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Archive for December, 2014

Important Questions for Retirement Planning – 2, CFP

Posted by Prashant Shah on December 13, 2014

Following are the questions suggested by one of our friend, Prakash, in the comments.

1.

Mr. A purchased a flat worth Rs.50 lakh in January 2007 by availing a housing loan of Rs.35 lakh for tenure 15 years at the rate of 8.5% p.a. The value of his flat as in January 2013 has appreciated to Rs.90 lakh. He also spent Rs.2 Lakh for registration and 1.5 lakh for interior decoration. What approximate value of home equity can he consider in his flat towards his unencumbered interest after also setting aside 15% of the appreciation value towards taxes and other costs to be discharged on selling the unit?

2

An annuity product is designed in such a way that it gives first cash flow at 6% of the corpus at the end of first year and thereafter every year in the form of growing annuity at the rate of 5%. If the cash flows are guaranteed for 15 years, what rate of return is obtained on the corpus invested? (another variant of the question is 5% cash flow and 6% growth)

YEAR CF
0 -1000.00
1 60.00
2 63.00
3 66.15
4 69.46
5 72.93
6 76.58
7 80.41
8 84.43
9 88.65
10 93.08
11 97.73
12 102.62
13 107.75
14 113.14
15 118.80
IRR

3.04%

3

An NPS account can be closed before attaining normal retirement age under all of the following circumstances, except _______.

4

A person at age 57 has accumulated Rs. 67 lakh towards retirement funds and opts for premature retirement. He purchases an immediate annuity for a total term of 20 years, a fixed monthly amount for the initial period of 10 years and a provision to double the monthly amount in the second 10-year period. If the minimum yield guaranteed in the annuity is 8% p.a., what monthly amount he is expected to receive in the subsequent 10-year period?

5

Under the NPS Tier I, the minimum contribution per year is 6000 and minimum amount per contribution is 500.

6

Mr A’s annual salary is 9 lakh. 30% of his salary goes towards mandatory saving and another 30% towards his loans and taxes. He switches job and gets 20% increase in his salary. With other things remaining same except his household expense increases by 5% towards his child education. His financial planner advises him to save 6 months house hold expense. How many months would it take to do that.

7

An incorrect estimation of lower inflation post-retirement would not result in _____.

8

A self employed person died in an accident. His wife, who is working in a bank, is nominee of his PPF account. She also has a PPF account in her name. She requested your opinion on the funds standing in her husband’s PPF account. You suggest that _____.

9

The percentage of loan eligible and the tenure of repayment period that can be availed from a PPF account is _____.

Posted in CFP, Practice Question | 48 Comments »