Following questions have been suggested by one of the reader. Hence I don’t own any of the question.
1. Mr. A is of 35 yrs with spouse and a kid of an age 5 yrs. His strategic asset allocation is 50:35:15 in equity, debt and liquid. He is able to invest rs 1.5lakh pa immediately to work various life goal. At age 40 the allocation would change to 40:50:10 in equity, debt and liquid asset with annual investment going up to 2.5 lakh for 5 more years. At age 45, for next 10 year he adapts the conservative wealth protection allocation 25:70:5 in eq, debt & liquid asset with 3 lakh pa investments. The per annum return expected in this stage are; from equity : 12%.11% & 10%, from debt : 9%,8% & 7%, from liquid asset : 6,5%,5.5% & 4.5%.What amount could he accumulate by his age 55 years?
a. 113.9 lakhs
b. 97.21 lakhs
c. 66.65 lakhs
d. 117.91 lakhs
SOLUTION:
150000 
FV 
FV 
FV 

E 
75000 
12 
$533,639.18 
$899,213.05 
$2,332,327.07 
D 
52500 
9 
$342,475.06 
$503,208.23 
$989,886.75 
L 
22500 
6.5 
$136,433.87 
$178,313.61 
$276,915.59 
$3,599,129.41 

250000 
FV 
FV 

E 
100000 
11 
$691,285.96 
$1,793,017.74 

D 
125000 
8 
$791,991.13 
$1,557,966.43 

L 
25000 
5.5 
$147,201.28 
$228,599.08 

$3,579,583.24 

300000 
FV 

E 
75000 
10 
$1,314,837.53 

D 
210000 
7 
$3,104,555.86 

L 
15000 
4.5 
$192,617.68 

$4,612,011.07 
$11,790,723.72 
2. Your client wants to buy a house in 3 years in an area where the current price are 60 lakhs appreciating at 8% pa. He can afford loan up to Rs 40 lakh. He has an FD of Rs 8 lakh which are maturing shortly. You find that reinvesting in FD would not fetch good return. You advice to shift the entire FD maturity to long run debt scheme, expected to return 12% pa for next 2 years. He can additionally invest rs 30000 pm for the goal which you advice to invest in equity which you expect to return 15% pa in the next 2 years. You shift the debt & equity accumulation to liquid fund returning 5% pa in the third year while additionally investing in that fund. You estimate achievement of own fund for house to be?
a. The difference between own fund required and available may swell over 16 lakh
b. Shortfall of 12.58 lakh in own fund after 3 yrs
c. Achieve the goal with surplus of 3 lakh
d. Shortfall of 6 lakh
SOLUTION: Solve this question using monthly nominal rate to get the exact answer.
CV 
6000000 
FD 
800000 
EQ 
$844,063.05 
3 Y VALUE 
7558272 
FV 
1003520 

LOAN 
4000000 
TOTAL 
$1,847,583.05 

DP REQUIRED 
3558272 

INVESTMENT VALUE WITH ADDITIONAL INVESTMENT 
$23,10,475 

SHORT 
$12.48 L 
3. Mr. A has gross annual salary of 9 lakh of which he saves 30% which include statutory EPF deduction, PPF and monthly systematic investment in long term MF scheme. Another 30% goes toward servicing of household & car loan & taxes. His financial planner advice him to accumulate 6 months household expense in liquid fund. HE change job and expect immediate rise of 20% in his gross income .You estimate that other heads would not change materially except his household expense which would rise by 5% due child education. How many months will it take to accumulate liquid reserve?
a. 25 months
b. 11 months
c. 14 months
d. 13 months
SOLUTION:
900000 
INCOME 
1080000 
270000 
EPF 
270000 
270000 
LOAN 
270000 
360000 
HOUSEHOLD 
378000 
SAVINGS 
162000 

