Level 4 - (Workbook)

Car Insurance Premium : 8,637 Assets: (Valued on 31st March, 2020) (₹ lakh) Equity Mutual Fund schemes : 15.45 Debt Mutual Fund schemes : 5.79 Equity Shares in Demat Account : 23.92 Equity Linked Saving Scheme5 : 3.85 Public Provident Fund (PPF) A/c6 : 6.59 Gold & Diamond Jewellery : 10.75 Car7 : 4.50 Bank Account (Salary) : 3.82 Fixed Deposits8 : 6.00 Deposit with House Owner : 3.00 Liabilities: (Outstanding on 31st March, 2020) (₹ lakh) Car loan : 5.70 You, in consultation with Urvashi, have crystallized the following financial goals, for which the strategy is to be devised and presented to Urvashi: 1. Purchase a house in the next three years costing currently ₹ 1.25 crore; provide for own funds, transfer and stamp duty expenses to the extent of 30% of market value 2. Create a pool account and manage the same to plan for basic education of both children till their respective 18 years of age; current costs are ₹ 1.5 lakh p.a. till age 14 and ₹ 2 lakh p.a. thereafter till age 18, such expenses escalate at 10% p.a. 3. Create a corpus for higher education of both children at their respective age of 18 years; ₹ 25 lakh is the outlay in current terms for each child, such costs escalate at 8% p.a. 4. Create a combined corpus for the professional courses to be pursued by children with current outlay of ₹ 25 lakh each required at their respective age of 22 years, such costs escalating at 9% p.a., such corpus sustaining till the marriage of both the children tentatively at their respective age of 27 years; marriage costs at ₹ 20 lakh per marriage, escalating at 7% p.a. 5. Retirement Corpus for post-retirement income stream equivalent to 60% current expenses arrived at by omitting rent, EMI and school fees and considering provisions for gifting a lump sum CFP Final Level: Workbook Page 193

₹ 1 crore to her children when Urvashi attains 75 years of age; a further provision of donating ₹ 1 crore posthumously to a charitable trust on reaching age 85. 6. Create a fund in 10 years for a family world tour at an estimated ₹ 10 lakh at current costs, such costs escalating at 5% p.a. Life Parameters: : 85 years Urvashi’s expected life currently estimated Assumptions regarding pre-tax returns on various asset classes (1-3 years): 1) Equity & Equity MF Schemes/Index ETFs : 11.00% p.a. 2) Balanced MF Schemes : 9.50% p.a. 3) Bonds/Govt. Securities/Debt MF Schemes : 7.50% p.a. ___________ 5 Invested ₹ 1 lakh in each of the previous three financial years in March every year 6 Account opened on 21st December 2012 7 Purchased on 1st March 2017 by availing a loan for ₹ 10 lakh (80% loan to value, 6-year, 9.5% p.a.) 8 Six Fixed Deposits each of ₹ 1 lakh at 7.75% p.a. interest, maturing on 1st date of months from April to September 2020, all deposits created from 15th September 2018 to 20th October 2018 on weekly intervals 4) Liquid MF Schemes : 6.00% p.a. 5) Gold & linked instruments : 6.00% p.a. 6) Real Estate Appreciation : 6.50% p.a. 7) Bank/Post Office Term Deposits (> 1 year) : 7.25% p.a. 8) Public Provident Fund/EPFO : 7.75% p.a. Assumptions Regarding Economic Factors: : 5.00% p.a. 1) Inflation : 5.50% p.a. 2) Expected Return in Risk Free Instruments CFP Final Level: Workbook Page 194

Cost Inflation Index: 2001-2002 100 2004-2005 113 2007-2008 129 2010-2011 167 2013-2014 220 2016-2017 264 2002-2003 105 2005-2006 117 2008-2009 137 2011-2012 184 2014-2015 240 2017-2018 272 2003-2004 109 2006-2007 122 2009-2010 148 2012-2013 200 2015-2016 254 2018-2019 280 2019-2020 289 2020-2021 301 CFP Final Level: Workbook Page 195

Case Study - 7 (Urvashi) (Reference Date: 1st April, 2020) 1) Urvashi asks if you can show her the actual financial plan made of another client. Under which of the following Code of Ethics you are prohibited to reveal one client’s details to other. [2 marks] A) Code of Ethics of Professionalism B) Code of Ethics of Fairness C) Code of Ethics of Confidentiality D) Code of Ethics of Integrity 2) You have just defined and discussed with Urvashi the basic terms of the financial plan construction. As per Financial Planner Practice Standards, what should be your next logical step? [2 marks] A) To inform Urvashi about the terms of the engagement B) To collect the quantitative and qualitative information of Urvashi C) To define the financial goal of Urvashi D) To apprise Urvashi of your expertise in certain areas to elicit her goals accordingly 3) Urvashi wishes to avail housing loan to the extent of 70% of the value of the desired house in the next 3 years. She wants to fully repay the loan by the time she intends to retire. You consider 8.5% p.a. as the average interest rate on the housing loan to be availed. She asks you by how much EMI on the loan would exceed her current monthly outgo towards house rent. [3 marks] A) ₹ 103,653 B) ₹ 44,228 C) ₹ 56,353 D) ₹ 60,703 4) Looking at Urvashi’s various insurance policies and the coverage they provide, what is the most appropriate conclusion from the following? [2 marks] A) Urvashi needs to take cover against disability and critical illness as she is the only earner in the family; other risks are well covered. B) Urvashi has to take personal accident cover which is required as she drives her own car. C) Urvashi’s life cover falls drastically after 53 years of age, she needs additional coverage till 60 years of her age. D) Urvashi needs comprehensive householder policy considering that she is single parent, is employed and is with small children. CFP Final Level: Workbook Page 196

5) Urvashi wants to create a Trust that would receive a corpus, in case of any eventuality with Urvashi’s life, towards a ₹100 lakh house to accommodate both children and their living expenses currently estimated at annual ₹ 9 lakh till Dhruvi attains 27 years of age. The expenses are supposed to be drawn from debt instruments. Estimate additional insurance cover to achieve thus. [3 marks] A) ₹ 36 lakh B) ₹ 84 lakh C) ₹ 180 lakh D) ₹ 5 lakh 6) Urvashi’s net contribution to family in the year 2018-19 would be after an estimated tax of ₹ 7.5 lakh and 25% of such post-tax income on own consumption. This contribution is expected to increase at 5% p.a. in her service tenure. You estimate Urvashi’s income replacement considering investment yield of 8.5% p.a. What additional life cover would be needed? [4 marks] A) ₹ 1.16 crore B) ₹ 52 lakh C) ₹ 1.90 crore D) ₹ 1.45 crore 7) Urvashi’s retirement corpus is arrived at by considering current household expenses, services availed, power, telecom and fuel at her life expectancy. The investment yield at 7.5% p.a. and average inflation at 5% p.a. is considered. On a conservative note, at investment yield of 6.5% p.a. and 5 more years of expected life, what curtailment of expenses in the first year of retirement would be needed? [3 marks] A) 22% curtailment B) 12% curtailment C) 14% curtailment D) 10% curtailment 8) Urvashi’s retirement corpus as per goal needs to be accumulated by utilizing the Demat account holding along with a separate asset allocation fund. She will invest 70:30 in Equity: Debt for 10 years in this fund by beginning immediately a monthly SIP. After 10 years, the accumulated amount in asset allocation fund and the subsequent monthly investments are rebalanced 40:60 in Equity: Debt for the next 6 yea₹ After initial 16 years, the accumulations in asset allocation fund along with Demat account holdings are redeemed and transferred to a designated retirement fund yielding 6.5% p.a. The quantum of monthly investments maintained in the initial 16 years shall be doubled in the last 5 years, that is, up to retirement. This retirement fund is used for drawing expenses post-retirement. What quantum of initial monthly investment is required? [5 marks] CFP Final Level: Workbook Page 197

A) ₹ 30,500 B) ₹ 63,200 C) ₹ 29,310 D) ₹32,100 9) Urvashi has recently heard about Inflation Indexed Bonds (IIB). She is not convinced about the real annual yield of just 1.5% in a recently issued IIB. You explain the features of such Bonds as _____. [2 marks] A) The principal amount is protected on maturity, and is repaid inflation adjusted. The annual coupons would be 1.5% of such periodically adjusted principal amount in tune with inflation index. B) The principal amount would be repaid on maturity just like other bond issues. The annual coupons would be paid at annual inflation rate plus 1.5%. C) The inflation adjusted principal would be repaid on maturity. The annual coupons however would be 1.5% of the face value of the bond. D) The principal amount would be repaid on maturity just like other bond issues. The annual coupons would be 1.5% above the cumulative percentage rise in inflation index measured annually. 10) For accumulating funds for the goal of world tour, you suggest investing the maturity proceeds of each of the bank fixed deposit on the respective maturity dates in an asset allocation fund. The accumulated amount from this fund is switched to Risk free instruments three years prior to the actual usage for the purpose. What return needs to be generated from the asset allocation fund to achieve the goal? [4 marks] A) 11% p.a. B) 7.5% p.a. C) 13.25% p.a. D) 14.6% p.a. 11) Urvashi utilizes fund in her PPF account for creating a combined corpus to meet the professional course expenses of Dhruvi and later to meet her marriage expenses. She would invest ₹ 1.5 lakh in the beginning of every financial year, starting immediately, in the PPF account and extend the account for a term of 5 years with the same discipline of investment. A lump sum equivalent to 50% of the professional course charges then is withdrawn from the PPF account after which it is extended for one more term of 5 years without further contributions. What percentage of sum required for Dhruvi’s marriage would be available on the final maturity of the account? [5 marks] A) 57% B) 28% C) 45% D) 71% CFP Final Level: Workbook Page 198

