Case - Devnarayan 1) B) Term 43 80-37 Till Devyani is 80 years inflation 5.00% p.a. 0.4074% p.m. Returns 9.00% p.a. 0.7207% p.m. Inflation adjusted returns 0.3120% p.m. Requirement 35000 p.m. returns needed today PV of future monthly requirement 8996965 PV(0.312%,12*43,-35000,0,1) 2) B) Yearly effective Inflation 5.00% p.a. 0.4074% p.m. Debt 8.00% p.a. 0.6434% p.m. Equity 14.00% p.a. 1.0979% p.m. Devansh's higher education 30:70 in Debt and Equity amount needed At Age 21 At Age 22 No of years to go when required 13 14 565695 593979 Note: For exact corpus requirement we need to follow an alternative method. Assumptions for Devansh Yearly investment 100 At Age 21 Ratio At Age 22 Debt 30 8069.69 21.7939 23.5374 Equity 70 28957.61 78.2061 89.1550 37027.30 100 112.6924 To get Rs. 593979 after a year he needs to invest at present Rs. Thus the corpus needed at age 21 is Rs. To get a corpus of Rs. 1092775 he needs to invest monthly Rs. 527080 1092775 100*593979/112.6924 527080+565695 2951 100*1092775/37027.3 3) B) RFA Basic Sal 602400 50200*12 DA 301200 602400*0.5 CCA 7200 600*12 Children Edu 4800 (200*12*2) Transport All 4800 (1200-800)*12 Bonus 80000 Gross Salary 1000400 RFA 75030 1000400*0.075 FPSB India/Public 1
4) A) present age of Devnarayan 35 present age of Devyani 37 retirement age of Devnarayan 55 time to retire for Devnarayan 20 years 55-35 Monthly savings 45000 yearly increase in savings 8% Devyani's age when Devnarayan retires 57 37+20 expected total life of Devyani 80 Devyani alive after retirement of Devnarayan 23 years 80-57 present expenses per year 420000 35000*12 inflation 5% Rate of returns 10% Expenses on retirement 1114385 FV(5%,20,0,-420000,0) retirement benefits 3000000 corpus needed at retirement 16106779 PV((1+0.1)/(1+0.05)-1,23,-1114385,0,1) 5) B) value of savings at retirement 8114693 Surplus (7992086) Sum Assured 300000 Bonus 90000 Total amount due 390000 300000+90000 Premium per quarter 4000 Unpaid premium 12000 less 4000*3 Amount to be payed today 378000 390000-12000 ((45000*(((1+0.1)^(20)-(1+0.08)^(20))/(0.1-0.08)))*1.1)+3000000 8114693-16106779 6) B) Computation of Income to be clubbed with Devnarayan a) Minor Son's share in another firm (Exempt) Nil b) Interest on minor's capital with firm (Rs. 18,000*2 - Exemption u/s 10(32) Rs. 1,500*2) 33000 33000 7) C) Mutual Fund Return of 1 Standard Sharpe Ratio Rank Fund year Deviation A 15.33% 42.76 0.2182% 1 D 9.06% 15.26 0.2005% 2 C 10.25% 23.78 0.1787% 3 B 12.54% 37.15 0.1760% 4 (15.33%-6%)/42.76 (9.06%-6%)/15.26 (10.25%-6%)/23.78 (12.54%-6%)/37.15 FPSB India/Public 2
8) D) Interest 4% NPER 12 Fv 90554 pv 56560 PV(4%,12,0,-38425,0) FY Balance B/F Interest Balance C/F 2005-06 1 56560 4615 61175 56560*((1.04)^2-1) 2006-07 2 61175 4992 66167 61175*((1.04)^2-1) 2007-08 3 66167 5399 71566 66167*((1.04)^2-1) 2008-09 4 71566 5840 77406 71566*((1.04)^2-1) 2009-10 5 77406 6316 83723 77406*((1.04)^2-1) 2010-11 6 83723 6832 90554 83723*((1.04)^2-1) 9) A) Suppose Dividend Declared = 100 DDT Paid @ 15% of Divident Declared 15 Surcharge paid @10% of Divident Declared 1.5 Education Cess & SHEC @ 3% of DDT & Surcharge 0.495 (15+1.5)*0.03 Total deduction 16.995 15+1.5+0.495 Thus divident received is 83.005 100-16.995 Devnarayan has received Rs 20647 as devidend in his bank Thus the total of amount of divident distributed is Rs. 24874 100*20647/83.005 from the above calculations we know that the deducted amount of DDT and other taxes are 4227 24874-20647 10) C) Present Wedding Cost 500000 each inflation 5% p.a. Equity MF Returns 14% p.a. Equity present value 180000 to utilise 25% 45000 180000*0.25 A total of 18 installments beginning 1st Mar 2009 will continue till Devansh is 25 years and Devesh is 23 years of age. Devansh Devesh Present age 8 6 Wedding at the age of 28 28 Time left for Wedding 20 22 Cost of wedding then 1326649 1462630 Marriage fund of Devesh discounted at the investment rate of 14% when Devansh's funds are withdrawn 1125447 1462630/(1.14)^2 Hence, total funds sought to be accumulated 2452095 in a period of 20 years. 1326649+1125447 As the installments are made for 18 years, the funds so accumulated are invested for 2 additional years before the same are partially redeemed for Devansh's marriage Hence, value of such yearly accumulation 2 years prior to their need 1886808 2452095/(1.14)^2 Yearly investment needed (18096) PMT(14%,18,-45000,1886808,1) FPSB India/Public 3
