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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 _____.

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48 Responses to “Important Questions for Retirement Planning – 2, CFP”

  1. tishti said

    Hello Sir,
    The first question is from the sample papers. What should be done with the additional line regarding registration and decoration expenses?

    • Darshan said

      It has to be added to cost To calculate the appreciated value.

      • tishti said

        I am getting the final answer as 2207117 and both the expenses are added to cost value… hope its right…

      • Darshan said

        1st Calculate the pmt of the loan i.e Mode End, i=8.5%, N=15*12, pv=35,00,000, pmt= (solve) -34,466
        then find the balance of loan at the end of Dec 2012 i.e after 72 months by using amortization. i.e 25,95,449
        then calculate appreciated value i.e 90,00,000 – 53,50,000 = 36,50,000
        calculate 15% on 36,50,000 = 5,47,500

        Home Equity = 90,00,000-5,47,500-25,95,449 = 58,57,051

  2. tishti said

    Okay… Thank you sir…

  3. rahul agarwal said

    Dear Prashant Sir,

    Firstly thanking you. This blog provides good and needful information for CFP aspirants.I am one of them. on 21st jan I cleared fifth exam with ‘B’ Grade (AFP) and now preparing for interview. Please guide me how to prepare for that.

    Thanks,
    Rahul Agarwal

  4. rahul agarwal said

    My AFP Exam questions

    Ashwin Case study
    Question – 1
    xyz company has declared 2:1 bonus and declared dividend of 125% and record date is 29april2013.(current date 1april13).he bought 100 shares after declaring bonus news at 800 and now he want to sold the orginal shares at 600. He want to know his capital gain.
    Question – 2
    Ashwin want to know about Personal accident cover of car is include which of the following.

    Question – 3
    Ashwin wants to know the capital gain and tax on his Gold ETF purchased on 17oct06. 300 at 983 per unit and and current price is 2900 per unit.

    Question – 4
    To meet the higher education exp. of Prateek and Aslia, you adviseAshwin to withdraw 1/3 of the o/s balance from equity shares portfolio at prateek’s age of 18 and continue to do each year until the entire withdrawal at Aslia’s age age 18. The amount thus withdrawn is invested in liquid fund schemes; you further advice ashwin to invest in a separate Equity and liquid MF in the ratio of 75:25 by SIP for the next 14 years and to redeem the amount and invest the same in liquid MF along with 1/3 of the equity portfolio. As exp.as and when required to be withdrawn from the liquid fund. You calculate the SIP amount to be

    Question – 5
    Ashwin will be investing in a monthly SIP immediately until 13 year in 2 instruments. In equity and half of equity in a new instrument yielding 9.25% interest. The first withdrawal will be made in beg. Of 15 year. Corpus will be investing in a balance MF. What is the SIP amount required in respective instruments for meeting the higher education corpus.
    Ans

    Question – 6
    Ashwin has child plan for prateek where there is a deferment for 12years and the vesting period end one year after Prateek attaining majority age. For 3 years post after vesting date an amount not more than 20% of SA can be withdrawn. As per you what is the analysis of this policy.
    Question – 7
    . Retirement Corpus requirement with additional requirement to donate 50 lacs then at age of 70,80 lac for the poor and Estate of Rs 50 lac.
    Question – 8
    Sumedha has finished investing in debt mf scheme 3 years ago. She invested in a sips in debt mf for 12 months @ 12000 p.m. After that the amount was left in the same scheme. What was the intrinsic return made by her?
    Question – 9
    Ashwin wants to give 200 Gm gold for children’s marriage how much gold SIP he buy PM till marriage of children.
    Sanjay case study
    Question – 1
    For his son’s higher education after 17 years, sanjay estimates a lump sum required of Rs. 20 lacs (current cost) and Rs. 30 Lacs (current cost) for his son’s business establishment 5 year later. You advise an investment strategy where by education fund are available in liquid scheme after 17 years. This involves starting a SIP in equity schemes immediately increasing such investment by 25% every three year period and thus continuing for a total 15 years. At the end of 16 years 30% of o/s equity fund corpus every year is redeemed and invested in liquid funds until entire Equity fund is redeemed after 20 years. What equity SIP is required immediately? If a stress test is applied for 1% reduction in both funds return applied.