12) The cash flows required for the basic and higher education expenses of her children are managed in a pool account of existing equity and debt MF schemes. They have current year provisions. You advise to switch today suitable lump sum from Equity to Debt schemes so that Debt schemes withdrawal on yearly basis is enough to meet next 3 instalments of basic education expenses of Suryansh and Dhruvi. After 4 years, you again switch from Equity to Debt schemes funds equivalent to Dhruvi’s remaining years’ basic education expenses. You utilize the remaining balance in Equity schemes to meet in one lump sum Suryansh’s higher education expenses. Consider expenses required for a year to be withdrawn at the beginning of the year. What incremental SIP in Equity MF schemes needs to be started immediately to ensure this strategy works? [5 marks] A) ₹ 12,860 per month B) ₹19.050 per month C) ₹ 16,270 per month D) ₹ 15,120 per month 13) Urvashi, in case of her life contingency, is apprehensive about managing the affairs of her children. You advise her to set up a common Minor Beneficiary Trust for Suryansh and Dhruvi. You put forth the argument in favour as: [5 marks] A) Such a Trust shall protect assets transferred and shall manage them as per guidelines issued to the trustee until either or both of her children reach/es a specified age to be defined by Urvashi B) Such a Trust shall protect and manage assets for her children only until they individually reach majority, i.e. 18 years of age C) Such a Trust shall not take further resources/assets/inheritances once the benefits have been transferred to it and the guidelines specified by Urvashi for their use D) Such a Trust shall strictly prevent early distribution of assets before both Suryansh and Dhruvi attain majority, i.e. 18 years of age 14) Urvashi has decided to sell gold jewellery worth ₹ 11 lakh in April 2020. This was acquired for ₹ 2.15 lakh in FY 2006-07. She wishes to invest the proceeds of such sale after deducting tax in 2.50%-SGB (Sovereign Gold Bonds). These SGBs quote at ₹ 2,800 per bond, at a discount of 8.5% to their issue price (issue date: 28-June-2019). How these legs of transactions will reflect in her IT Return for AY2021-22? [3 marks] A) Long term capital gains of ₹ 5,63,486 ; Income from other sources ₹ 26,852 B) Long term capital gains of ₹ 5,63,486 ; Income from other sources ₹ 30,055 C) Long term capital gains of ₹ 8,68,932 ; Income from other sources ₹ 26,820 D) Long term capital gains of ₹ 5,82,478 ; Income from other sources ₹ 28,414 CFP Final Level: Workbook Page 199

15) Urvashi contributes 10% of her Basic Salary to the National Pension System (NPS) Tier 1 account. Her employer also matches this contribution as 10% of her Basic Salary. She additionally contributes every year ₹ 50,000 in NPS Tier 2 account. Consider the interest on Savings Bank Account as ₹ 20,000 and that on Fixed Deposit as ₹ 25,000 during FY 2020-21. She intends to immediately buy Sovereign Gold Bonds (SGB) units for ₹ 10 lakh in a 2.5%-SGB series (issued in June 2018, with coupons payable half-yearly in June and December). The SGBs currently quote at ₹ 2,800 per unit, at a discount of 8.5% to its issued price. Calculate her income tax liability for AY 2021-22. [5 marks] A) ₹ 6,46,520 B) ₹ 7,15,200 C) ₹ 6,85,150 D) ₹ 7,46,510 CFP Final Level: Workbook Page 200

Solutions Q1 C) Code of Ethics of Confidentiality Q2 B) To collect the quantitative and qualitative information of Urvashi Q3 D) ₹ 60,703 (Solution given below) Current value of the desired house ₹12,500,000 Expected value of house after 3 years considering ₹15,099,370 6.5% appreciation 12500000*(1+6.5%)^3 Amount of loan to be availed ₹10,569,559 15,099,370*70% Tenure of loan = (Urvashi's retirement age - age 18 years when loan availed) 55-37 Rate of interest on housing loan 8.50% p.a. EMI on the housing loan ₹95,703 PMT(8.5%/12,18*12,-10569559,0,0) Current rental outgo 35,000 ₹ p.m. EMI in excess of current house rent 60,703₹ p.m. 95703-35000 Q4 A) Urvashi needs to take cover against disability and critical illness as she is the only earner in the family; other risks are well covered. Q5 B) ₹84 lakh (Solution given below) Annual Living expenses required in current terms 9,00,000 ₹ p.a. Inflation rate 5.00% p.a. Return on risk free instruments 7.50% p.a. Current age of Dhruvi 9 years No. of years expenses required (till 27 years of 18 years age of Dhruvi) CFP Final Level: Workbook Page 201

Corpus required today towards living expense ₹13,362,370 provisioned PV((1+7.5%)/(1+5%)-1,18,-900000,0,1) Funds required to purchase a house ₹10,000,000 Total Corpus for living expenses and house ₹23,362,370 13362370+10000000 Current insurance cover ₹15,000,000 Additional insurance cover required ₹8,362,370 23362370-15000000 (Approximate) ₹ 84 lakh Q6 D) ₹ 1.45 crore (Solution given below) Urvashi's salary gross per annum ₹3,300,000 Tax incidence ₹750,000 Net income in the current year ₹2,550,000 3300000-750000 Income contribution to the family ₹1,912,500 (25% self-consumption) 2550000*(1-25%) Remaining work life (retiring at 55, current age 34) 21 years Investment Yield 8.50% p.a. Expected rate of increase in salary 5.00% p.a. Present value of future income 29,508,239 PV PV((1+8.5%)/(1+5%)-1,21,-1912500,0,1) Sum Assured under current term insurance ₹15,000,000 Shortfall in insurance cover ₹14,508,239 29508239-15000000 (Approximate) ₹ 1.45 crore Q7 A) 22% curtailment (Solution given below) Urvashi's current Age 34 yrs Urvashi's retirement Age 55 yrs Urvashi's Life expectancy 85 yrs CFP Final Level: Workbook Page 202

Current expenses for heads considered for retirement 840,000 ₹ p.a. Inflation expected pre-retirement 5.00% p.a. Expenses estimated at retirement 2,340,209 ₹ p.a. 840000*(1+5%)^(55-34) Retirement corpus calculated in the 1st calculation: Rate of return expected 7.50% p.a. Inflation expected post-retirement 5.00% p.a. Period for which money would be needed in 30 yrs first calculation 85-55 Retirement corpus ₹50,952,803 PV((1+7.5%)/(1+5%)-1,30,-2340209,0,1) Retirement corpus calculated in the 2nd calculation: Rate of return expected 6.50% p.a. Inflation expected post-retirement 5.00% p.a. Period for which money would be needed in 35 yrs 2nd calculation 85-55+5 Retirement corpus ₹65,019,662 PV((1+6.5%)/(1+5%)-1,35,-2340209,0,1) Curtailment of expenses required on retirement 22% ((1-(50952803/65019662)) 22% Q8 C) ₹ 29,310 (Solution given below) Current expenses for heads considered for retirement 840,000 ₹ p.a. Inflation expected throughout 5.00% p.a. Urvashi's working years (retirement at 55, 21 yrs current age 34) Living expenses needed on retirement 1,404,125 ₹ p.a. (60% of pre-retirement) 840000*60%*(1+5%)^21 No. of years retirement income stream required 30 yrs (up to age 85) Yield of designated retirement fund post retirement 6.50% p.a. CFP Final Level: Workbook Page 203

Retirement Corpus estimation: Required Corpus for living expenses at age 55 years 34,551,813 ₹ PV:1 PV((1+6.5%)/(1+5%)-1,30,-1404125,0,1) ₹ 1 crore (gifts) provisioned in the corpus needed 2,837,970 ₹ PV:2 20 years later 10000000/(1+6.5%)^20 ₹ 1 crore (charity) provisioned in the corpus needed 1,511,861 ₹ PV:3 30 years later 10000000/(1+6.5%)^30 Total Corpus needed to be accumulated 38,901,644 ₹ (PV:1+2+3) 3 Suppose, a total monthly amount of ₹ 100 is invested in the asset allocation of equity and debt components cumulatively Accumulation to meet the Retirement Corpus: Demat account Equity Shares: Current balance 2,392,000 Accumulation in 16 years, 5 years to retirement ₹12,703,659 (considering 11% p.a. in first 5 yrs) 2392000*(1+11%)^16 Accumulation of this up to retirement (next 5 years) ₹17,405,114 in 6.5% yield fund 12703659*(1+6.5%)^5 Balance to be accumulated through Asset Allocation Fund up to 50 years ₹21,496,530 38901644-17405114 First Five years: Asset Allocation Equity Returns 11.00% p.a. Debt returns 7.50% p.a. Equity investment per month 70 ₹ p.m. Debt investment per month 30 ₹ p.m. Equity component accumulation in 10 years ₹14,870 FV((1+11%)^(1/12)-1,10*12,-70,0,1) Debt component accumulation in 5 years ₹5,298 FV((1+7.5%)^(1/12)-1,10*12,-30,0,1) Total accumulation in asset allocation after 5 years ₹20,168 14870+5298 Next six years: Rebalanced Asset Allocation CFP Final Level: Workbook Page 204

Rebalanced Equity component accumulated (40%) ₹8,067 20168*40/100 Rebalanced Debt component accumulated (60%) ₹12,101 20168*60/100 Revised Equity investment per month 40 ₹ p.m. Revised Debt investment per month 60 ₹ p.m. Equity component accumulation in total 16 years ₹19,110 FV((1+11%)^(1/12)-1,6*12,-40,- 8067,1) Debt component accumulation in total 16 years ₹24,100 FV((1+7.5%)^(1/12)-1,6*12,-60,-12101,1) Total accumulation in asset allocation (in 16 yrs) ₹43,210 19110+24100 Last Five years: 6.5% p.a. Yield Retirement Fund Monthly investment (doubled) 200 ₹ p.m. Investment accumulated up to retirement ₹73,342 FV((1+6.5%)^(1/12)-1,5*12,-200,- 43210,1) Actual monthly investment equivalent to ₹ 100 ₹29,310 (21496530/73342)*100 Q9 A) The principal amount is protected on maturity, and is repaid inflation adjusted. The annual coupons would be 1.5% of such periodically adjusted principal amount in tune with inflation index. Q10 A) 11% p.a. (Solution given below) Current cost of world tour vacation ₹1,000,000 Cost escalation for such vacation 5.00% p.a. Vacation fund required when due in 10 years ₹1,628,895 1000000*(1+5%)^10 Expected date when vacation fund is to be utilized 1-Apr-2027 Date of switch from the asset allocation fund to risk free 1-Apr-2025 instruments Rate of return from risk free instruments 5.50% p.a. CFP Final Level: Workbook Page 205

