FPSBI/M-VI/03-01/09/WN-11

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Arron Harrell
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1 Solutions - Arka Roy 1) A) ELSS scheme Equity Growth scheme 1-Apr May Jun Jul Jul Aug Aug Sep Sep Oct Oct Nov Nov Dec Dec Jan Jan Feb Feb Mar Mar Apr Apr May May Jun Jun Jul Jul Aug Aug Sep Sep Oct Oct Nov Nov Dec Dec Jan Jan Feb Feb Mar Mar Apr Apr May May Jun Jun Jul Jul Aug Aug Sep Sep Oct Oct Nov Nov Dec Dec Jan Jan xirr 11.9% 4.7% FPSB India/Public 1

2 2) A) Deposit Interest Deposit 1-Apr *0.08/12 1-May *0.08/12 1-Jun *0.08/12 1-Jul *0.08/12 1-Aug *0.08/12 1-Sep *0.08/12 1-Oct *0.08/12 1-Nov *0.08/12 1-Dec *0.08/12 1-Jan *0.08/12 1-Feb *0.08/12 1-Mar *0.08/ Balance on 1st April 2007 This activity of fresh contribution with residual interest will continue for 15 years until matutity of the Account on 1st April, For balance in each PPF A/c as on 1st April 2009 Alternatively, nper 2 1st April * rate st April * pmt st April mode 0 1st April pv st April st April ,225 1st April st April For balance in each PPF A/c as on 31st March st April nper 15 1st April rate st April pmt st April mode 0 1st April pv st April st April ,898,300 2nd April rd April * ) A) Arka Current annual gross salary *12 Post-tax salary *0.82 Salary to be replaced *0.6 Rate of growth of salary 0.05 p.a. FPSB India/Public 2

3 Rate of discounting 0.07 p.a. Net rate of discounting p.a. (1+0.07)/(1+0.05)-1 Term 20 years Present Value of replaceable post-tax salary PV( ,20, ,0,0) Gap in life insurance Shamli Current annual gross salary *12 Post-tax salary *0.9 Salary to be replaced *0.6 Rate of growth of salary 0.05 Rate of discounting 0.07 Net rate of discounting (1+0.07)/(1+0.05)-1 Term 20 Present Value of replaceable post-tax salary PV( ,20, ,0,0) Gap in life insurance ) A) 30-Apr May Dec Apr Feb Return per annum effective This can be calculated by using XIRR function of Excel Return per month effective ( )^(1/12)-1 Value of investment on 30th April *( )^2 Induction expenses of Rs. 6,50,000 withdrawn from scheme Remaining value of investment on 30th April Value of investment on 31st May *( ) We require present value of three series of payments a) 12 monthly payments of Rs. 20,000 each at effective monthly rate of liquid scheme FPSB India/Public 3

4 PV( ,12,-20000,0,1) b) 12 monthly payments of Rs. 22,000 each at effective monthly rate of liquid scheme discounted by one year to 31st May PV( ,12,-22000,0,1)/( ) b) 12 monthly payments of Rs. 24,200 each at effective monthly rate of liquid scheme discounted by two years to 31st May PV( ,12,-24200,0,1)/( )^2 Total funds required for the 3-year period beginning 31st May Additional funds required to be invested on 31st May, ) A) Principal o/s Interest Princ comp. Principal outstanding Month 0 tenure 72 months Month rate p.m Month pmt 4200 p.m Month pv Month ,502 Month ,571 Month ,618 Month ,642 Month ,642 Month ,620 Month ,574 Month ,504 Month ,410 Month ,291 Month ,148 Month ,980 Month ,786 Month ,567 Month ,322 Month ,051 Month ,753 Month ,428 Month ,077 Month ,697 Month ,291 Month FPSB India/Public 4

5 148,856 Month ,392 Month ,900 Month ,379 Month ,828 Month ,248 Month ,638 Month ,997 Month ,325 Month ,622 Month ,888 Month ,122 Month ,323 Month ,492 Month ,627 Month ,730 Month ,798 Month ,833 Month ,832 Month ,797 Month ,726 Month ,620 Month ,477 Month ,298 Month ,081 Month ,827 Month ,535 Month ,205 Month ,835 Month ,427 Month ,978 Month ,490 Month ,960 Month ,390 Month ,778 Month Total The sale proceeds would be lower by Rs than the principal outstanding FPSB India/Public 5