    Question – 2
    Sanjay want to invest suitably in Ajankyas’s recurring education exp. of Rs. 1 lac PA for first years, 1.5 lac PA for next 6 years and 2 lac PA till his age 22. It should grow in equity and debt in a such a way that regular SIP to be invested in equity till last requirement and a bunch of 3 years exp. to be invested in debt in the beg of 3 years. You suggest the lump sum amount in debt fund today as
    Ans 193070 and 14506 (First Exact match and second difference Rs. 400in exam)

    Question – 3
    Compare sanjay’s today networth and after 18 months if sanjay will buy house as per goal, auragabad house given on rent for rs 1 lac PM and invest the amount in debt fund for down payment of new house and EPF, PPF and utensils is not consider for comparison purposes, ignore cash bal and car
    Question – 4
    The next question is if the lifestyle increases by 2% during preretirement stage and the post retirement excess medical exp. Rs. 2000 PM, he consume 25% of house hold exp. And after that she consume only 80% of house hold exp.explongevity increases by 8 Years. What excess corpus required.
    Question – 5
    The Aurangabad house rent is 6% of the market value of the house. Maintenance and Property tax would be 15% while Income Tax would be 20%.. The net amount is invested in equity fund on quarterly basis. The rent is revises every 3 years as per the real estate appreciation rate. After 5 such revisions, the amounts are diverted to liquid fund along with the 25% switch from the balance. Will the corpus be sufficient to meet the higher education cost?

    Question – 6
    what would be the income tax liability for AY 14-15 if auragabad house remain vacant for 13-14 sanjay paying 15000 for muncipal tax and income from fd – 7625 and income from saving ac – 6792.
    Ans
    A 1288 625
    B1328625
    C 1278625
    D1248625
    Question – 7
    Sanjay received gold ornaments from father in law at the time of marriage and he sale today compute Capital gain tax liability
    Question – 8
    Income Tax Return file question
    Question – 9
    Sanjay received an attractive offer from tour and travel agency for trip. He has to pay Rs. 50000 only 20% upfront and remaining amount on monthly basis after 1 year in 48 installment (2% processing charge and 10.5% interest rate)
    Question – 10
    Sanjay taken housing loan today and pay only interest first 2 years and than start regular EMI, interest rate 10.25% for 25 years. EMI?

    • Cfp said

      Hi,will u please share the solutions, my exam is in a week. Need help.

      • rmanohar11 said

        Can any buddy give solutions for this question…. I am going to appear next week.

        or a scanned copy of solutions.

        Humble request…..

  5. hepguy85 said

    Prashant Shah Sir, Today I have cleared AFP Exam with B grade. This site is very much helpful, Thank you for being kind. I will post the new ques soon. The new updated ques by Ritika is good ques and Only few ques is come in Exam. That ques is Confidential but she posted it. Very Very Thank you Sir……….

  6. Anu Sangwan said

    Hello sir, I had come across this question during my exam please provide solution for this question
    Q.1 . An annuity product AA at rs 8640 p.a per lakh rs of purchase value offer annuity for life with a provision of 50 % of annuity payable to spouse during his/her life time on death of the annuitant , another annuity BB at rs. 7010 per annum per lakh rs of purchase value offer annuity for life with a provision of 100% of annuity payable to spouse during his/her lifetime on death of annuitant along with return of purchase price on the death of last survivor. Today your client and his spouse have respectively 20 years and 25 years more expected life. You estimate the returns provided in AA and BB to arrive at right selection for your client as annuity.
    Ans
    A. AA better 41 basis points per annum better return than BB
    B. BB offer 15 bps p.a better return than AA
    C. BB offer 84 bps p.a better return than BB
    D. AA its excess cash flow invested at conservative 8 % p.a gives higher value than the purchase price after matching cash flow of BB
    Q. 2. You are analysing net worth statement of your client. She took a car loan of 8 lakh @ 12% p.a three years ago and a personal loan of rs 3 lakh @ 18 p.a a year ago. There are 2 more years remaining in the tenure of both the loans. She gets a wind fall of rs 6 lakh . She ask you whether to invest this in bank Fd @ 9% p.a for 2 years . You advice her to repay both loans and invest the amount of EMI’s systematically every month in tax efficient market oriented security. You estimate in a return band of 8-10% her revised net worth with lower tax incidence after 2 yrs . If she adheres to your advices her net worth may rise b/w
    A. 73000 to 91000
    B. 32000 to 46000
    C. 28000 to 41000
    D. 37000 to 52000
    Please reply as soon as possible

  7. Darshan said

    Hi
    Did anyone gave retirement planning exam recently can anyone share some questions if remember ?

    Thanks in advance

  8. Darshan said

    Hi Prashant Sir,

    Can u tell me what topics to prepare and concentrate on for clearing retirement planning?

  9. hello darshan i recently attempted retirement module . al l the questions i.e the 9 questions are imp from examination point of view . and also – question like n
    Q.1 . An annuity product AA at rs 8640 p.a per lakh rs of purchase value offer annuity for life with a provision of 50 % of annuity payable to spouse during his/her life time on death of the annuitant , another annuity BB at rs. 7010 per annum per lakh rs of purchase value offer annuity for life with a provision of 100% of annuity payable to spouse during his/her lifetime on death of annuitant along with return of purchase price on the death of last survivor. Today your client and his spouse have respectively 20 years and 25 years more expected life. You estimate the returns provided in AA and BB to arrive at right selection for your client as annuity.
    Ans
    A. AA better 41 basis points per annum better return than BB
    B. BB offer 15 bps p.a better return than AA
    C. BB offer 84 bps p.a better return than BB
    D. AA its excess cash flow invested at conservative 8 % p.a gives higher value than the purchase price after matching cash flow of BB

    • Rachna Monga Koppikar said

      Dear prashant and others who have posted questions

      Would really appreciate and help the followers of this blog if you could post the answer and methodology also.

