Practise Questions
Posted by Prashant Shah on October 7, 2013
Note: All the following questions have been suggested by different readers in comment section, now complied.
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
|
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 |
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
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..Find the yield of a 30 year annuity that gives 4% cashflow in the first year and an increase of 5% over the previous year for subsequent years”
6. If 1 lac is deposited every year on the last working day of the FY i.e 31st March and the first deposit is made on 31st March 2013 when is the amount withdrawable.
7. A person age is 28, started investing 5000 pm in equity. After 5 years started additional investment of 5000 pm in debt with continuation of equity investment. At the age of 40 years, he transfers 50% accumulation of equity to debt. He increases investment in debt by 10000 pm. At the age of 60 he purchased deffered annuity plan which pays on monthly basis. you found that the rate of deffered annuity in order to cover post retirement expenses to be ______, if his current expenses are 25000 pm and returns on equity is 9.5%, debt 7.5% and inflation to be 5.5%, through out the period
8.“Mr S aged 30 years is saving for the last 11 years in a Savings account giving a 3.5% p a. He is in the habit of increasing the amount by a fixed sum of Rs.2000 every year. If he deposits Rs.25000 in 12th Year what will be the corpus he will accumulate at the age of 60, if the rate of inflation is 11.68% Answers a ) 2980330 ( b ) 3251251 ( c ) 2523252 ( d )3322531 Correct answer ( a ) 2980330″
9. A&B both , both at 30 have current exp of 35000 pm and are saving Rs 5000 per month till their retirement at 60, with investment return of 8.5%. The post retirement inflation and and returns are 6.5% and 7.5%. If A decides to prepone his retirement by 5 years, how soon his corpus would exhaust compared to B.
10. Your client aged 34 now requires at his retirement age of 60 years a corpus to sustain an annuity of Rs. 55,000 p.m. (current cost) inflation linked for a post-retirement life of 25 years up to which he expects to live. You estimate that his goal would be achieved by investing corpus at a return of 8%. Your client apprises you that he would additionally like to start a Trust with a donation of Rs. 1 crore (value then) on his reaching age 70 years and would bequeath posthumously a further amount of Rs. 1 crore (value then) for his son. He asks you whether this arrangement would be feasible by taking a little more risk while investing the retirement corpus. You estimate by taking 1% additional return than envisaged and opine that ______. (Consider inflation at 5.5%)
PVS (Prashant V Shah) 
ketan parmar said
Respected Sir,
Thank you very much for posting such a valuable practice question which is very important for last exam. I request you to provide me solution for q.no.3.
Jasbir singh said
Dear Ketan,
Sorry for being late, well I think you asked 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? You can solve this sum like this
900000- 270000(30% of 900,000)- 270000(30% of 900,000)= 360,000 ( remaining household expenses)
now salary increases by 30%, 900,000 * 1.2=10,80,000
and household expenses by 5%= 360,000*1.05=378000
other expenses will remain same and we can find the actual savings after all expenses are met which will be
1080000-270000-270000-378000=162,000
We need to acquire 6 months household expenses in liquid funds which will be 378000*6/12=189000
now 189000/162000*12 = 14 months
Regards
ketan parmar said
thanks sir
manushi said
sir but salary is increasing by 20%???
Jasbir singh said
Dear all,
M answering the question number 7 as it was not answered before so that there should be no questions or doubts on that. here we go
28-33, 5000 pm in equity
pmt=5000
rate= 0.759153429
n= 5*12
fv= (?) 381081.1306
34-40 ( 34 and 40 inclusive)
equity
pmt= 5000
pv= 381081.1306
n=7*12
fv=(?) 1308314.743
debt
pmt=5000
rate= 0.60449
fv=(?) 548421.7704
41-60
equity
pv= 1308314.743*0.5
pmt=5000
n=20*12
fv=(?) 7429700.588
debt
pv=548421.7704+654157.3715
pmt= 5000+10000
fv=(?) 132,16,386.72
total accumulation 13216386.72+7429700.588=2,06,46,087.31
now expenses part
25000*(1.55^32)= 138681.56 exp of 1st month
pmt= 138681.56 ( amnt in positve)
pv= -2,06,46,087.31 (amnt in negative sign)
n= 20*12 ( generally annuity programs are for 20 years)
rate= (?) 0.434311761 (this is monthly nominal real rate)
now by converting monthly nominal real rate into yearly effective rate we get 5.3380
thus 1.053380= 1+r/1+0.055
thus required rate 11.1316%
vrindapal94 said
Please help me understand the last part . I have got the rate as 0.43 after that ??