Required value in asset allocation fund before ₹1,387,189 switch to risk free (3 years prior) 1628895/(1+5.50%)^3 This is to be accumulated until 1-Apr-2027 by investing ₹ 1.05 lakh in 6 installments on 1-Apr-2019, 1-May-2019, --- --- --- , 1-Sep-2019. The return to be obtained in asset allocation fund is calculated by finding xirr 1-Apr-20 -105,000 1-May-20 -105,000 1-Jun-20 -105,000 1-Jul-20 -105,000 1-Aug-20 -105,000 1-Sep-20 -105,000 1-Apr-27 1,387,189 11% XIRR(C125:C131,B125:B131) Q11 B) 28% (Solution given below) PPF account is opened on 21-Dec-2010 Initial maturity of PPF account due on 31-Mar-2026 15 years from close of FY in which a/c opened PPF account balance as on 31-Mar-2020 ₹659,000 Amount to be invested on 1st April every year ₹150,000 (beginning 1-Apr-2020) Rate of interest (expected in the long term) on PPF 7.75% p.a. account Accumulated amount on initial maturity (31-Mar-2028) ₹2,901,052 FV(7.75%,8,-150000,-659000,1) Current age of Dhruvi (on 1-Apr-2020) 9 years Funds for professional course required (on 1-Apr-2033) 22 years 1st extended 5-year term (from 1-Apr-2028 to 31-Mar-2033) Maturity on 31-Mar-2033 after the 1st extended term ₹5,156,963 with similar investments FV(7.75%,5,-150000,-2901052,1) CFP Final Level: Workbook Page 206

Current cost of professional course ₹2,500,000 Cost escalation for professional course expenses 9% p.a. Estimated outlay for professional course when due ₹7,664,512 (in 13 years) 2500000*(1+9%)^13 A sum equivalent to 50% of required amount ₹3,832,256 withdrawn from PPF account 7664512/2 Remaining amount in PPF A/c. ₹1,324,707 5156963-3832256 PPF account extended for 5 more years without ₹1,924,005 further contribution, grows to 13424707*(1+7.75%)^5 Marriage age of Dhruvi (tentatively on 1-Apr-2037) 27 years Current cost of marriage ₹2,000,000 Cost escalation for marriage expenses 7% p.a. Estimated outlay for marriage when due (in 18 years) ₹6,759,865 2000000*(1+7%)^18 Funds available as a percentage of marriage cost then 28% (1924005/6759865)*100% Q12 A) ₹16,270 per month incremental SIP in Equity MF schemes (Solution given below) Escalation of ₹ 1.5 lakh and ₹ 2 lakh expenses 10% p.a. Return from Debt schemes 7.5% p.a. Return from Equity schemes 11% p.a. Suryansh's current age is 14 years. After the current year expenses, the required expenses in the 3-year block would be ₹ 2 lakh p.a. for 3 years (age 15,16,17). Dhruvi's current age is 9 years. After the current year expenses, the required expenses in the 3- year block would be ₹ 1.5 lakh p.a. for 3 years (age 10,11,12). PV of 3 year block expenses when they are due after ₹1,099,599 the current year in debt PV((1+7.5%)/(1+10%)-1,3,- 350000*(1+10%),0,1)/(1+7.5%) Debt MF schemes value today ₹579,000 Required money to be switched from equity ₹520,599 schemes today 1099599-579000 CFP Final Level: Workbook Page 207

Equity MF schemes value today (before switch) ₹1,545,000 Equity MF schemes value today (after switch) ₹1,024,401 1545000-520599 SIP amount in Equity schemes 25,000 ₹ p.m. Accumulated value in equity schemes after 4 years ₹3,050,877 FV((1+11%)^(1/12)-1,4*12,-25000,- 1024401,1) SIP amount in Debt schemes ₹15,000 p.m. Accumulated value of SIP in debt schemes after 4 years ₹837,473 FV((1+7.5%)^(1/12)-1,4*12,-15000,0,1) Funds required to be available after 4 years in Debt schemes for Dhruvi's remaining five years basic education expenses (age 13,14,15,16,17) Education expenses at age 13 of Dhruvi (after 4 years) ₹219,615 150000*(1+10%)^4 PV of expenses for Dhruvi's basic education at her age ₹1,240,980 14,15,16,17 @ ₹ 2 lakh p.a. in debt schemes PV((1+7.5%)/(1+10%)-1,4,- after 4 years 200000*(1+10%)^5,0,1)/(1+7.5%) The value of funds as assessed after 4 years for ₹1,460,595 Dhruvi's education 219615+1240980 Shortfall in Debt schemes after 4 years ₹623,122 1460595-837473 Funds remaining in equity schemes after effecting switch ₹ 2,427,755 to Debt after 4 years 3050877-623122 Funds required for Suryansh’s higher education expenses ₹3,401,222 after 4 years 2500000*(1+8%)^4 Shortfall in total funds available, which is needed to be ₹ 973,468 accumulated through incremental SIP in equity 3401222-2427755 Therefore, incremental SIP in equity schemes ₹ 16,270 ((1+11%)^(1/12)‐1,48,0,973468, 1) Q13 A) Such a Trust shall protect assets transferred and shall manage them as per guidelines issued to the trustee until either or both of her children reach/es a specified age to be defined by Urvashi Q14 C) ₹Long term capital gains of ₹ 5,68,932 ; Income from other sources ₹ 26,820 CFP Final Level: Workbook Page 208

(Solution given below) Purchase cost of jewellery in 2006‐07₹ 215,000 Sale proceeds in April 2020₹ 1,100,000 CII for 2006‐07122 CII for 2020‐21301 Indexed cost of acquisition 530450 [215000*(301/122)] Long‐term capital gains 569550 (1100000‐530450) LTCG Tax @20.8% 118466 (569550*20.8%) Net of tax proceeds from sale of jewellery981534 (1100000‐118466) Current quoted price of SGB 2,800 Coupon to be received on bonds (on half‐yearly basis in Jun'19 and Dec'19) 2.50% Discount to issue price 8.50% Face value of SGB 3,060 [2800/(1‐8.5%)] Number of SGBs to be bought 350.59 981662/2800 Interest to be received on bonds during 2020‐21 26,820 (350.59*3060*2.5%) Taxation of these transactions in AY2021‐22 Long term capital gains of ₹ 5,68,932 ; Income from other sources ₹ 26,820 Q15 B) 7,15,200 (Solution given below) Income under the head salaries: Basic 2,500,000 HRA 500,000 Less: exempt (See Note 1) (170,000) Other allowances 300,000 Employer's Contribution towards NPS (10% of Basic Salary) 250,000 Employer's Contribution towards NPS [Up to 10% of Basic Salary exempt (2500000*10%) from tax under Sec 80CCD(2)] CFP Final Level: Workbook Page 209

Total Income under the head salaries 3,130,000 (2500000+500000-170000+300000+250000-250000) Net Total Income under the head salaries after standard deduction i.e. 50000 3080000 3130000-50000) Income from other sources (savings account up to ₹ 10000 exempt u/s. 80TTA) 0,000(20000-10000) fixed deposits 25,000 Income from Sovereign Gold Bonds (See Note‐2) 27,311 357*3060*2.5% Gross total income (GTI) 3,142,311 (3080000+10000+25000+27311) Less: Deductions u/s 80CCD(1) contribution NPS Tier-1 by urvashi, maximum exemption 1,500,00 u/s 80CCD(1B) contribution by Urvashi towards NPS upto ₹ 50000 u/s. 80D (restricted to maximum limit of ₹ 25,000) 25,000 Total deductions 225,000 Net Income 2,917,311 (3142311-225000) Tax on net income: up to ₹ 2,50,000 - ₹ 2,50,001 to ₹ 5,00,000 @ 5% 12,500 (500000-250000)*5% ₹ 5,00,001 to ₹ 10,00,000 @ 20% 100,000 (1000000-500000)*20% ₹ 10,00,001 and above @ 30% 575193 (2917311-1000000)*30% Tax payable 687693 (12500+100000+575193) Cess 27508 (687693*4%) Total tax payable 715201 (687693+27508) Rounded off 715200 Note‐1: House Rent Allowance exempted: Least of the following ‐ Allowance Received 500,000 Rent Paid ‐ 10% of salary 170,000 CFP Final Level: Workbook Page 210

(35000*12)‐(10%*2500000) 1,250,000 (2500000*50%) 50% of salary Note‐2: Amount to be invested 1,000,000 Current quoted price of SGB 2,800 Coupon to be received on bonds (on half‐yearly basis in Jun'19 and Dec'19) 2.50% Discount to issue price 8.50% Face value of SGB 3,060 2800/(1‐8.5%) Number of SGBs to be bought 357.14 983922/2800 357 Interest to be received on bonds during 2020‐2127,311 (357*3060*2.5%) CFP Final Level: Workbook Page 211

