me the solution to Q.40 ? Need to check with my answer.
Prashant Shah said
Dear Vinayak,
Regret for late reply.
Answer for the question is Rs. 14,989.
Trick is: Final pmt to be found using n=18.
Thank you.
ajit pandey said
plz provide answers of this questions…
Prashant Shah said
Dear Ajit,
The whole idea was to make the exercise interactive and hence I did not put the solutions.
I request you to start solving the questions, and wherever you have doubts, just ask me.
Thank you.
ajit pandey said
Hi prashant jii,
hows u..? May u give me question and answer of Tax planning and estate planning module….i am going 2 appear in d exam of tax planning module….so plz help me sir…my email id is ajitcfp7@gmail.com…
good n happy night sir
Roopa Soni said
Dear Sir,
Request you to provide the answer sheet for these questions.
Regards,
Roopa
Roopa Soni said
Dear Manish Sir,
Could’nt clear the retirement today…scored just 70 marks….4 marks question was easy.I guess I got stuck in theory .it was about annuity, variable annuity,GDP,present annuity,future annuity.please forward some elaborated study material on annuity.Kindly guide how should I go about it as I want to reappear asap.
Manish said
Dear roopa i suggest u to give more time before reappear for the second time bcoz it is very important to study the therotical part of the subject read the book again thoroughly according to me it is very imp to revise the book 2 or 3 times bcoz when u do that u will be able to catch the imp points and raise the queries from it,at the same time u can recall the questions which was there in ur examz along with that this process can help u to become more aware than before. download the fpa papers or study material from scribd.com and start solving it. for ur reference i m providing this link so that u can be brush up ur concept regarding various topics u can find various types of annuties just go thorugh it and revert back for any further queries copy this link into ur chrome brower and tell me is it working or not? file:///C:/New%20folder/new%20material/others/concept%20of%20tvm%20and%20many%20more.pdf
Roopa Soni said
Dear Manish Sir,
I guess you are right.
Thanks a lot for suggesting such a wonderful planning for exam.
Sir,above link is not working.kindly check.
Rgds,
Roopa
Manish said
Dear roopa check this link on ur “google chrome” browser this link will not work on any other default browser
Roopa Soni said
Sir,
Its not working in google chrome as well.Kindly suggest.
Manish said
Dear roopa check this link http://www.scribd.com/doc/36625709/CFPModule1IIFPStudents.
Roopa Soni said
Sir,
Its working…..Thanks a ton.
Sonali said
Dear Sir,
Requesting you to Kindly provide me Solution for this Questions
Thanks
Prashant Shah said
All of the questions are solved in another post.
Pls search on this site.
Prashant.
kalpesh said
i want a ans for q17?
i am not able to get it..
Kanish jain said
Ans for 38