Jyoti singh said
Dear sir
Thank u very much for post such a valuable question i request u kindly provide me solution of question no 9
Thanks & Regards
Jyoti singh
jyoti1752 said
Dear Sir
Thank u very much posting such a valuable questions for my coming exam.i request u kindly provide the solution of all questions
Thanks & Regards
Jyoti singh
Manish said
Dear jyoti,
Request you to see the comment number 57 from this link https://prashantvshah.wordpress.com/2012/05/26/retirement-planning-practice-questions-3-cfp/#comment-2765
jyoti1752 said
Dear sir,
Kindly post of investment planning module questions.it will very helpfull for my coming exam
Thanks & Regards
Jyoti singh
Manish said
Dear jyoti,
Refer this link prashantvshah.wordpress.com for all latest questions,comments of all readers,their queries and all.
jyoti1752 said
Thank u… Manish
Would you pls help to solve Q.5 and what will be the answer of Q.6
ketan parmar said
Respected Sir,
I had appeared for AFP exam on 12 th october,2013 but unfortunately I got 49% and fail.I had been asked gurprit das case. I have asked bellow question for 5 marks of trip abroad goal that he redeem 20% amount 4 years before trip another 40% 2 years before the trip and 100 % when trip strat. he redeem and invested in risk free invesment.so what amount he should set aside in equity portfolio to achieve his goal.
please provide me solution for above question.
Jasbir singh said
Dear all
Request you all to help me on these sums
1) A person who just retired have one fixed annuity from his employer of rs 15000 PM, monthly expenditure of 25000 and have 1200000 Rs in financial assets which he will use at the time of shortfall. he applies for reverse mortgage loan for 3500,000 for monthly annuity for next 20 years. 1)What will be his net worth after 5 year? and 2) what will be his networth after 25 years? will loan amount be more than financial assets after 1)5 years and 2)25 years respectively? investment rate 9.5%, inflation 6.5% loan rate 11%?
2) The PPF account was opened at 31st march 2006, 198000 was the balance at 31st march 2010? When and how much can she withdraw
a) 89000, FY 2013-14
b) 89000, FY 2012-13
c)170000, FY 2013-14
D)170000, FY 2012-13
Regards
Jasbir singh
yash pandya said
Dear Jasbir Singh,
As per my understanding the entire amount in your account could be withdrawn only on maturity. However, in times of financial crises partial withdrawals are permitted subject to certain ceiling limits. You could withdraw once a year, from the 7th year onwards (after 6 financial years ). Such withdrawals must not exceed 50 per cent of the balance at the end of the fourth year (upto 50% of the balance in 4th year), or upto 50 per cent of the balance at the end of the immediate preceding year, whichever is lower. Premature closure of a PPF account is permissible only in case of death.
so answer will be A, as it is lower than 50% of the balance in 4th year & it is also 7th year.
Regards
yash pandya
Jasbir singh said
Yash, Your explanations and reasons sounds to be correct. I think we need to confirm it from prashant sir and also other experts. Thanks yash
Even I am cofused about reverse mortgage loan.
I request prashant sir to help on both of the sums.
Regards
Jasbir singh
vinay said
Dear Jasbir
Q1 seems very tricky- i could not find any formula to calculate the value of financial assets after 25 years except to do it for each year.