Case Study - 8 (Vijay Kumar) (Reference Date: 1st April, 2020) Today is April1, 2021. Vijay Kumar, aged 30, life expectancy 75, is working with a leading Indian corporate as a project manager for the last 7 years in Ahmadabad. He is presently staying in an unfurnished accommodation provided by his employer. His wife, Khyati, aged 29, life expectancy 80, is a house wife. They have two children - Mayuresh (aged5years) and Manjesh (aged2years). Vijay earned following monthly salary for the FY 2020 – 21: 1. Basic Salary Rs. 30,200 2. D.A (forming part of Salary) 50%ofbasicsalary 3. City Compensatory Allowance 4. Children Education Allowance Rs. 300 5. Transport allowance Rs.200 per child Rs.1,000 Further, Vijay shall also receive a performance bonus of Rs. 60,000 from his employer for this year. Vijay has also been recently rewarded by his employer with a good number of ESOPs. Vijay’s monthly expenditure for the FY 2020-21was: Particulars Amount(inRs.) Housing expenses (including traveling, holidays 21,000 And festivals) 13,200 Personal loan repayments Total 34,200 In addition to this, Vijay Contributes to Employee Provident Fund Rs. 4,800 monthly and also pays Rs. 23,900 annually as premium of his life insurance policies, which consist of 3 endowment policies and 1 unit linked policy. The total life insurance cover under his bouquet of policies is Rs. 12,00,000. Vijay and his family are also insured for their medical expenses under his company’s medical claim policy. CFP Final Level: Workbook Page 212

Assets of Vijay Particulars Amount (in Rs.) Plot of land (at native place) Present Market Value 2,00,000 ESOPs 16,00,000 Equity Shares Present Market Value 26,000 Equity Mutual Funds 80,000 Employees' Provident Fund Present Market Value 2,22,000 Public Provident Fund 12,000 Cash balance Present Market Value 10,000 Post Office NSC Present Value 32,500 Present Value Present Value Maturity Value on 31/03/2023 Vijay currently has Rs. 4,80,000 outstanding towards his personal loan balance, for which the EMIs have been included in his current expense structure. Vijay's parents have retired from Government jobs. They are financially well off and are not dependent on him. At present they are residing in their own house in Bhuj, which is in the name of his father, Dhananjay Kumar. This house was bought by Dhananjay in Sep 1999, the current market value of which is Rs. 12 lakh. They also have another house in the same city which is in the name of his mother, Jyoti Kumar. This house was bought by Jyoti in Aug 2009, the current market value of which is Rs. 9 lakh. They are getting a monthly rent of Rs. 3,000 from this house. With additions to his family, Vijay intends to plan his finances and wants to achieve his financial goals within their time horizons. Financial Goals* 1. To buy a house within 1 year; valued approximately Rs.35 lakh 2. To buy a car within the next 2 months; valued approximately Rs.4.50 lakh 3. To make provision for children’s higher education expenses for both children at their age of 21 in lump sum; presently valued at Rs. 3lakheach. 4. To make provision for children’s marriage expected at the end of 20 years and 25 years from now; presently valued at Rs. 5 lakh each. 5. To provide for a comfortable retirement at his age of 55.(*expressed in today’s values.) CFP Final Level: Workbook Page 213

Assumptions 1) Risk Free Rate of Return=4%p.a. 2) Rate of return on Equity=15% p.a. 3) Rate of return on Debt above 5 years=9% p.a. 4) Rate of return on Debt in 1 to 5 years=10%p.a. 5) Rate of return on Debt in less than 1 year=5% p.a. 6) Inflation=4% per year. Cost Inflation Index: 2001-2002 100 2004-2005 113 2007-2008 129 2010-2011 167 2013-2014 220 2016-2017 264 2002-2003 105 2005-2006 117 2008-2009 137 2011-2012 184 2014-2015 240 2017-2018 272 2003-2004 109 2006-2007 122 2009-2010 148 2012-2013 200 2015-2016 254 2018-2019 280 2019-2020 289 2020-2021 301 CFP Final Level: Workbook Page 214

Case Study - 8 (Vijay Kumar) (Reference Date: 1st April, 2020) 1) You have pointed out to Vijay that presently he is not a 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 2022, 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. (4) A) Rs.112 lakh B) Rs.109 lakh C) Rs.106 lakh D) Rs.104 lakh 2) Vijay wants to invest yearly to achieve his goals for his children's higher education. For accumulation of fund you recommend Vijay to invest in Debt and Equity in the ratio 20:80. If Vijay starts investing from 1st of Feb 2022, what approximate amount should he set aside every year to achieve his said goals. Assume Vijay maintains separate investment accounts for Mayuresh and Manjesh and invests till they turn 21 years of age respectively. (4) A) Rs.9,000 and Rs.8,000 respectively B) Rs.10,000 and Rs.7,000 respectively C) Rs.8,000 and Rs.7,000 respectively D) Rs.10,000 and Rs.8,000 respectively 3) Compute the Value of Rent Free Accommodation for FY 2020-21 provided to Vijay assuming the population of Ahmadabad city is more than 25 lakh (as per 2014 Census). Also assume the accommodation is owned by Vijay's employer. (4) A) Rs. 93,600 B) Rs. 91,800 C) Rs. 84,600 D) Rs. 82,800 4) Vijay 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 requisite in the hands of Vijay incase he buys the car? (3) A) Rs. 75,000 B) Rs. 50,000 C) Rs.1,06,000 D) Nil 5) Vijay is a member of Employees' Pension Scheme. If Vijay decides to leave his present job at 32 years of age after 8 years of service what will happen to his existing Pension Scheme? (3) A) 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. CFP Final Level: Workbook Page 215

B) He cannot take any withdrawal benefit immediately but can add it to any future service that he may put in, in any other covered establishment. C) He can either take withdrawal benefit or scheme certificate only on completion of 10 years of service. D) He can take withdrawal benefit only. 6) 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 Vijay? (2) A) A sign if I can’t recommendation may be given orally, however confirmation must be given in writing as soon as possible. B) As a CFP Certificant, you are considered to be more knowledge able than Vijay and hence may not need to explain the recommendation and basis in a manner that Vijay may comprehend. C) As a CFP Certificant, you shall enter into an engagement with Vijay only after securing sufficient information to be satisfied that Vijay's needs and objectives warrant the relationship. D) As a CFP Certificant, you shall confirm in writing to Vijay where a subsequent instruction given by him alters the financial strategy of his portfolio under your supervision. 7) Vijay wants to know whether he is eligible to withdraw from his Employees’ Provident Fund for purchase of his new house. (2) A) Yes, a she has been a member of the fund for more than 3 years. B) No, a she has not been a member of the fund for more than 10 years. C) Yes, a she has been a member of the fund for more than 5 years, and provided he purchases the house in his own name or in his own name and in his wife’s name. D) Yes, a she has been a member of the fund for more than 5 years, and provided he purchases the house in his own name or in his wife’s name. 8) Vijay 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 Vijay intends to start annual saving from 1st Feb 2022 with Rs. 35,000 in the first year, and increasing the savings by 8% every year till one year before his retirement. Vijay also estimates to receive Rs.20 lakh from his employer on his retirement. What surplus/shortfall would be available with Vijay at the time of his retirement in such a situation? Assume Vijay’s savings earns him a return of 10% p.a. throughout and investments during his post retirement are also able to fetch similar returns. (4) A) Short fall of Rs.4.75 lakh B) Surplus of Rs.2.20 lakh C) Surplus of Rs.11.50 lakh D) Shortfall of Rs.17.75 lakh CFP Final Level: Workbook Page 216

9) Vijay bought an endowment plan for 35 years on 20 Dec 2015 for a sum assured of Rs. 3 lakh, where in quarterly premium is Rs. 2,500. Quarterly premium due in December 2021 for this policy was paid on06/01/2022. Vijay wants to know what amount of claim would be payable to his nominee under the policy in case he dies today? Vested bonus under the policy is Rs. 1,20,000 including bonus declared after valuation on 31/03/2021. For calculation purposes assume interim bonus paid to Vijay till his death shallbeRs.40 per thousand sum assured. (4) A) Rs.4,32,000 B) Rs.4,24,500 C) Rs.4,37,000 D) Rs.4,34,500 10) Vijay plans to take a loan from a bank for purchasing a house in Ahmadabad. He wants to know, against which type of mortgage do the banks normally lend home loan? (3) A) Simple Mortgage B) Usufructuary Mortgage C) English Mortgage D) Equitable Mortgage 11) Dhananjay wants to gift Rs.5 lakh (in cash) to Vijay to buy a house. Vijay wants to know how this receipt will be treated in his hands from Income Tax perspective. (2) A) Notaxto be paid by Vijaya sit is gifted to him to buy a house. B) Notaxto be paid by Vijay as gift in cash from a father to son is tax free. C) Entire receipt will be tax able in the hands of Vijay as it is received in cash. D) Entire receipt will be taxable in the hands of Vijay as it is more than Rs.50,000. 12) Vijay’s employer is going to give him a gift worth Rs.60,000 (in kind) on his wedding anniversary. Vijay wants to know the tax consequence of this transaction? (3) A) Gift value is taxable for Vijay under the head‘ Salary’ B) Vijay’s employer is liable to pay FBT on the full value of gift C) Not axcon sequence arises for Vijay and his employer as the gift is in kind D) Rs50,000 is tax free and balance Rs.10,000 is tax able under the head‘ Salary’ for Vijay 13) Vijay's Mutual Fund investments consist of four different funds. Performance of these funds are as follows: Mutual Fund Fund Returnof5years Beta A 18% p.a. 1.25 B 14% p.a. 0.85 C 16% p.a. 1.02 D 17% p.a. 1.20 CFP Final Level: Workbook Page 217

How would you rank these funds from the best to worst on the basis of Jensen's Alpha? (4) A) A, D, C&B B) A, B, C&D C) C, B, A&D D) D, A, B&C 14) After preparing the Financial Plan of Vijay, you have given following notes to the Plan: 1. These recommendations are made for your benefit only. 2. These recommendations are based on the information provided by you on your current situation; we expect this information to be complete and accurate. 3. Returns on investments will depend on market conditions and the policy of fund management followed by fund managers. 4. The investments planned for you are long term in nature; therefore volatilities of short term in nature should be ignored. These notes are to your plan. (2) A) disclosures B) disclaimers D) additions C) executive summary 15) Vijay wants to know what interest amount, from his investment in NSC, would be eligible for deduction u/s 80 C for the FY 2021-22. (3) A) Nil B) Rs.2,215 C) Rs.2,209 D) Rs.2,267 16) Vijay wants to know the present approximate intrinsic value of his mother's house if the rental income from the house is growing at the rate of 6.5% p.a. and the required rate of return on the investments is10% p.a. (3) A) Rs.3.60 lakh B) Rs.10 lakh C) Rs.45 lakh D) Rs.4.50 lakh CFP Final Level: Workbook Page 218