    • Darshan said

      Thanks Vrinda for the questions I am attempting the retirement exam in 20 days time. Can u please help me with new questions if any.

      Thanks in advance

      • hello all.
        I cleared the paper of retirement but the paper was difficult exactly dnt remember questions but the strategy of cracking exam was focusing on theory to grab -1&2 markers and then 3. 4 markers were extremely difficult , so please devote good time in studying theory. be very confident about 1 St mod questions . my initial thoughts after seeing paper was to clear it so this was my strategy.

      • Many congratulations 💐

  10. vrinda pal said

    hello everyone for the questions above I have complied the answers .
    i request prashant sir and friends to please check the solutions once .

    1. 1st Calculate the pmt of the loan i.e Mode End, i=8.5%, N=15*12, pv=35,00,000, pmt= (solve) -34,466
    then find the balance of loan at the end of Dec 2012 i.e after 72 months by using amortization. i.e 25,95,449
    then calculate appreciated value i.e 90,00,000 – 53,50,000 = 36,50,000
    calculate 15% on 36,50,000 = 5,47,500

    Home Equity = 90,00,000-5,47,500-25,95,449 = 58,57,051

    2. following would be the cash flow
    -100 (suppose 100 is the amount)
    5
    5.3
    5.618
    5.95508
    6.3123848
    6.691127888
    7.0925955613
    7.518151295
    7.9692403727
    8.447394795
    8.9542384827
    9.4914927917
    10.0609823592
    10.6646413007
    11.3045197788
    11.9827909655
    12.7017584234
    13.4638639288
    14.2716957646
    15.1279975104
    16.0356773611
    take IRR =5.91%

    4.suppose for first 10 years fixed annuity is “100” so for next ten years it would be double “200”
    a)now take out present value of 100 for 10 years @ rate 8%(taking it nominal) =8,396.92
    b)same take out pv for 200 for 10 years @8%(taking nominal) =$16,793.84
    c)now for 200 rupees fixed annuity you have to take pv for 10 years also =$7,778.80
    d) adding step A+B =$16,175.72
    e ) now we need the fixed annuity amount of accumulated corpus =67 lacs so we will = 67 lacs / step D *100 (as we supposed the fixed annuity to be 100) =41420.1120816578
    f) since we need the annuity for “next ten years ” we double the amount that came in step E = 82840.2241633156(ANSWER )

    6. salary =900000
    mandate savings=270000(30%)
    taxes=270000(30%)
    household exp =360000

    increment in salary

    new salary =1080000(20%)
    savings and taxes same
    household=378000
    savings after increment =162000
    6 months salary = 378000*6/12=189000
    time = 189000/162000 =1.1667(ans )
    =1.667*12=13.99=14 months (ans)

    8.his wife should withdraw the amount as PPF account is non-transferable nor a nominee can continue it .

    9. for ppf loan = 25% of the eligible balance and 3 years is the duration she has to repay

    Please rectify me where i am going wrong .
    thank you

  11. hello everyone for the questions above I have complied the answers .
    i request prashant sir and friends to please check the solutions once .

    1. ANSWER IN 1ST COMMENT BY DARSHAN

    2. following would be the cash flow
    -100 (suppose 100 is the amount)
    5
    5.3
    5.618
    5.95508
    6.3123848
    6.691127888
    7.0925955613
    7.518151295
    7.9692403727
    8.447394795
    8.9542384827
    9.4914927917
    10.0609823592
    10.6646413007
    11.3045197788
    11.9827909655
    12.7017584234
    13.4638639288
    14.2716957646
    15.1279975104
    16.0356773611
    take IRR =5.91%

    4.suppose for first 10 years fixed annuity is “100” so for next ten years it would be double “200”
    a)now take out present value of 100 for 10 years @ rate 8%(taking it nominal) =8,396.92
    b)same take out pv for 200 for 10 years @8%(taking nominal) =$16,793.84
    c)now for 200 rupees fixed annuity you have to take pv for 10 years also =$7,778.80
    d) adding step A+B =$16,175.72
    e ) now we need the fixed annuity amount of accumulated corpus =67 lacs so we will = 67 lacs / step D *100 (as we supposed the fixed annuity to be 100) =41420.1120816578
    f) since we need the annuity for “next ten years ” we double the amount that came in step E = 82840.2241633156(ANSWER )

    6. salary =900000
    mandate savings=270000(30%)
    taxes=270000(30%)
    household exp =360000

    increment in salary

    new salary =1080000(20%)
    savings and taxes same
    household=378000
    savings after increment =162000
    6 months salary = 378000*6/12=189000
    time = 189000/162000 =1.1667(ans )
    =1.667*12=13.99=14 months (ans)

    8.his wife should withdraw the amount as PPF account is non-transferable nor a nominee can continue it .