6 6) A) pv Princ. o/s Month Interest Princ comp. rate nper pmt PMT( ,216, ,0,0) % / ) A) India range Payoli 15 years Abroad range Shantanu 10 years Funds required for Shantanu Beginning of 11th year (250000/3)*(1.04)^10 Beginning of 12th year (250000/3)*(1.04)^11 Beginning of 13th year (250000/3)*(1.04)^12 PV of funds in the beginning of 11th year at 9.5% pa discount rate ( /1.095)+( /1.095^2) Funds required for Payoli Beginning of 16th year ( /3)*(1.08)^15 Beginning of 17th year ( /3)*(1.08)^16 Beginning of 18th year ( /3)*(1.08)^17 PV of funds in the beginning of 11th year at 9.5% pa discount rate ( /1.095^5)+( /1.095^6)+( /1.095^7) Total PV of funds required in the beginning of 11th year This corpus is to be accumulated over 10 years (120 months) by way of monthly contributions FPSB India/Public 6

7 in a balanced fund investment vehicle yielding 9.5% pa effective p a effective = pm effective (1.095)^(1/12)-1 pmt = PMT( ,120,0, ,1) 8) A) Current monthly expenses 70,000 Expenses inflation adjusted after 20 yrs *(1.05)^20 Reduced expenses post-retirement March, *0.65 Pension fund rate of investment = Inflation rate post-retirement = Post-retirement period for annuity = per annum effective = per month effective ( )^(1/12) pa = per month effective (1+0.05)^(1/12) months PV of annuity at the time of retirement March, *( )*((( )^(240))-(( )^(240)))/(( )*( )^(240)) This is to be done in such a way that first 5 years are 10% pa, next % pa and last 5 7% pa while increasing investment amount by 50% of the previous amount at every stage Let the monthly investment in the initial 5 years be Rs. 100 First 5 years Rate p.a Rate p.m (1+0.1)^(1/12)-1 FV after 5 years 7717 FV( ,60,-100,0,1) Next 10 years (The per month contribution increases by 50% of Rs. 100, i.e. Rs. 150) This FV = 7717 after 5 years is the PV for contributions of Rs. 150 accumulated in a fund yielding 8.5% pa Next 10 years Rate p.a Rate p.m ( )^(1/12)-1 FV after 15 years FV( ,120,-150,-7717,1) Last 5 years (The per month contribution increases by 50% of Rs. 150, i.e. Rs. 225) This FV = 45,366 after 15 years is the PV for contributions of Rs. 225 accumulated in a fund yielding 7% pa FPSB India/Public 7

8 Last 5 years Rate per ann Rate per mon (1+0.07)^(1/12)-1 FV after 20 years FV( ,60,-225,-45366,1) This FV should equate with the desired corpus to be amassed i.e. Rs. 23,133,590 Using Unitary method, the monthly contribution comes to /79737*100 9) A) Current wedding cost of both the children *2 Saving on account of joint wedding function *0.75 Wedding cost (inflated) after 20 years *(1.05)^20 Option 1 Invest quarterly Rs 24,100 in a Growth Equity MF scheme for 15 years and allow it to grow in next 5 years Per annum yield 0.11 Per quarter yield (1+0.11)^(1/4)-1 15 years has 60 such quarters Value of corpus after 15 years FV(E307,60,-24100,0,1) This is allowed to grow at 11% for the next 5 years Value after 20 years *(1.11)^5 Option 2 Start PPF A/c. in both children's name and invest Rs. 35,000 cumulatively per quarter for 15 years, extend maturity for the balance term without further contribution Deposit Apr *0.08/12 May *0.08/12 Jun *0.08/12 Jul ( )*0.08/12 Aug ( )*0.08/12 Sep ( )*0.08/12 Oct ( )*0.08/12 Nov ( )*0.08/12 Dec ( )*0.08/12 Jan ( )*0.08/12 Feb ( )*0.08/12 Mar ( )*0.08/ FPSB India/Public 8

9 Balance in March 2010 This activity of fresh contribution with residual interest will continue for 14 more years until March 2024 The maturity proceeds will be available on March 31st, 2025 provided a minimum of Rs. 500 for the final year is contributed in each account. For balance in both PPF A/c as on 31st March 2024 nper 14 rate 0.08 pmt mode 0 pv March 31st FV(0.08,14, , ,0) Maturity proceeds March 31st ( *1.08)+1000*0.08 This account is extended for a term of five years without contributions but the whole money is withdrawn at the end of 4 more years, i.e. on March 31st, *(1.08)^4 Option 3 Invest Rs. 30,000 quarterly in an equity-oriented balanced fund yielding 9% p.a. for 15 years and allow the accumulated sum to grow in the same fund for 5 more years Per annum yield 0.09 Per quarter yield (1+0.09)^(1/4)-1 Accumulated sum after 15 years Amount after 20 years FV( ,60,-30000,0,1) *1.09^5 Option 4 Start PPF A/c. in both children's name and invest Rs. 15,000 in each account per quarter for 15 years, this amount is invested in Equity Growth scheme of a mutual fund yielding 11% p.a. Apr May Jun Jul Aug Sep Oct Nov Dec Jan FPSB India/Public 9