I tried to solve if for the first part – 5 year.
annuity from reverse mortgage- set- end, n=240, i=0.916, fv=3500000, pmt=? > 4043
Year 1- shortfall to be withdrawn from financial assets each month- 25000-15000-4043= 5957
Financial assets at the end of 1st year – set=end, n=12, pv=-1200000, i=9.5, pmt=5957, p/y=12, fv=? >1239454
Expenses for the 2nd year= 25000*1.065= 26625
Year 2- shortfall to be withdrawn from financial assets each month- 26625-15000-4043= 7582
Financial assets at the end of 2nd year – set=end, n=12, pv=-1239454, i=9.5, pmt=7582, p/y=12, fv=? >1262321
So on i calulated upto 5th year and at the end of 5th year value of financial assets > 1200618
Now calculating Networth
Present value of fixed annuitiy of 15000 per month= 15000/0.007591= 1976024 (9.5 converted to apr – per month)
Loan amount at the end of 5th year= 5*12*4043= 242580
Net worth= 1200618+1976024-242580 = 2934062.
The problem here is only the expenses grow at 6.5% and receipts from annuity and mortgage remain fixed. so could not apply the real rate of return or formula of growing annuity. I also tried to calculate the Present value of all – the expenses, loan amount, annuity but still could not get anything.
I hope the experts here shed some light on this problem and how to solve it within 5 minutes!!
Jasbir singh said
Dear vinay,
Your view point of finding present value of every thing have given me an idea why not to get future value of every thing which will be a net worth in its own way, thanks for help. I did in this way
1) reverse mortgage loan
PMT= 4043.2604 end mode
rate= 0.916667
n=5*12
fv=? 321512.3027 amnt of total loan
2) expenses ( yrly exp =25000*12=300,000
fv=300,000[(1.095^5)-(1.065^5)/0.03] = 2041520.775
3) fixed annuity
pmt=15000 bgn
r=0.7591 n=60
fv= ? 11,43,243.392
4) financial assets 12,00,000*(1.095^5)=18,89,086.489
now we know that shortfall will be satisfied by financial assets, thus shortfall = 2041520.775-1143243.392 = 898277.3833
remaining financial assets = 18,89,086.489-8,98,277.3833 = 9,90,809.1057 and the loan amount is 321,512.3027 thus net worth 6,69,296.803 and loan amount is still less than financial assets
Thanks again
Regards
jasbir singh
vinay said
Dear jasbir
it might not be the answer because i have calculated the financial assets in a practical way and at the end of 5th year it should come – 1200618. As the money is withdrawn monthly from financial assets, we cannot calculate the fv straight away.
Jasbir singh said
yeah yours is true, we cannot do straight away and I did it again thus at the end of 60 months we are left with financial assets and loan thus net worth will be 1200618-3,21,512.3027…..
Thanks again
Jasbir singh said
The financial assets exhausted between 135-136 month and after 136 month he just got 19043 pm of fixed annuity of which 4043 pm is just for next 14 months with the expense of 49978
Jasbir singh said
104 months*
jyoti1752 said
Hi jasbeer
In Q.2 PPf withdrawl can be made on 6th year so its cleal that year woud be 2012 -13 and amount can be withdrawl 50% of amount stood in end of 4th year ..on solving its comming around 90000
bt not sure its right
you must wait for others reply….
Jasbir singh said
yeah jyoti, your view point is true, but remember withdrawal can be done in any year after 6 financial year that is 50% balance of preceding 2 years now options have both year which are after 6 financial years and the amount of withdrawal is less than 50% so he is eligible in both the years, My question still remains same which options from the given option is more accurate and is said to true and the same question was asked in exam with same options and cofusion
Jasbir singh said
sorry typo error i want to say both years are after 5 fy and amount is less than 50% and thats why he is eligible in both the years. which option is more accurate and correct.
Vidya Gholap said
Hi
50%of 198000 is 99000.Than 89000 how?
Vidya Gholap said
Hi
50%of 198000 is 99000.Than 89000 ?
manisha said
hi prashant sir
I want to give ip exam…can you pls provide me few more questions for practice….
regards
manisha
Prashant Shah said
Dear Manisha,
Regret to say that as of now I don’t have any further questions. However you can go through the questions available and feel free to ask doubts. We all are here to help you.