    9. for ppf loan = 25% of the eligible balance and 3 years is the duration she has to repay

    Please rectify me where i am going wrong .
    thank you

    • hepguy85 said

      All answer is correct. Regards, Vikram Basra

      • thank you sir

        can you please provide answer for

        .1 . An annuity product AA at rs 8640 p.a per lakh rs of purchase value offer annuity for life with a provision of 50 % of annuity payable to spouse during his/her life time on death of the annuitant , another annuity BB at rs. 7010 per annum per lakh rs of purchase value offer annuity for life with a provision of 100% of annuity payable to spouse during his/her lifetime on death of annuitant along with return of purchase price on the death of last survivor. Today your client and his spouse have respectively 20 years and 25 years more expected life. You estimate the returns provided in AA and BB to arrive at right selection for your client as annuity.
        Ans
        A. AA better 41 basis points per annum better return than BB
        B. BB offer 15 bps p.a better return than AA
        C. BB offer 84 bps p.a better return than BB
        D. AA its excess cash flow invested at conservative 8 % p.a gives higher value than the purchase price after matching cash flow of BB

        my exam is tom please help

      • hepguy85 said

        Option d is the answer.

  12. sir can you tell me the calculation ?

    • Rachna Monga Koppikar said

      hi vrinda..how did ur exam go. would you recall the kind of questions that were asked. I know TVM concepts should be clear for this exam but anything else besides that we need to be thorough about.?

      Even i am looking out for the calculation methodology for that annuity questions. Please anyone here who can help with the working ?

  13. Rachna Monga Koppikar said

    Dear Prashant sir

    this blog is indeed a reference point for those planning thoroughly for retirement modules. However my request that if any of the followers or if you could also help us arrive at solutions of some of the problems which have been repeatedly posted here like the annuity product AA. it will be of big help if someone can respond in few days.

    will appreciate ur or other readers response.

    • Dear Rachna,

      Answer to the question is 15 basis point.

      Regards,
      Prashant.

    • Darshan said

      Rachna agree with u. If someone can really help with calculation methodology that will be a great help.

      Also Rachna if u know any more questions u can please share.

      • Dear Darshan,

        I too agree with you. Its too time consuming to solve each and every question, that to different users use different technology.
        I am also taking initiative to publish as many solutions as I can but in past our readers have solved many questions which are there in comments.

        Regards,
        Prashant.

  14. Darshan said

    Has anyone given the retirement exam? can anyone plz share some questions.

    Thanks

    • Dear Darshan,
      We have adequate questions on retirement planning published on this site. Read lot of theory, ethics and practice standards. Understand the methodology to solve questions, you will be through.

      Regards,
      Prashant.

  15. Vimal said

    Has anyone given exam lately,plz post questions

  16. rmanohar11 said

    Q. 2. You are analysing net worth statement of your client. She took a car loan of 8 lakh @ 12% p.a three years ago and a personal loan of rs 3 lakh @ 18 p.a a year ago. There are 2 more years remaining in the tenure of both the loans. She gets a wind fall of rs 6 lakh . She ask you whether to invest this in bank Fd @ 9% p.a for 2 years . You advice her to repay both loans and invest the amount of EMI’s systematically every month in tax efficient market oriented security. You estimate in a return band of 8-10% her revised net worth with lower tax incidence after 2 yrs . If she adheres to your advices her net worth may rise b/w
    A. 73000 to 91000
    B. 32000 to 46000
    C. 28000 to 41000
    D. 37000 to 52000
    Please reply as soon as possible

    Can you please help me this question.

    • Surya said

      I hope this is right.!!

      Answer C as first solve the EMI of both the loans and then calculate the outstanding balance of the loan then add the outstanding balances. The subject! You get subtract it with the 6 lakh and I’ll get 4700 something. Then invest this amount as lump sum along with the EMI so calculated with the 8%and 10% return. Then answer you’ll get is the value of the corpus so Invested. So to know the networth subtract it with the Future value of FD amount I.e. 712860. The difference you get is the answer.viz C.

  17. vidisha said

    Sir..what interest rate for ppf is to be used for cal. ? 8.1 or 7.9

  18. Divyang Luthra said

    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 20 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

    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 20 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% Wrong

    Because Cash Flow Mention for 20 Years The answer will be 7.24 if cash flow mention for 15 years then answer is 3.04

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