Solutions 1) B) Term 5180 – 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. Assumptions for corpus If Corpus needed today 1000 Debt 900 45.43PMT (((1+0.09)/(1+0.04))-1,51,-900,0,1) Equity 100 9.62PMT (((1+0.15)/(1+0.04))-1,51,-100,0,1) Yearly withdrawal till khyati is 80 years 55.0545.43+9.62 Corpus needed is 10899344 600000*1000/55.05 Thus approx Sum Assured requirement is Rs.109 lakh 2) B) 0.04 FV(0.04,16,0,- Yearly effective 0.09 300000,1) Inflation 0.15 Debt FV(0.04,19,0,- Equity amount needed 300000,1) Children's higher education 16,561,894 20:80 in Debt and Equity FV(0.09,16,-20,0,1) No of years FV(0.15,16,-80,0,1) Mayuresh 719.47+5126.01 Manjesh 19,632,055 Page 219 Note: For exact corpus requirement we need to follow an alternative method. Assumptions for Mayuresh Yearly investment 100 719.47 5,126.01 Debt 20 5,845.48 Equity 80 so to get Rs.5,61,894 investment per year needed is CFP Final Level: Workbook

Thus approx investment per year needed for Mayures his Rs.10,000 Assumptions for Manjesh 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 so to get Rs.6,32,055 investment per year 9612.46100*561894/5845.48 needed is Thus approx investment per year needed for Manjesh is Rs.7,000 9612.46100*561894/5845.48 6931.42100*632055/9118.69 6931.42100*632055/9118.69 3) B) HRA 36240030200*12 BasicSal 181200362400*0.5 DA 3600300*12 CCA 2400(200*12*2)-2400 Children Edu 2400(1000-800)*12 Transport All 60,000 Bonus 612,000 Gross Salary RFA 91800612000*0.15 4) C) cost 500000 Year1 400000500000*0.8 Year2 320000400000*0.8 Year3 256000320000*0.8 Taxable 106000256000-150000 5) A) CFP Final Level: Workbook Page 220

6) B) 7) C) 8) B) present age of Vijay 30 present age of Khyati 29 retirement age of Vijay 55 time to retire for Vijay 25 years 55-30 Monthly savings 35000 29+25 yearly increase in savings 8% 80-54 21000*12 Kyati's age when Vijay retires 54 FV(4%,25,0,-252000,0) expected total life of Khyati 80 PV((1+10%)/(1+4%)-1,26,- Khyati alive after retirement of Vijay 26 years 671791,0,1) present expenses per year 252000 ((35000*(((1+10%)^(25)- (1+8%)^(25))/(10%- inflation 4% 8%)))*1.1)+2000000 9673494-9451112 Rate of returns 10% Expat retirement 671791 retirement benefits 2000000 corpus needed at retirement 9451112 value of savings at retirement 9673494 surplus 222382 9) B) 300000 300000/1000*40 Sum Assured 2500 12000+120000+300000 Premium per quarter Bonus 120000 (2500*3) Interim Bonus 12000 432000-7500 Total amount due 432000 Un paid premium 7500less Amount to be payed today 424500 10) D) CFP Final Level: Workbook Page 221

Case Study - 9 (Somya) (Reference Date: 1st April, 2020) Somya Vishwanathan, aged 38 years, life expectancy 75 years, is a free lance journalist working in Mumbai. She is a spinster by choice and has been working in electronic media industry for the last 12 years. Somya lives in Mumbai with her parents who have their own flat in Navi Mumbai. Her father Mr. R K Vishwanathan, aged 68 years, is a retired government officer and her mother Mrs. Shalini Vishwanathan is a house wife. Somya’s younger brother Sanjay, aged 32 years is a Company Secretary working in an MNC in Navi Mumbai. Sanjay’s marriage is fixed on 15th August 2020 with Minal who is a Chartered Accountant and working in the same organization with Sanjay. After marriage Sanjay is likely to stay separately with his wife in a new flat which he has already purchased and after wards Somya is the only person to take care of their parents. Somya is planning to take franchise rights of multicity preschool chain. She wants to start this preschool chain franchise in her father’s flat as this flat is quite spacious. The school will be making an agreement with her according to which she is required to make an upfront security deposit of Rs. 10 lakh with the school. Apart from this security deposit, she will need to upgrade her flat according to school’s norms in which she will have to incur a onetime cost of Rs. 10 lakh. She is also working as an active partner in a partnership firm ‘Creative Arts’, with other three partners sharing profit and loss equally, for the purpose of making documentary films. She is acting as a member of an NGO which is working for welfare of orphan children. Though Somya has no worry about her future as she is earning well in her profession, she has contacted you a CERTIFIED FINANCIAL PLANNERCM practitioner today dated 18th April, 2020 for managing her finances and to prepare a Financial Plan. She has provided her details as follows: Rs.6,86,000 Income/Cash Inflows (FY2019-20) Rs.2,25,000 Net Income from profession1 Rs. 3,56,000 Profit from partnership firm Rs. 90,560 Loss in derivative trading at NSE India Short Term Capital Gain (u/s111A) Rs. 30,000p.m. 1beforeTDS Rs.1,00,000 Expenses/Investments (FY2019-20) Living/Personal Expenses Page 222 Investments u/s 80C CFP Final Level: Workbook

Health Insurance Premium Rs. 24,930 Assets & Investments2 ULIP (4 contributions @ 25,000 each) Rs.1,00,000 Post Office NSCs Rs.1,00,000 Kisan Vikas Patra Rs. 70,000 Unit Linked Pension Policy Rs.1,25,000 Equity Mutual Funds Rs.2,25,000 Equity Shares Rs.3,50,000 Car (Present Market value) Rs.3,50,000 Corporate Bonds Rs.1,50,000 2investments are stated at their original investment amount Goals& Aspirations: 1. Taking franchise rights to start a preschool chain in her parents flat. 2. Ensuring smooth cash flows for her house hold expenses for her complete life. 3. To enhance her skills by pursuing one year diploma in Journalism from UK after two year from now. Present cost of this education is 25 Lakh. 4. To set up a school for orphan children by the time she retires at the age of 55 years. 5. She wants to purchase production rights from a documentary film making company and make few documentaries. She would sell the rights of the company acquired along with documentaries made within one year at a value of Rs. 30 lakh. 6. To arrange for a shortfall of Rs. 10 lakh for her brother Sanjay’s wedding. Assumptions Inflation 5.00%p.a. Risk Free Rate 7.50%p.a. Equity Return 14.00%p.a. Debt Return 10.00%p.a. Personal Loan Rate 14.50%p.a. Cost Inflation index 2001-2002 100 2004-2005 113 2007-2008 129 2010-2011 167 2013-2014 220 2016-2017 264 2002-2003 105 2005-2006 117 2008-2009 137 2011-2012 184 2014-2015 240 2017-2018 272 2003-2004 109 2006-2007 122 2009-2010 148 2012-2013 200 2015-2016 254 2018-2019 280 2019-2020 289 2020-2021 301 CFP Final Level: Workbook Page 223

Case Study - 9 (Somya) (Reference Date: 1st April, 2020) 1) Somya wants your advice to disclose her professional Income 50% less than the actual to reduce her tax liability in the current year. You advice not to conceal particulars of her Income or furnish an in accurate particulars of such income, as Penalty payable in addition to tax under section 271(1)c of Income Tax Act is payable. A) At the discretion of Commissioner of Income tax B) Minimum 200% of the tax sought to be evaded and maximum 300% of the tax sought to be evaded C) minimum 100% of the Income sought to be evaded and maximum 300% of the Income sought to be evaded D) minimum 100% of the tax sought to be evaded and maximum 300% of the tax sought to be evaded 2) Somya wants to know her tax liability for AY 2020-21. You have observed in total health insurance premium which Somya paid in FY 2019-20; Rs. 15,950 was on the health insurance of her parents and Rs.8,980 on her own health insurance. According to you her Income Tax liability for AY 2020-21 would be . A) Rs. 14130 B) Rs. 11,910 C) Rs. 17,080 D) Rs. 46,420 3) Being pessimistic due to the present recessionary market, Somya is thinking to surrender her ULIP after 4 years subscription only. She wants to know from Income Tax planning perspective whether it would be advisable for her to surrender this insurance policy at present as she keeps on claiming deduction u/s 80C against this policy’s investment? A) She should hold this policy for atleast one more year B) She can surrender this policy any time after three years from the date of buying the policy C) She should hold this policy for atleast six more years D) She should hold this policy for the full term 4) Somya wants to adopt a child and part with some of her properties in favour of the child. She wants to plan her Estate as she will remain a spinster throughout her life. But she is afraid that after her death her brother may challenge such transfer. You would advise her . CFP Final Level: Workbook Page 224