11) C) Value Units 57000 4195.160 56000 4195.160 Dividend 1.5% 0.15 per unit total Dividend = Rs. 629.274 0.15*4195.16 Loss on sale of units Investment amount 57000 Present Value 56000 Loss on sale of units 1000 57000-56000 Dissallowed loss 629.27 Loss carried forward 370.73 1000-629.27 12) A) 13) B) 14) B) 15) C) Case - Anoop 16) D) The rate of return in the fund to be invested 15% Cost inflation of Education 6% Inflation discounted rate of growth of funds 8.49% ((1.15/1.06)-1)*100 Net Present Value of the stream of funds required 5 1340106 NPV 6 0 7 0 8 0 9 0 10 0 11 0 12 0 13 0 14 0 15 0 16 0 17 0 18 500000 19 700000 20 800000 21 1500000 22 1200000 Present age of Manish 5 First investment to be made at age 5, second at age 6, third at age 7,---- ---- ----, seventeenth at age 21. Total number of annual installments needed 17 Yearly investments beginning today for the above stream of funds 192704 PMT(15%,17,-1340106,0,1) FPSB India/Public 4
17) C) 18) D) As per Section 56 (2) (VI) gift agreegating exceeding 50000 in cash in a particular FY is taxable as Income of the reciepnt 19) D) as per section 40 A(3) of income tax act payment of expenditure in cash of more than rs. 20000 in cash or by bearer cheque is disallowed. 20) C) Cash Flows (Rs) Projects C0 C1 C2 C3 IRR NPV 1-10000 10000 0 0 0.00 (826.45) 2-10000 7500 7500 0 0.32 2742.30 3-10000 2000 4000 12000 0.27 3763.40 4-10000 10000 3000 3000 0.38 3476.54 21) A) 22) A) because if he first transfer house to Anoop by gift then to calculate Capital gain Cost of Acquistion is taken of previous owner, but indexation is taken from the FY in which gift is given.( As per section 49(1) of Income tax act). 23) A) 24) A) Premium Amount Allocation Charges Mortality charges Actual Investment Amount return on equity Closing Fund value 1 100000 20000 3875 76125 11419 87544 2 100000 10000 3875 86125 26050 199719 3 100000 10000 3875 86125 42877 328721 4 100000 5000 3875 91125 62977 482823 5 100000 5000 3875 91125 86092 660040 Surrender Charge 13201 Surrunder value of policy 646839 25) B) Present value of house on reinstatement basis cost of construction 5 year before 20 Lakh Escalation in Cost of Construction 10.00% Present Cost of Construction 3221020 20,00,000*(1+10%)^5 Present value of Insurance on reinstatement basis 32.20 lakh Note: The value of Insurance on reinstatement basis the depreciation of the property is not considered FPSB India/Public 5
26) D) 27) B) Account opening date 25/03/2004 Maturity date 1/4/2019 Bal as on 01/04/09 350000 Rate of interest 8% Contibution Left 10 Maximum permissable contribut 70000 Extension Block 5 years After extension maturity on= 1/4/2024 Pre extension maturity amount= PV= 350000 ROI= 8% PMT= 70000 NPER= 10 Mode= End FV= 1,769,683 FV(8%,10,-70000,-350000, 0) After extension maturity amount= PV= 1,769,683 ROI= 8% PMT= 0 NPER= 5 Mode= End FV= 2,600,245.10 FV(8%,5,0,-1769683,0) 28) D) Loan Amount 300000 Interest Rate 11.25% Monthly Interest rate 0.9375% EMI 6560 O/S Interest Paid Principal Paid 1 296252 2813 3748 2 292469 2777 3783 3 288651 2742 3818 4 284797 2706 3854 5 280907 2670 3890 6 276980 2634 3927 7 273017 2597 3964 8 269016 2560 4001 9 264978 2522 4038 10 260902 2484 4076 PMT(0.9375%, 60, -300000, 0, 0) FPSB India/Public 6
11 256788 2446 4114 12 252635 2407 4153 13 248443 2368 4192 14 244212 2329 4231 15 239941 2289 4271 16 235631 2249 4311 17 231279 2209 4351 18 226887 2168 4392 19 222454 2127 4433 20 217980 2086 4475 21 213463 2044 4517 22 208904 2001 4559 23 204302 1958 4602 24 199657 1915 4645 25 194969 1872 4688 26 190237 1828 4732 27 185460 1783 4777 28 180638 1739 4822 29 175772 1693 4867 30 170859 1648 4912 31 165901 1602 4958 32 160896 1555 5005 33 155844 1508 5052 34 150745 1461 5099 35 145598 1413 5147 36 140403 1365 5195 Principal OS after 36th installment Prepayment Penalty Charges 140403 3510 140403*2.5% Total Amount to be paid to square off his ost loan amount 143913 140103+3510 29) D) 30) A) A lady at 63 has little appetite for risk as she no longer has any earning power. Further, she needs certainty of income. But a small amount of equity is still recommended as a hedge against inflation. If not, if she lives until say 80, she will experience a drop in his standard of living. FPSB India/Public 7