10 Feb Mar Balance in March 2010 This activity of fresh contribution with residual interest will continue for 14 more years until March 2024 The maturity proceeds will be available on March 31st, 2025 provided a minimum of Rs. 500 for the final year is contributed in each account. For balance in both PPF A/c as on 31st March 2024 nper 14 rate 0.08 pmt mode 0 pv March 31st ,710,583 Maturity proceeds March 31st ) D) Maturity proceeds in both accounts Amount to be received after 4 years, i.e. on March 31st 2029 after investing both PPF A/c maturity proceeds in Equit Growth scheme yielding 11% pa of a mutual fund ) A) 12) D) 13) A) 14) D) FPSB India/Public 10

11 Solutions - Anil Bhai 15) C) Net Profit as per projection= Salary paid to working partners: (10000*12)*7= (@10000 per month to all 7 working partners) Book Profit Maximum Remunration Allowed to working partners= On first 75000@90%= *0.9 Next 75000@60%= *0.6 on ( )*0.4 Total Max allowable remunration divided equally in all working partners= /7= annually / monthly /12 So approximate new salary of Anil (& all pertners) should be Rs. 23,000 per month 16) A) Amount CII Original Gift on Gift on Gift on Gift on Gift on Gift on Gift on Gift on Gift on Gift on Gift on Gift on Gift on Indexed Cost= Sale Price= LTCG= Invested in new residential house= LTCG Exempted= * / Taxable LTCG= Tax on LTCG= *0.2 Or FPSB India/Public 11

12 17) A) Interest from firm Income from UK exempt (Exempt being received in UK and Naveen is non resident STCG (u/s 111A) in FY ) 80C Invt Normal Income= ( ) Tax payable on normal income Nil *0.15 E Cess *0.03 Total Or ) A) Rs. 5 lakh shall be added to Apoorva s income for FY and further the interest paid by partnership firm to her loan shall be her individual income of all respective years because as of date of gift this amount to Apoorva by Anil, she was not a relative of Anil. 19) A) Purchase Price on 30/09/2006= /1000= per bond As of date of purchase time till maturity= 6.5 years So YTM at the time of purchase= PV= N= 6.5 FV= R= 7.59% RATE(6.5,0, ,10000,1) Current Yield= (7.59%-.80%)= 6.79% 7.59%-0.8% Time Till Maturity Bal= 4.00 years Current Selling Price=10000/1.0679^4= /1.0679^4 Buying Price= per bond Selling Price= per bond Holding Period= 2.5 years CAGR= 8.88% p.a. RATE(2.5,0, , ,1) 20) B) Today is: 31-Mar-2009 Inflation= 0.06 pa pm (1+0.06)^(1/12)-1 Return from balanced fund = pa pm effective (( )^(1/12))-1 FPSB India/Public 12

13 Outflows Required: 1-Jul Jan Jan Total PV required= Funds Available: PV on pa 1/4/ /4/ /( )^2 1/4/ /( )^5 Total PV available= PV= R= pm N= 69 months FV= 0 Mode= 1 Begin Pmt= -46,258 or pm PV of shortfall = ) A) Firm is liable to pay gratuity to the family of the employee as in case of death or disablement no service tenure condition is there and it's also not mendatory that cause of death should be official only 22) A) 23) C) (Rule 808) 24) B) 25) B) V=D1/(K-G) G=Retention Ratio * ROE Retention Ratio= 1-Divident Payout ratio Growth Rate= (1-Divident Payout Ratio) * ROE G=(1-0.1)*0.15 ie Value of Share= 1/( ) 40 FPSB India/Public 13

14 26) B) The portfolio weight for PQR Ltd is 300/500=60% and for STP Ltd, the weight is 200/500=40%. The expected return on the portfolio is 0.6(18%) + 0.4(12%) = 15.6%. The variance is (0.6)^2 * (0.2)^2 + (0.4)^2 * (0.15)^2 + (2(0.6) * (0.4)) * (0.6)(0.2)(0.15) = The Standard Deviation of Portfolio Return is 16.32% ( )^(1/2) 27) B) 28) A) 29) B) FPSB India/Public 14

FPSBI/M-VI/06-01/09/WN-14

FPSBI/M-VI/06-01/09/WN-14 Solutions - Rahul 1) C) Present age of Aditi = 43 years Age of Aditi when Rahul Retires = 57 years Life expectancy of Aditi = 77 years Annuity needed = 77-57 = 20 years 2) B) Current Market Value of House