A) Not to do any Estate Planning B) To prepare a WILL C) To create a Registered Living Trust where the child would be the beneficiary D) To prepare a Power of Attorney in favour of her father to manage her property for the benefit of the child 5) In the franchise of a preschool chain that Somya wants to take, the school will share revenues after expense with her in the ratio of 60:40 (60% Somya, 40% School). Operating expenses are expected to remain 20% of the receipts. Expected receipts from this franchise are as follows: Year1 Rs.6.00lakh Year2 Rs.8.00Lakh Year3 Rs.10.00 Lakh Year4 Rs.12.00 Lakh Year5 Rs.15.00 Lakh Franchise rights shall be valid for 5 years after which initial security deposit shall be refunded and new terms shall be set again. Somya wants to know the underlying IRR in this deal assuming all revenues are received in the beginning of every year, expenses are set aside at the same time and the first receipt shall come at the time of investments only. According to you the same is . A) 20.54%p.a. B) 45.93%p.a. C) 13.66%p.a. D) 18.76%p.a. 6) For the purpose of Sanjay’s wedding, Somya has arranged finances from a finance company by way of a personal loan in such a way that she gets Rs. 10 lakh net in hand after deduction of an upfront processing fee of 1.25%. The arrangement is for a term of five years on the gross amount of loan and repayable by 60 equated monthly installment with a pre-closure charge of 3.50% on the outstanding balance. She wants to know if she prepays the entire loan exactly after 1 year from the date of taking the loan, what effective rate of interests he might pay. According to you the same is . (Please ignore any other charges and taxes if applicable) A) 14.50%p.a. B) 16.10%p.a. C) 18.88%p.a. D) 20.62%p.a. 7) Somya’s mother has invested Rs. 5.00 lakh in a New Fund Offer of an Equity Mutual Fund scheme on 1st October 2018 at Rs. 10 per unit with an entry load of 2.25% and Exit load Nil with Systematic Withdrawal Plan (SWP) of Rs. 10,000 per month effective from 1st April 2019. From 1st October 2018 to 31st January 2019 the NAV of the scheme grew tan average rate of 2.50% per month, while from 1st February 2019 till date, the NAV declined at an average rate CFP Final Level: Workbook Page 225

of 3.15% per month. Somya wants to know the tentative value of units outstanding in her mother’s MF scheme account as on 31st May 2020. Assume that the SWP is effected on the 1st of every month. You estimate the same as . A) Rs. 1.96Lakh B) Rs.6.93 lakh C) Rs.2.12 lakh D) Rs.3.23 lakh 8) Somya wants to make an arrangement so that one-third of her present living/personal monthly expense scan be met for the next 17 years till she stops earning at the age of 55 years, and there after the whole of her living/personal monthly expenses all adjusted to inflation till she is alive. She wants to know what approximate lump sum amount she is required to invest in risk free instruments in order to ensure such cash flows from the beginning of next month. A) Rs.54.60Lakh B) Rs.57.25Lakh C) Rs.55.40Lakh D) Rs.55.15Lakh 9) A Life Insurance Agent has approached Somya with two types of Term Insurance Plans: (i) Plan I, without return of premium, term 25 years, Sum Assured of Rs.25 lakh, yearly premium payable Rs.1.94 per thousand of SA (ii) Plan II, with return of total premiums paid, on maturity, term 25 years, Sum Assured of Rs.25 lakh, yearly premium payable Rs.2.95 per thousand of SA. Somya is not clear which plan to opt for and she seeks yours advice on which policy is beneficial for her, if discounted by the risk free rate. (Assuming Somya lives till maturity of the Insurance Policy) A) Plan I is better as the net present value is higher B) Plan I is better as the net present value is lower C) Plan II is better as the net present value is higher D) Plan II is better as the net present value is lower 10) Somya wants to know if she dies before the vesting date of the Unit Linked Pension Plan how will it be taxed in the hands of the nominee for the amount received as per currently prevailing provisions of the Income Tax Act, assume the allocation is 100% intoequity. A) Fully Taxable B) Fully Exempt C) Subject to long term capital gain of 10% without indexation benefit D) One third would be tax free CFP Final Level: Workbook Page 226

11) Somya holds two different corporate bonds, details of which are as under: Bond Face Value(Rs.) Coupon Rate Pending tenure Market Value (Annual) (till maturity in years) (Rs.) Bond A 1,00,000 9.25% 98,000 Bond B 50,000 11.00% 3 51,300 3 The rate of Discount is 10%p.a., for both the bonds. Somya wants to liquidate either Bond A or Bond B or both. Assuming that interest rate is paid annually (at the end of the year), incase of both Bond A and Bond B, what would you advise Somya? A) Sell Bond A B) Sell Bond B C) Sell Both Bonds A & B D) Don’t sell any of the Bonds 12) Somya’s father wants to deposit Rs. 15 lakh in Sr. Citizen Saving Scheme in each of his and his wife’s account. He intends to accumulate this scheme’s interest in Gold ETF which is expected to give an average monthly return of 0.75% per month (net of expense) and liquidate this investment at the maturity time of Sr. Citizen Scheme. What would be the amount at maturity if he deposits a lump sum amount in Sr. Citizen Saving Scheme at the end of June 2020? (Please ignore taxes and charges if applicable) A) Rs.46.84Lakh B) Rs.46.58Lakh C) Rs.46.13Lakh D) Rs.63.30Lakh 13) Somya’s firm has approached a documentary film making company for the purchase of production rights to produce five documentaries in a span of 9 months. There would be an expenditure on various heads to the extent of Rs.50,000 p.m. payable to the company at the end of every month towards making of the documentary films. Somya expects to sell the rights of the company acquired along with the documentaries made at an aggregate value of Rs. 30 lakh at the end of 9 months period. She is likely to incur 5% transaction cost at the time of acquiring the rights of the company and a further 5% transaction cost at the time of selling the rights along with documentaries. She requires an annual return of 100% in the whole process of acquiring and selling these rights after incurring day – to – day production costs. What is the maximum amount that firm should quote for the purchase of rights of the company? A) Rs.14,21,426 B) Rs.12,89,276 C) Rs.11,98,693 D) Rs.12,86,052 CFP Final Level: Workbook Page 227

Solutions 1) D) 2) A) 686000 Income from profession: Receipt from Partnership Firm: Rs.225000 Exempt Derivatives loss at NSE 356000** -356000 **Permissible to be set off as non speculative loss Short Term Capital Gain u/s111 A 90560 Gross Total Income= 420560 686000-356000+90560 Less: 100000 124930 24930+100000 24930 Deduction u/s 80 C U/s 80 D Total Income= 295630 420560-124930 Normal Rate Income= 205070 295630-90560 Special Rate Income= 90560 Tax on Normal Rate Income= Nil 0 0-250000 Tax on Special Rate Income= 13584 13584 13584 u/s 111 A @15% = 90560*.15= E.Cess 543.36 13584*.04 Total Tax= 14127.36 13584+543.3 Or 14130 3) A) She should hold this policy for atleast one more year because if she surrenders this policy before completion of 5 years, total 80 C deductions Claimed by her shall be added back to her income in the surrender year of the policy 4) C) CFP Final Level: Workbook Page 228

5) A) 1000000 Upfront Security Deposit= 1000000 One Time Cost= Revenues Gross Net=80% Somya's Share Year1 - 288000- of Gross =60% of Net 1712000 (1000000+1000000) Year1 600000 480000 288000 Year2 384000 Refund of Deposit Year2 800000 640000 384000 Year3 480000 IRR Year3 1000000 800000 480000 Year4 576000 Year4 1200000 960000 576000 Year5 720000 Year5 1500000 1200000 720000 Year6 1000000 20.54% 6) D) 1000000 Loan Amount= 14.50% Rate of interest= 5Years Term= 1.25% Processing Fee= So Total Loan= 1012658 1000000/(1-1.25%) PMT(14.5%/12,5*12,-1012658,0,0) EMI = 23826 p.m. FV(14.5%/12,12,-23826,1012658,0) Outstanding Loan Balance 863955*1.035 after1 Year 863955 Pre Payment Charge= 3.50% Total Amount to be paid after 1 Year= 894193 Mode= End Rate of interest= 1.57%p.m. RATE(12,-23826,1000000,-894193,0) So Effective rate of interest 20.62%p.a. (1+0.0157)^12-1 7) C) 500000 10*(1.0225 Original investment on1-10- 10 500000/(10*(1.0225)) 2019= NAV 10.225 Purchase Price 48899.7555 Units allotted SWPStartedfrom1stApril2020= 10000pmNAV CFP Final Level: Workbook Page 229

01-10-2019to31-01-2020= grew from 10*(1.025)^4 Estimated NAV as on 31-01- 2.50%pm 2020 NAV grew from 11.04 01-02-2020to31-03-2021= 3.15%pm Estimated NAVas on 31-03-2020 10.3537 (10*(1.025)^4)*(1-0.0315)^2 Date Estimated Amount SWP Units Outstanding units redeemed NAV 1-Apr-20 10.3537 10000 1-May-20 10.0275 10000 965.84 47,933.92 1-Jun-20 9.7117 10000 997.254 46,936.66 1-Jul-20 9.4058 10000 1,029.69 45,906.97 1-Aug-20 9.1095 10000 1,063.18 44,843.79 1-Sep-20 8.8225 10000 1,097.76 43,746.04 1-Oct-20 8.5446 10000 1,133.46 42,612.57 1-Nov-20 8.2755 10000 1,170.33 41,442.25 1-Dec-20 8.0148 10000 1,208.39 40,233.85 1-Jan-21 7.7623 10000 1,247.70 38,986.16 1-Feb-21 7.5178 10000 1,288.28 37,697.88 1-Mar-21 10000 1,330.18 36,367.71 1-Apr-21 7.281 10000 1,373.44 34,994.27 1-May-21 7.0516 10000 1,418.11 33,576.16 6.8295 1,464.23 32,111.93 8) C) 7.50%pa 0.6045%p.m. (1+7.5%)^(1/12)-1 Risk free rate 5.00%pa 0.4074%p.m. (1+5%)^(1/12)-1 inflation (1+0.6045%)/(1+0.4074%)- Inflation adjusted 0.1963%p.m. 1 rate of interest 204 months Requirement Rs. 10000 On 1st May, for 17 years 2009 for 20 years 240 months Requirement Rs. 68761 On retire (end Page 230 CFP Final Level: Workbook April'26)