REQUIREMENT 
189000 

SAVINGS PA 
162000 

MONTHS 
=189000/162000=1.16667*12 = 14 
4. An individual start investing immediately for 10 year annually Rs 80000 in the ratio 70:30 in equity and debt products. He expects the return from equity and debt to be 12.5% pa & 9.5% pa. during this period. To protect the wealth he rebalance the portfolio in 40:60 of equity and debt after 10 yrs and invest in same ratio annually rs 1.5 lakh for next 10 years. The return expected from equity and debt in this period subsides to 10.5% pa and 7.5% pa respectively. What could be his total investment at the end of the entire tenure of his investment?
a. 60.38 lakh
b. 60.31 lakh
c. 70.42 lakh
d. 61.58 lakh
5. A bond with par value of rs 1000 and coupon rate of 11% (payable semiannually, next coupon due immediately) and maturing after 5 years is available at Rs.942.50 in the market. If the coupon received can be reinvested till maturity at average rate of 8.5% pa. What could be realized rate of return from such investment if the bond is held till maturity?
a. 13.33%
b. 13.15%
c. 13.90%
d. 13.60%
SOLUTION:
C  FV AT NOM RATE OF 8.5%  
1  55  82.6984719 
2  55  79.39332767 
3  55  76.22027752 
4  55  73.17404214 
5  55  70.24955324 
6  55  67.44194507 
7  55  64.74654634 
8  55  62.15887248 
9  55  59.67461813 
10  55  57.28965 
11  55  55 
748.0473045  
1000  
TOTAL  1748.047304  
RY  13.150% 
PV = 942.5, FV = 1178.04, N = 5, I/Y =?
6. An investor purchased 5000 units of an equity oriented MF scheme under dividend reinvestment scheme on 1st June 2012 at NAV of rs 18.46 along with systematic investment plan of rs 5000, each for 6 months. The SIP dates are 1st of every month beginning 1st July 2012. The NAV at which additional unit were bought through SIP were rs 19.06, rs 18.51, rs 17.23, rs 18.97, rs 16.75 and rs 17.95 on 15 October 2012. The scheme declared a dividend of 25% on face value of rs 10 per unit which record date being 21st October 2012. The NAV on 22nd October 2012 was rs 16.50. The investor redeemed all units on 28 January 2013 at a price of rs 19.10 . What holding period return was obtained by investor?
a. 27.83%
b. 23.58%
c. 15.89%
d. 18.46%
Solution:
DATE  AMT  NAV  UNITS 
1Jun12  92300  18.46  5000 
1Jul12  5000  19.06  262.3294858 
1Aug12  5000  18.51  270.1242572 
1Sep12  5000  17.23  290.1915264 
1Oct12  5000  18.97  263.5740643 
22Oct12  15215.55  16.5  922.1544445 
1Nov12  5000  16.75  298.5074627 
1Dec12  5000  17.95  278.551532 
28Jan13  144882  19.1  7585.432773 
122300  Total investment  
18.46% 
Final step: (144882122300)/122300 = 18.46%
7. Mr. B bought the house by availing a housing loan of rs 25 lakh for 15 yrs at a variable rate of interest. The initial rate was 8.5% & the fixed EMI was in May 2008. The finance company raise the rate to 9.25% pa effective from EMI due on April 2009. The finance company retain the same EMI but increased the outstanding tenure. Mr. B received a bonus of rs 2.5 lakh from her employer in May 2010. What amount she should prepare to invest to bring back tenure to original contract period with effect from June 2010?
a. 75,814
b. 111,215
c. 78,681
d. 109,543
SOLUTION:PV=2500000N=180 
I/Y = 8.5/12
PMT = 24618
P1=1, P2=11
BAL = 2421238
PMT = 24618
I/Y = 9.25/12
N = ? 184.8
P1=1, P2=14
BAL = 2333570
PMT = 24618
N = 18025 = 155
I/Y = 9.25/12
PV = 2222303
HENCE PREPAYMENT REQUIRED = 23335702222303 = 111267 APPROX
8. You purchase 500 shares of a company at rs 205 per share on 1st July 2011. The dividend of rs 1100 and rs 1300 were received respectively in August 2011 and September 2012. On 1st January 2013 the share were sold for rs 1.15 lakh. Your holding period return comes to?
9. An investor allocated equal amount of rs 2 lakh each to bond, stock and gold ETF three years ago. His investment in bond has yielded coupon of rs 7500 every six months & is presently redeemable at rs 2.13 lakh. The stock portfolio is valued at rs 2.79 lakh. He has also received rs 2725 as dividend from stock in year one, rs 3125 in year two and rs 2965 lately. The gold ETF unit have a market value of rs 2.58 lakh. The coupon and dividend received remain in the bank saving account yielding an annual interest of 4.5%. If the inflation remained at 10.5%, 9.6% and 8.5% in those three year. What real rate of return he stands to generate on liquidation of entire portfolio?
a. 1.02% pa
b. 0.77% pa
c. 0.88% pa
d. 0.71% pa
10. A invested 1o lakh in beginning of year in equity, corporate bond, government sec and alternate investment in proportion 35:35:20:10. A year after making investment it generated return which were 14%,10%,6%,16% respectively. If investor followed constant mix policy his plan of action would be?
a. Keep the portfolio under changed
b. Buy equity of rs 9800 and alternate investment of rs 4800 and sell corporate bond of rs 4200 and government sec of rs 10,400.
c. Increase the exposure of alternate investment and equity
d. Sell equity of rs 9800 and alternate investment of rs 4800 and buy corporate bond of rs 4200 and government sec of rs 10,400.
11. XYZ company paid dividend 2, recently of common stock; dividend expected to grow by 20% for next 3 years, after which expect to stabilize at 10% growth. If required rate of return is 15%. How much maximum price would you pay today to buy stock?
a. 82.5
b. 43.5
c. 52
d. 50