Regards,
Prashant V Shah.
jyoti1752 said
pls help to solve following question,
security A has SD of 23% and market has SD of 18% ,the correlation coefficeiant r between security A and market is .80,what is the % change in security A can be explained by change in market .
given ans : 64%
Manish said
Dear jyoti,
To understand the % change in the dependent variable to changes in the independent variable, coefficient of determination is calculated which can be expressed as ” R^2″.In the stated question independent variable is market and dependent variable is security a. correlation coefficient is given as 0.80.
coefficient of determination =(0.80)^2=64%.
From this we can conclude that 64% risk in the portfolio is market risk or 64% change in security a can be explained by change in market.I request you to go through the risk and return section of this site before attempting any sums.You may also refer this link http://ci.columbia.edu/ci/premba_test/c0332/s6/index.html in order to understand risk and returns in a more simplified manner.
jyoti1752 said
hi all pls help to solve following Question..
Ms Madhu is in business of buying houses, getting them repaired and selling them at profit. She is considering purchasing a house and she knows that she has to invest 2,50,000 atthe end of first month and Rs 50,000 at the end of 6 months before selling. She expects to sell property 18 months down the line for 17 lacs 60 thousand. If Madhu expects 25% return onannual and 6% brokerage is involved for both transactions ( Buying and selling) At what price should she buy this property.
Jasbir singh said
Dear jyoti,
I solved this some in this way
1=pv
1.8769% = i/y (mnrr)
n=18
fv=? 1.39754248
recievable amount after brokerage 1760000*(1-.06)=1654400
1.39754248=1654400
1 = ? (1183792.308) this amount includes brokerage of 6%, but this is the investment amount she will do in order to get 25% returns per annum
thus,
1.06=11,83,792.308
1 = (?) 11,16,785.196 this is the actual amount of house
Kindly confirm the answer as I am not sure about my solution and ans. little bit confused whether we should take 3% or 6%
Regards
Jasbir singh
Jasbir singh said
sum doesn’t ends here, i forgot to type remaining part. Now 11,83,792.308 is actual expense she will do expense of 250,000 at the end of first month and 50,000 at 12 month
2,50,000=1.0187692, 1=? 2,45,394.1482 (1 month interest)
same as 50,000=1.25, 1=? 40,000
This both amount will be removed as these are expenses, 11,83,792.308-2,45,394.148-40,000=8,98,398.1598 actual amnt of investment at present including 6% brokerage
1.06=898398.1598
1= (?) 8,47,545.4338 value of house at present
kindly confirm the answer
Manish said
Dear jyoti,
check out the comment number 6 from this link https://prashantvshah.wordpress.com/2013/01/07/sample-paper-of-tax-planning-for-cfp-by-fpsb/#comments .The correct is 804114.
jyoti1752 said
Dear manish/ jasbeer
thanks for your respons..
bt i still have doubt, actualy i got till npv that how can i get 852361 bt when i’ll reduce brokrege 6%, it will come around 852361*(1-6%) =801219 from here pls explain it
Dear one more doubt i got question in IP about ratios, do you have any idea how could i solve these kind of question, there are following one question
firm’s current assets and current liabilities are 1600 and 1000 respectively. How muchcan it borrow on a short term basis without reducing the current ration below 1.25.
Jasbir singh said
CURRENT ASSETS/CURRENT LIABILITIES=CURRENT RATIO 1600/CL=1.25, 1600/1.25=1280=CL
Now already we have is 1000 additional 280
Nina Sundaran said
Hi Prashant Sir,
Yesterday I given Investment Planning & I got ‘C’ Grade. I got 4 questions from practise questions.Thanks for the support Sir. This site is really helpful for all who pursuing CFP.
venkat53 said
Can anybody tell the answer of the First question,here I’m getting 72lakhs and odd!
If this is not correct answer,kindly explain the above question.Please.
Prashant Shah said
Dear Venkat,
Post updated with answer. Please check.
