FPSBI/M VI/09 01/09/WN 17

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Rudolph Flynn
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1 Solutions: Avinash Waghle 1) B) Value of flat Down payment made Outstanding to be met by loan Release of 1st installment on *0.2 Term outstanding 180 months 15*12 Release of 2nd installment on *0.2 Term outstanding 174 months Release of 3rd installment on *0.3 Term outstanding 165 months Release of Final installment on *0.3 Term outstanding 153 months Tenure of loan is 15 years from Release of 1st installment on Term outstanding 180 months Rate of interest 12.50% p.a. Principal EMI Repayment Repayment EMI from to ,860 Outstanding Interest Principal PMT(12.5%/12,180, ,0,0) 1 Oct Nov ,473 9, ,527 1 Dec ,930 9, ,543 1 Jan ,372 9, ,559 1 Feb ,797 9, ,575 1 Mar ,205 9, ,591 Release of 2nd installment on Apr 10 1,590,597 9, ,608 Principal outstanding of earlier installment May 10 1,587,328 19, ,269 Total loan outstanding Jun 10 1,584,025 19, ,303 Term outstanding (months) Jul 10 1,580,688 19, ,337 Rate of interest 12.50% 1 Aug 10 1,577,316 19, ,372 EMI from to ,838 1 Sep 10 1,573,908 19, ,407 PMT(12.5%/12,174, ,0,0) 1 Oct 10 1,570,466 19, ,443 1 Nov 10 1,566,987 19, ,479

2 1 Dec 10 1,563,472 19, ,515 Release of 3rd installment on Jan 11 2,759,921 19, ,551 Principal outstanding of earlier installment Feb 11 2,753,572 35, ,349 Total loan outstanding Mar 11 2,747,157 35, ,415 Term outstanding (months) Apr 11 2,740,675 35, ,482 Rate of interest 12.50% 1 May 11 2,734,125 35, ,549 EMI from to ,098 1 Jun 11 2,727,508 35, ,618 PMT(12.5%/12,165, ,0,0) 1 Jul 11 2,720,821 35, ,687 1 Aug 11 2,714,065 35, ,756 1 Sep 11 2,707,238 35, ,827 1 Oct 11 2,700,341 35, ,898 1 Nov 11 2,693,371 35, ,970 1 Dec 11 2,686,329 35, ,042 Release of Final installment on Jan 12 3,879,213 35, ,116 Principal outstanding of earlier installment Feb 12 3,868,804 50, ,410 Total loan outstanding Term outstanding (months) 153 Rate of interest 12.50% EMI from to ,818 PMT(12.5%/12,153, ,0,0) 2) C) Current cost of Alisha's higher education 2,500,000 Cost estimated after 10 years 4,477,119 (inflation 6%) *(1.06)^10 (1) Proceeds from Nifty divestment Current price of units Current level of NSE Nifty Expected level of NSE Nifty Expected price of Nifty units *15000/ Sale proceeds of 2000 units 2,768, *2000

3 (2) Proceeds from Equity Scheme redemption Current Value of units = SIP of Rs. 15,000 p.m. for 2 20% growth 20% p.a. = % p.m. effective ((1.2)^(1/12)) 1 Value of units at the end of SIP period of 2 years FV(1.5309%,24, 15000, ,1) This is allowed to grow for 8 more Therefore, Value at the end of 10 years = 2,033, *1.11^8 (1) + (2) Value of investments after 10 years 4,801, Therefore expected Surplus = ) A) Pension Scheme Current balance CAGR 9.50% Monthly effective rate % ((1+9.5%)^(1/12)) 1 Present age of Avinash 37 years Switch in mode SIP till 39 years Amount Rs per month Retirement age 60 years Annuity period 240 months (80 60)*12 Estimated balance in the Pension Fund scheme after 2 years 633,553 FV(0.7592%,24, 15000, ,1) Estimation of Retirement Corpus Inflation 6.00% Inflation Monthly % (1+6%)^(1/12) 1 Inflation adjusted rate of return (monthly) % ( %)/( %) 1 Amount of household expenses in the first month 143,241 (75000/2)*(1.06)^23 Corpus required to have these expenses for 20 years 25,315,962 PV(0.2711%,240, ,0,1) SIP required per month to accumulate this annuity in 21 years PMT(0.7592%,(60 39)*12, , ,1)