Pv of cash flows of 30000*(1.05)^17 PV(0.1963%,204,- inflation adjusted Rs.10,000 today 10000,0,1) a) 1,683,002 PV(0.1963%,240,- 68761,0,1) PV of cash flows of inflation adjusted 13176043/(1+7.5%) Rs.68761 on ^17 retirement 1683002+3853373 13,176,043 b) 3,853,373 a)+b) 5536376 9) B) 4850 Present 58117 PV(0.075,25,-4850,0,1) Premium Payable for Plan I Value= 58141 PV(0.075,25,- Premium Payable for Plan II 7375 7375,7375*25,1) Risk Free Rate Tenure of the Policy 7.50% 25 10) B) 11) B) In order to ascertain the relative 98,134.86 PV(10%,3,-(100000*9.25%),- attractive- ness of the Bonds, we 100000,0) compute the value of each Bond and compare it with the market price Value of Bond A = Value of Bond A > Market price of Bond 51,243.43 PV(10%,3,-(50000*11%),-50000,0) A. i.e. Bond A is under - priced. Value of Bond B = CFP Final Level: Workbook Page 231

12) A) Total deposit in Sr. Citizen Saving 15+15= 30 lakh Scheme = Time of Scheme= 5 years Quarterly Interest from the scheme = 3000000*(.09/4) 67500 First Interest Payment will come = after 3 months from today Rate of returning old ETF account = 0.75% per month So MV of Gold ETF Account No. of Op Bal Addition Intt. Cl Bal 506+67500+0 month 0 67500 506 68006 510+0+68006 0 510 68516 4 68006 0 514 69030 5 68516 67500 1024 137554 6 69030 0 1032 138586 7 137554 0 1039 139625 8 138586 67500 1553 208679 9 139625 0 1565 210244 10 208679 0 1577 211821 11 210244 67500 2095 281415 12 211821 0 2111 283526 13 281415 0 2126 285653 14 283526 67500 2649 355801 15 285653 0 2669 358470 16 355801 0 2689 361158 17 358470 67500 3215 431873 18 361158 0 3239 435112 19 431873 0 3263 438376 20 435112 67500 3794 509670 21 438376 0 3823 513492 22 509670 0 3851 517343 23 513492 67500 4386 589230 24 517343 0 4419 593649 25 589230 26 CFP Final Level: Workbook Page 232

27 593649 0 4452 598101 28 598101 67500 4992 670593 29 670593 5029 675623 30 675623 0 5067 680690 31 680690 0 5611 753801 32 753801 67500 5654 759455 33 759455 0 5696 765151 34 765151 0 6245 838896 35 838896 67500 6292 845187 36 845187 0 6339 851526 37 851526 0 6893 925919 38 925919 67500 6944 932863 39 932863 0 6996 939860 40 939860 0 7555 1014915 41 1014915 67500 7612 1022527 42 1022527 0 7669 1030196 43 1030196 0 8233 1105928 44 1105928 67500 8294 1114223 45 1114223 0 8357 1122580 46 1122580 0 8926 1199005 47 1199005 67500 8993 1207998 48 1207998 0 9060 1217058 49 1217058 0 9634 1294192 50 1294192 67500 9706 1303898 51 1303898 0 9779 1313678 52 1313678 0 10359 1391536 53 1391536 67500 10437 1401973 54 1401973 0 10515 1412488 55 1412488 0 11100 1491088 56 1491088 67500 11183 1502271 57 1502271 0 11267 1513538 58 1513538 0 11858 1592896 59 1592896 67500 11947 1604842 60 1604842 0 12036 1616879 0 CFP Final Level: Workbook Page 233

61 SCCS Maturity 3067500 Total 4684379 MV 13) B) Value of rights of the company 3000000 along with document aries made, targeted after 9 months 5% brokerage paid on this value 150000 3000000*5% Net value to be received 2850000 3000000-150000 Cash flows in the 9 months -50000 period of documentary making -50000 -50000 -50000 -50000 -50000 -50000 -50000 2800000 Return to be targeted from the 100% per annum 5.9463% per month (1+100%)^ investment Monthly effective rate (1/12)-1 of return equivalent to 100% p.a. Net Present Value of the above 1353739 NPV(5.9463%,(- cash flows at the required rate 50000,-50000, ,- 50000,2800000) This is the return on actual investment made. Maximum amount which Somya 1289276 1353739/(1+5%) must quote to obtain the rights CFP Final Level: Workbook Page 234

Case Study - 10 (OmPrakash) (Reference Date: 1st April, 2020) Today on 1st April 2020, Omprakash a Mechanical Engineer had come to India to celebrate New Year with his family. He is 49 years old and is working in an Indian Multinational Company. He is posted in New York and is drawing an annual salary of Rs. 24 lakh. His personal monthly expenses at present are Rs. 65,000. His wife Renu, aged 43 resides in Delhi and works with an NGO. She earns Rs. 30,000 p.m. They have two daughters Priyanka and Neha, aged 23 and 21 years, respectively. Priyanka is an LLB and is presently undergoing internship with a reputed law firm. Neha is in the final year of her graduation. Neha yearns to go on a world tour after completing her graduation and before she enrolls for an MBA course from a US based institute. Omprakash’s father Hariom, aged 72, and mother Veena, aged 67, are dependent on him. His father receives Rs. 20,000 p.m. from the reverse Housing loan against his house in Gurgaon, apart from Rs.10,000 p.m. monthly expenditure from Omprakash. Omprakash has given his employer a notice for relieving himself from the job by 31st July 2020. He joined the organization on 1st July 1997. He intends to come back to India and star this own business from1st October 2020 in Delhi as a territory dealer of international electronics products, for which he will require Rs. 50 Lakh for initial investment and working capital. He plans to take a shop on rent for which he will have to pay a monthly rent of Rs. 40,000 and a security deposit equivalent to one year’s rent (for the property valued today at Rs. 40 Lakh), subject to inflation adjustment on annual basis. He has got an offer on similar terms of lease from Mr. Ramchandani who is the owner of the property. The term soft he lease areas following: 1. Lease shall be valid for a period of five years and the Lease Agreement can be renewed after the expiry of the five - year period with the mutual consent of the parties. 2. After five years, Omprakash will have the option to either purchase the shop at the prevailing market price or to renew lease at 10% increment al rent on the preceding year’s inflation- adjusted rent. His remuneration and other benefits from his current employer are as follows: 1. CTC of Rs 24 lakh p.a. 2. He is a member of his employer’s Pension and Provident Funds. He and his employer each contribute 12% of his salary to the pension fund and provident fund as per EPS and Miscellaneous Act, 1995. 3. His Basic Salary is Rs.80,000 p.m. and Dearness Allowance is Rs.30,000p.m. of which 100% is included for retirement purpose. CFP Final Level: Workbook Page 235

4. In addition, his employer had contributed to super annotation fund, which has accumulated to Rs.20 Lakh. 5. His leave encashment due is to the extent of Rs.5 lakh. The company has a policy of providing 30 days leave per year and Omprakash has availed into a leave of 300 days. His Assets and Liabilities are as follows: Amount (in Rs. Lakh) Assetsas on 31st Dec 2019 80.00 Residential House 15.00 Equity Oriented Mutual Fund Schemes 7.00 Furniture & Fixtures 12.00 PPF (Matures on 1st April, 2022) 5.00 Car 7.00 Jewellery 8.00 Bank FD 2.00 Cash in hand 8.00 Money Market Mutual Fund 15.00 ELSS 30.00 Liabilities as on 31st Dec 2019 2.5 Housing loan (outstanding Balance) Car loan (outstanding bal) 1.00 1.50 Income Tax outstanding Personal loan (outstanding Balance) Life Insurance He bought a Term Insurance five years ago with a sum assured of Rs. 60 lakh for which he pays premium of Rs.25,000 p.a. He also has an endowment plan which he bought on 20th March 2007 with a sum assured of Rs. 30 Lakh, term of 20yearsforwhichhepays premium of Rs. 55,000 half yearly. Renu has invested Rs. 6 lakh in the new fund offer of Equity oriented MF scheme and was allotted units at NAV of Rs. 10. The present NAV is Rs. 12.50. She opened the PPF A/c. by making a subscription of Rs. 9,000 on 25th March 2009. She has been making regular quarterly contributions to the PPF Account in the beginning of each quarter starting from April, 1998 @Rs. 9,000 per quarter. These quarterly contributions have been increased by 4.5% year on year since then, and would like to CFP Final Level: Workbook Page 236

continue till maturity of the account subject to maximum permissible subscription. Omprakash has the following goals: 1. One year from now he wants Rs. 20 lakh for Neha’s education and a further Rs. 30 lakh after 5 years from now for her wedding. 2. He wants Rs.30 lakh after 3 years from now for Priyanka’s wedding. 3. He wants to retire at 62 years of age and he expects to live upto 80 years. His wife’s life expectancy is 74years. 4. He wishes to purchase a new car for Rs. 12 lakh. Assumptions: 1. Risk free rate: 6% p.a. 2. Inflation rate: 5.5% p.a. 3. Return on Equity/ Equity based MF: 12% p.a. 4. Return on Money Market Mutual Fund: 6% p.a. 5. Real Estate Appreciation: 9% p.a. Cost Inflation index 2001-2002 100 2004-2005 113 2007-2008 129 2010-2011 167 2013-2014 220 2016-2017 264 2002-2003 105 2005-2006 117 2008-2009 137 2011-2012 184 2014-2015 240 2017-2018 272 2003-2004 109 2006-2007 122 2009-2010 148 2012-2013 200 2015-2016 254 2018-2019 280 2019-2020 289 2020-2021 301 CFP Final Level: Workbook Page 237