Regards,
Prashant V Shah.
jyoti1752 said
Hi all
pls anybody post the solution of Q. 5,6,10
regards
jyoti
jyoti1752 said
8.“Mr S aged 30 years is saving for the last 11 years in a Savings account giving a 3.5% p a. He is in the habit of increasing the amount by a fixed sum of Rs.2000 every year. If he deposits Rs.25000 in 12th Year what will be the corpus he will accumulate at the age of 60, if the rate of inflation is 11.68% Answers a ) 2980330 ( b ) 3251251 ( c ) 2523252 ( d )3322531 Correct answer ( a ) 2980330″
9. A&B both , both at 30 have current exp of 35000 pm and are saving Rs 5000 per month till their retirement at 60, with investment return of 8.5%. The post retirement inflation and and returns are 6.5% and 7.5%. If A decides to prepone his retirement by 5 years, how soon his corpus would exhaust compared to B.
10. Your client aged 34 now requires at his retirement age of 60 years a corpus to sustain an annuity of Rs. 55,000 p.m. (current cost) inflation linked for a post-retirement life of 25 years up to which he expects to live. You estimate that his goal would be achieved by investing corpus at a return of 8%. Your client apprises you that he would additionally like to start a Trust with a donation of Rs. 1 crore (value then) on his reaching age 70 years and would bequeath posthumously a further amount of Rs. 1 crore (value then) for his son. He asks you whether this arrangement would be feasible by taking a little more risk while investing the retirement corpus. You estimate by taking 1% additional return than envisaged and opine that ______. (Consider inflation at 5.5%)
jyoti1752 said
Hi jasbeer
you have cleared IP module, i just want to know that the above questions are of rpeb module can the same questions be asked in IP exam?
And if you know the solution of the question then please post the solution.
regards
jyoti
Jasbir singh said
No, in my exam these questions were not asked. You can do these sums just to practice questions on accumulation of income, that will be helpfull. According to me, As compared to RPEB, Investment planning is much easier as we just need to concentrate on accumulation of income and investment.
Yash said
Hello Prashant Sir !! Can you please guide me on how to prepare for the AFP module ?? I have my exam on 20th of November, and this would be my first attempt. I have done the 6 case studies given on this site. What else can i do ?? Please gudie me.
Regards
Yash
jyoti1752 said
Pls. anybody post solution of Q. 8,9,10, i am unable to solve these question
regards
jyoti
jyoti1752 said
Today i have cleared IP exam with c grade,
thanks to manish and jasbeer, and most important to prashant sir to provide such a wonderfull blog
Regards
jyoti singh
harsh gaur said
please provide some questions related to retirement planning
Prashant Shah said
Dear harsh,
Regret to say that I don’t have any further questions available for the subject. However feel free to ask queries if any.
Regards,
Prashant v Shah
zalakthakker said
Dear jyoti,
can u pl share ur experience for ip what type of qust was there in paper bcoz i am giving ip on 2ed . and any imp if u remember any qust.
Regards,
zalak thakker
abhishek1414 said
Thank You so much Sir for your valuable notes . Its of a great help.
I just wanted an answer to a derivative sum. I have my exams after 2 days. Please if you can help.
Q. The current market price of a equity share of XYZ Ltd is Rs. 70 per share. It may either be Rs.90 or Rs.50 after a year. A call option with a strike price of Rs. 66 (time one year) is available. The rate of interest applicable to investor is 10%. He wants to create a replicating portfolio in order to maintain his pay off on the call option for 100 shares.
Q1. The Hedge Ratio will be :
a, 1
b. 0.6 (ans)
c. 1.6
d. None
Q2. In order to create a replicating portfolio. He should buy- shares at the price of each:
a. 60,70(ans)
b. 70,60
c. 60,90
d. 60,50
Q3. The amount of borrowing required for creating a replicating portfolio is:
a. Rs. 2757(ans)
b. Rs. 4200
c. Rs. 5400
d. Rs. 3000
Q4. Value of Call (100 shares ) will be :
a. Rs.4200
b. Rs.2727
c. Rs.1473(ans)
d. Rs.None
Am not able to get any answers . Your help will be of great impotance .
Thank You Sir