4 4) B) Current expenditure of Rs. 75,000 p.m. would be equivalent to inflation) after 23 years FV(6%,23,0, 75000,1) Curtailed expenditure p.m. in the first year after retirement = *0.5 Accumlated corpus Real rate of return p.a % (1+10.2%)/(1+6%) 1 Monthly effective rate % (( %)^(1/12)) 1 Rs 2 crore shall last in the Annuity Plan which gives an inflation linked annuity of Rs. 1,43,241 in the first month of retirement for 185 Months or years or 15 5 NPER(0.3243%, , ,0,1) years & months 5) B) Annual rate of growth in equity markets (equity portfolio which is Rs lakh today) 20% p.a. in the next 2 years Value at the end of 2nd year Rs lakh 6.76*1.2^2 11% p.a. in the next 8 years Value at the end of 10th year Rs lakh 9.73*1.11^8 The Equity portfolio is redeemed 20% from the beginning of 11th year and invested in MMMF yielding 6% p.a *0.2 Amount redeemed Equity portfolio 11th year begin Rs lakh Remaining Equity portfolio 11th begin Amount accumulated MMMF 11th year end Rs lakh 22.43* *1.06 (17.95*1.11)*0.2 Amount redeemed Equity portfolio 12th year begin Rs lakh Remaining Equity portfolio 12th begin Amount accumulated MMMF 12th year end Rs lakh 17.95*1.11*0.8 ( )* *1.11*0.2 Amount redeemed Equity portfolio 13th year begin Rs lakh Remaining Equity portfolio 13th begin Amount accumulated MMMF 13th year end Rs lakh 15.94*1.11*0.8 ( )* *1.11*0.2 Amount redeemed Equity portfolio 14th year begin Rs lakh Remaining Equity portfolio 14th begin Amount accumulated MMMF 14th year end Rs lakh 14.15*1.11*0.8

5 ( )* *1.11 Amount redeemed Equity portfolio 15th year begin Rs lakh Amount accumulated MMMF 15th year end Rs lakh ( )* *(1.06)^15 Inflated Marriage expenses after 15 years Shortfall in meeting marriage expenses Rs lakh ( /100000) ) C) Rutwik 's higher education expenses after 15 years 5,991,395 FV(0.06,15,0, ,0) Current Value of units in Balanced mutual fund scheme 365,000 Monthly Investment rate of return 9% p.a. Monthly rate % (1.09)^(1/12) 1 Acculated value after 15 years 5,760,878 FV(0.7207%,180, 12000, ,1) Shortfall 230, ) C) Avinash s mother will get priority over her husband and sons (Section 8 of Chapter II / Hindu Succesion Act) 8) A) 9) A) 10) B) 11) A) Policy Sum Assured/Face Value= Reversionary Bonus for first five years=60*2000*5= *2000*5 Reversionary Bonus for next ten years=55*2000*10= *2000*10 Final Additional Bonus=325* /1000= (325*2000) Total MV=

6 12) A) The car has been used from to and the completed years in this case are two. Therfore WDV shall be determined as under Orignal cost Less:Depreciation For First *0.2 WDV Less:Depreciation For Second *0.2 WDV Sale price Value of benefit to be added in Income ) A) 1st year 2nd year 3rd year Premium paid Allocation charge Net amount for investment (a) Growth end of 7% Policy charges Mortality charges Fund management charges (b) Total charges ded. Year end (a) (b) Growth in the value ) D) Less : 5% surrender charge Surrender Value of Policy *

7 Solutions: Dr. Vijay Mohan 15) A) Commuted value of Pension Rate of Computation 50% Full value of Pension Since Dr. Vijay is also receiving Gratuity 1/3 of the full value of pension is exempt /3 Taxable value of pension ) D) Dr. Vijay Mohan Covered under the payment of Gratuity Act, 1972 a. Gratuity Receiveable b. 15 days salary for every completed year of service or part thereof in excess of 6 months is taken as full year *(15/26)*28 c. Maximum Rs. 350,000 Salary No. of year of service 28 Least of the above three is exempted Taxable ) B) Household Expenditure at Proceeds from Regular Pension Net amount to be covered from Debt p.m p.m p.m Inflation 6.30% p.a % p.m. Returns on Debt funds 9.00% p.a % p.m. Inflation adjusted returns 2.54% p.a % p.m. (1+9%)/(1+6.3%) 1 ( %)/( %) 1 Inflation adjusted monthly pension is required for 20 years post 240 months Whole Corpus required 6,612,186 PV(0.2092%,240, 35000,0,1) PV of Regular monthly pension PV(0.7207%,240, 15000,0,1) Net Corpus required additionally

