Questions

1) You have pointed out to Parth that presently he is not adequately covered under life insurance.
Considering that he meets an immediate unforeseen event Vijay would like to provide his family an
amount of Rs. 6 lakh p.a., inflation linked, starting from 1st Feb 2009, till Khyati is alive. What
approximate amount of life insurance should Vijay be covered for if the proceeds of such a cover
would be invested in long term debt and long term equity in the ratio 90:10.

Term 51

80-29 Till Khyati is 80 years

inflation 0.04

Debt 0.09

Equity 0.15

Requirement 600000 per year returns needed today

Note: For exact corpus requirement we need to follow an alternative method.

If Corpus needed today 1000

Debt 900 45.43 PMT(((1+0.09)/(1+0.04))-1,51,-900,0,1)

Equity 100 9.62 PMT(((1+0.15)/(1+0.04))-1,51,-100,0,1)

Yearly withdrawal till khyati is 80 years

55.05 = 45.43+9.62

10899344 600000*1000/55.05

Thus approx Sum Assured requirement is Rs. 109 lakh

2) Parth wants to invest yearly to achieve his goals for his children's higher education. For
accumulation of fund you recommend Parth to invest in Debt and Equity in the ratio 20:80. If Parth
starts investing from 1st of Feb 2009, what approximate amount should he set aside every year to
achieve his said goals. Assume Parth maintains separate investment accounts for Mayuresh and
Manjesh and invests till they turn 21 years of age respectively.
Inflation 0.04

Debt 0.09

Equity 0.15

No of years amount needed

Mayuresh 16 561,894 FV(0.04,16,0,-300000,1)

Manjesh 19 632,055 FV(0.04,19,0,-300000,1)

Note: For exact corpus requirement we need to follow an alternative method.

Yearly investment 100

Debt 20 719.47 FV(0.09,16,-20,0,1)

Equity 80 5,126.01 FV(0.15,16,-80,0,1)

5,845.48 (719.47+5126.01)

9612.46 100*561894/5845.48

Thus approx investment per year needed for Mayuresh is Rs. 10,000

Yearly investment 100

Debt 20 1,003.20 FV(0.09,19,-20,0,1)

Equity 80 8,115.49 FV(0.15,19,-80,0,1)

9,118.69 (1003.2+8115.49)

6931.42 100*632055/9118.69

Thus approx investment per year needed for Manjesh is Rs. 7,000

3) Compute the Value of Rent Free Accommodation for FY 2007-08 provided to Parth assuming the
population of Ahmadabad city is more than 25 lakh (as per 2001 Census). Also assume the
accommodation is owned by Parth's employer.

HRA

Basic Sal 362400 30200*12

DA 181200 362400*0.5

CCA 3600 300*12

Transport All 2400 (1000-800)*12

Bonus 60,000

Gross Salary 612,000

RFA 91800 612000*0.15

Ans : 91800

Parth has got an offer from his employer to buy a car for Rs. 1,50,000, which the employer had bought
for Rs. 5,00,000 three years ago. What will be the value of fringe benefit which shall be a taxable
perquisite in the hands of Parth in case he buys the car?

cost 500000

Year 1 400000 500000*0.8

Year 2 320000 400000*0.8

Year 3 256000 320000*0.8

Taxable 106000 256000-150000

Parth is a member of Employees' Pension Scheme. If Parth decides to leave his present job at 32 years of
age after 8 years of service what will happen to his existing Pension Scheme?

Ans :He can either take withdrawal benefit or scheme certificate so that his 8 year service can be added
to any future service that he may put in, in any other covered establishment

As a CFP Certificant, which of the following will not be a correct interpretation of the Rules of Conduct
pertaining to the Code of Ethics of Diligence for you while dealing with Parth?

Ans : As a CFP Certificant, you are considered to be more knowledgeable than Parth and hence may not
need to explain the recommendation and basis in a manner that Parth may comprehend.

Parth desires to retire at his age of 55. He intends to arrange for the present housing expenses (inflation
linked) after his retirement till Khyati's lifetime. For accumulation of retirement corpus Parth intends to
start annual saving from 1st Feb 2009 with Rs. 35,000 in the first year, and increasing the savings by 8%
every year till one year before his retirement. Parth also estimates to receive Rs 20 lakh from his
employer on his retirement. What surplus/shortfall would be available with Parth at the time of his
retirement in such a situation? Assume Parth’s savings earns him a return of 10% p.a. throughout and
investments during his post retirement are also able to fetch similar returns
Present age of Parth 30

Present Age of Khyati 29

Retirement Age of Parth 55

time to retire for Parth 25 years (55-30)

Monthly savings 35000

yearly increase in savings 8%

Kyati's age when Parth retires 54 (29+25)

expected total life of Khyati 80

Khyati alive after retirement of

Parth 26 years 80-54 present expenses per year 252000 21000*12

inflation 4%

Rate of returns 10%

Exp at retirement 671791 FV(4%,25,0,-252000,0)

retirement benefits 2000000

corpus needed at retirement 9451112 PV((1+10%)/(1+4%)-1,26,-671791,0,1)

value of savings at retirement 9673494 ((35000*(((1+10%)^(25)-(1+8%)^(25))/(10%-

surplus 222382 9673494-9451112