Case Study - 10 (OmPrakash) (Reference Date: 1st April, 2020) 1) Omprakash is eligible to receive Gratuity from his Company. His Company calculates Gratuity as per the Payment of Gratuity Act, 1972 and pays higher amount, if eligible, to its employees than the statutory limit as per the Act. He wants to know what amount of Gratuity he is likely to get from the Company and what amount will be taxable out of the same. A) Rs.14,59,615 and Rs.0 B) Rs.12,65,000 and Rs.9,15,000 C) Rs.9,20,000 and Rs. 5,70,000 D) Rs.12,24,194 and Rs.8,74,194 2) Post-retirement, Omprakash would require 70% of his current personal annual expenses adjusted for inflation in the beginning of the first year of his retirement. He wants to leave Rs. 25 lakh cash, at then prices, for both his daughters each as estate. He wants to know what monthly amount towards his retirement corpus and estate is required to be invested in an Equity oriented MF from today onwards till his retirement. In the distribution phase, the corpus is invested in a Pension fund yielding annual inflation-adjusted annuity yielding 100 basis points above risk free rate. A) Rs. 74,121 B) Rs. 37,075 C) Rs. 53,125 D) Rs. 51,058 3) Priyanka plans to continue working with the current law firm for three more years after which she proposes to start her own law firm for which she would require an amount of Rs. 20 Lakh without price escalation. Omprakash has already earmarked Rs.5 Lakh for the purpose. Omprakash wants to know what amount he requires to invest at the beginning of each quarter of year from now onwards in a Money Market Mutual Funds as to accumulate the sum when required. A) Rs.1,15,020 B) Rs.1,07,696 C) Rs.1,13,320 D) Rs.1,06,333 4) Omprakash wants to repay his personal loan and outstanding tax, for which he is getting a new personal loan at an interest rate of 19% p.a. for a term of 3 years. The previous personal loan was taken at an initial rate of 24% p.a. and three years still remain before the loan is paid off. Further, he is planning to reschedule his outstanding Housing loan. The existing Housing loan was taken at a fixed interest rate of 8% p.a. with remaining tenure of 8 years. The existing Housing loan would be re-financed at a variable rate of interest 6% p.a. for tenure of 10 years. CFP Final Level: Workbook Page 238

He wants to know the Gross EMI payable on both rescheduled loans. Further, he wants to know the amount of overall interest to be saved on the outstanding amounts of existing loans. The same are . (All interest rates are to be taken as monthly compounded rates; Ignore inflation and other charges) A) EMI Rs.38,804 and Interest saved Rs.88,540 B) EMI Rs.42,470 and Interest saved Rs.88,540 C) EMI Rs.42,470 and Interest saved Rs.48,565 D) EMI Rs.38,804 and Interest saved Rs.56,578 5) Omprakash’s father Mr. Hariom has taken a loan under reverse mortgage scheme against his house in Gurgaon which is valued today at Rs. 20 lakh. Omprakash is curious to know, if the loan amount being received by his father will be treated as income and whether the alienation of property for recovery of loan attracts capital gains? A) The amount received by Mr. Hariom shall be treated as his income and it will be taxable in his hands and for the purpose of alienation of property for recovery of loan shall attract capital gain. B) The amount received by Mr. Hariom shall not be treated as his income and shall be exempt from tax and for the purpose of alienation of property for recovery of loan shall not attract capital gain. C) The amount received by Mr. Hariom shall not be treated as his income hence shall not be taxed, for the purpose of alienation of property for recovery of loan shall attract capital gain. D) The amount received by Mr. Hariom shall be treated as his income and it will be taxable in his hand sand for the purpose of alienation of property for recovery of loan shall attract capital gain but only in case of death of the mortgagor. 6) Omprakash read a draft offer document that PFRDA has come out with a New Pension Scheme (NPS) for all citizens of India. He is also thinking to invest in NPS but he is confused with regards to the withdrawal provisions of the scheme in Tier-I. You are required to provide him with the correct details of the withdrawal. i. If he exits before 60 years of age, he will have to invest at least 20% of the pension wealth to purchase a life annuity and the rest 80% of pension wealth may be withdrawn as a lump sum. ii. If he exits on attaining 60 years of age, he will have to invest at least 40% of the pension wealth to purchase a life annuity and the rest 60% of pension wealth may be withdrawn as a lump sum or in a phased manner between ages 60 and 70 years. CFP Final Level: Workbook Page 239

iii. If he exits before 60 years, he will have to invest at least 80% of the pension wealth to purchase a life annuity and the rest 20% of pension wealth may be withdrawn as a lump sum. iv. If he exits on attaining 60 years of age, he will have to invest at least 60% of the pension wealth to purchase a life annuity and the rest 40% of pension wealth may be withdrawn as a lump sum or in phased manner between ages 60 and 70 years. A) iv B) ii C) iii D) iv 7) Omprakash, in a business conference met a CFPCM Practitioner who was one of his old friends. Both of them were discussing about their professions and businesses and during the talks Omprakash asked for some recommendation on his personal finances from his CFPCM friend. He suggested Omprakash to come to his office and he will provide there commendations in writing. Omprakash asked, is it important to have it in writing? You as a CFPCM Practitioner explained that all recommendations concerning the financial affairs of a client should be presented in writing because: 1) It is regarded as best practice under the FPSB India code of ethics and rules of professional conduct. 2) It provides substantial protection to the planner under common laws against any claims arising thereof. 3) It will not attract the law of contract to determine the civil rights of both the parties. 4) It gives the client the necessary time to fully consider the planner’s recommendations. A) 1,2 and 4 only B) 2,3 and 4 only C) 1 and 4 only D) 1,2, and 3 only 8) Omprakash is planning to create as pacific trust under a will and start the new business under the name of the trust. He plans to have Neha as 100% specific beneficiary of the trust for her support and maintenance. He approached you a CERTIFIED FINANCIAL PLANNERCM to take advice on creation of trust. You as a CFPCM Practitioner are required to provide him with the provisions relating to taxation of the income of the trust if the said trust is the only trust created by Omprakash in the benefit of Neha. A) The specific trust will be assessable at a flat rate of 20% plus cess plus surcharge if the income of the trust exceeds Rs.10 lakh. B) The specific trust will be assessable at the maximum marginal rate of income tax u/s 161(1A) of the Income Tax Act. CFP Final Level: Workbook Page 240

C) This private trust will be taxed at a slab rate applicable for individual provided it does not have business income. Any business income may be taxed @ 30% or at slab rate. D) The specific trust under Indian Trust Act cannot override the provisions of the Income Tax Act and Omprakash will be assessed under the head of Business and profession as per provisions applicable to an individual. 9) Omprakash is wondering that whether he will be able to meet the expenses towards the wedding and education of his both daughters. He plans to liquidate his portfolio to the extent of Rs. 58 Lakh for both the daughters’ education and wedding and invest in money market mutual fund for first 1.5 years and then shift to equity oriented mutual fund for the remaining tenure. He wants to know the deficit/ surplus at his disposal while meeting the last of the said goals. (Please ignore taxes and charges if applicable) A) Surplus of approx. Rs.4 lakh B) Surplus of approx. Rs.1.5 lakh C) Deficit of approx. Rs.6 lakh D) Deficit of approx. Rs.4 lakh 10) Renu is planning to donate to her NGO the maturity proceeds of her PPF A/c. She started withdrawing the maximum eligible amount from the PPF account since the beginning of April 2016 every year and invested the same immediately in an Equity MF scheme. The market value of units in the Equity MF scheme as on 1st April, 2020 stood at Rs. 5.20 lakh. The balance in the PPF A/c. as on 1st April, 2020 was Rs. 1,82,614. She did not withdraw any amount from the PPF A/c. in April, 2020, and does not intend to withdraw any amount till maturity of the account. However, she continued to increase her quarterly subscriptions to PPF A/c. which for the year 2020-2021is Rs. 14,000 per quarter. She wishes to donate the maturity amount of her PPF A/c maturity proceeds while Equity MF scheme’s value of investment would be retained for self. She would not contribute any further amount in her Equity MF scheme. She wants to know the approximate amounts in her PPF A/c. and her Equity scheme investment coinciding with the maturity of her PPF A/c. The same are . (Assume the interest rates and other provisions are applicable to the PPF scheme as prevailing today and ignore taxes and charges if applicable for other investments) A) Rs.8.18 lakh Equity MF and Rs. 5.61 lakh PPF A/c B) Rs.9.16 lakh Equity MF and Rs. 6.23 lakh PPF A/c C) Rs.8.18 lakh Equity MF and Rs. 6.54 lakh PPF A/c D0 Rs.9.16 lakh Equity MF and Rs.6.43 lakh PPF A/c CFP Final Level: Workbook Page 241

11) Omprakash is planning to sell his old car and contribute the sale proceeds thus received to buy a new car in the name of his wife. The shortfall is made good by selling Renu's investment in equity oriented mutual fund and taking a loan for the balance amount. The car finance company has quoted a rate of interest 8.75% p.a. compounded quarterly. You arrange to pay the installments on a monthly basis by convincing the company to adjust the interest rate on equivalent annual effective basis. The EMI on the one year car loan comes to .(Please ignore any charges and taxes if applicable) A) Rs. 19,993 p.m. B) Rs.17,461 p.m. C) Rs. 17,588 p.m. D) Rs. 17,340 p.m. 12) In the initial stage of Financial Plan preparation, you told Omprakash and also mentioned in the Financial Plan prepared that you would charge fixed fee for the Financial Plan construction and you would also earn commission on sale of recommended financial products, if the same is accepted. Which code of ethics binds the CFPCM Practitioner to disclose conflict of interests? A) Objectivity B) Fairness C) Integrity D) Professionalism 13) Omprakash wants to take life insurance cover for his wife also, ass he has no insurance cover. He wants to buy a Joint Life Policy for both of them. He has been paying all the life insurance premiums on time and wants to know the paid up value of this existing endowment policy as of today in order to make a prudent decision. This endowment policy has vesting bonus Rs.8.5 lakh till date. A) Rs.28.00 lakh B) Rs.19.50 lakh C) Rs.27.25 lakh D) 30% of premium paid plus vested bonus 14) Omprakash is planning to invest in two companies ABC and XYZ. The coefficient of correlation between the two stocks ABC and XYZ is 0.7. The standard deviation of returns for ABC is 18% and the standard deviation of returns for XYZ is 22%. The expected return for XYZ is 18% and the expected return for ABC is15%. Calculate the expected returns and standard deviation of Omprakash’s portfolio for which he plans to invest Rs.4 lakh in XYZ Company and Rs.2 lakh in ABC Company. A) 16.33 % and 18.83 B) 17.00% and 19.34 C) 19.01% and 20.77 D) 16.95% and 19.38 CFP Final Level: Workbook Page 242