8 18) A) 19) A) Cost of Marriage to be accumulated for Pooja 3,000,000 Time duration of PF proceeds 3.5 years 75% of PF invested 1,500,000 Rate of return Debt Fund 9.00% p.a. Investment accumulated till marriage Remaining amount to be made from Equity Fund 2,028, , *(1+9%)^ Monthly investments in EquityFund for time 4 years 48 months Rate of return Equity Fund 15.00% p.a % p. m. effective (1+15%)^(1/12) 1 Monthly investment to be made PMT(1.1715%,48,0, ,1) 20) A) Monthly taxable (Basic+DA+HRA) Non Taxable Total yearly taxable income *12 Deduction U/s 80C Deduction U/s 80D Taxable Income Tax payable upto Rs to *0.1 above ( )*0.2 Tax payable Education Cess *0.03 Total Tax payable ) B) 22) B)

9 23) B) Investment made every month 1000 Year Year Year Year Year Equity Value of investment at the end of year FV((1+15%)^(1/12 ) 1,12, 1000,0,1) FV((1+15%)^(1/ 12) 1,12, 1000, (37950/3),1) FV((1+15%)^(1/ 12) 1,12, 1000, (79758/3),1) FV((1+15%)^(1/12) 1,12, 1000, (125817/3),1) FV((1+15%)^(1/1 2) 1,12, 1000, (176558/3),1) Debt Risk Free Value of investment at the end of year Value of investment at the end of year FV((1+9%)^(1/1 FV((1+9%)^(1/1 FV((1+9%)^(1/12) 2) 1,12, 1000, 2) 1,12, 1000, 1,12, 1000, (37950/3),1) (79758/3),1) (125817/3),1) FV((1+9%)^(1/12) 1,12, 1000,0,1) FV((1+6.5%)^(1/1 2) 1,12, 1000,0,1) FV((1+9%)^(1/12 ) 1,12, 1000, (176558/3),1) FV((1+6.5%)^(1/ FV((1+6.5%)^(1/12) FV((1+6.5%)^(1/ 12) 1,12, 1000, 1,12, 1000, 12) 1,12, 1000, (37950/3),1) (125817/3),1) (176558/3),1) FV((1+6.5%)^(1 /12) 1,12, 1000, (79758/3),1) Total amount across investments to be balance in the beginning of a fresh year Total amount accumulated in 5 years Per month investment 3000 Time period of invetment 60 months Rate of return per month effective 0.81% RATE(60, 3000,0,232458,1) Annual Effective rate of return 10.16% (1+0.81%)^12 1

10 24) B) 25) A) Leave entitlment 36 days Accumlated leave 380 days As per Section 10 (10AA) (ii) Minimum of the following four is exempt from tax a. Leave encashment actually received b. 10 Months' average Salary ( )*10 c. Cash equivalent of unavailed leave as reduced from a maximum of 30 days leave per year of completed service on the basis of 10 months average salary immediately preceeding retirement Days Total leave entitlement in the entire career *27 Unavailed leave 380 Leave Availed Maximum premissble leave as per section *27 Therefore unavailed leave encashment exempt for Average Salary for 10 months preceeding retirement Therfore leave encashment exempt d. Amount specified by govt. Rs Least of the above (a,b,c & d) Taxable leave encashment ) A) 27) B) 28) A)

FPSBI/M-VI/03-01/10/WN-23 (1+0.09/4)^4-1 ( )/( )-1

FPSBI/M-VI/03-01/10/WN-23 (1+0.09/4)^4-1 ( )/( )-1 Solutions-Irawati Senna 1) B) 2) A) Nominal interest rate Effective rate Inflation Real rate of return 9.00% p.a. 9.31% p.a. 5.50% p.a. 3.61% p.a. (1+0.09/4)^4-1 (1+0.0931)/(1+0.055)-1 3) D) Amount of