Level 4 - (Workbook)

her two children, who live separately and never take care of her in any way whatsoever. Mr. X helped her a lot in her medical care during her last days. Before she died, Mrs. Y had changed her will to add a ₹10 lakh gift to Mr. X. She hired a different attorney to add the codicil to the will. Upon Mrs.Y’s death her children denied to give the gift to Mr. X stating it was invalid because of undue influence. In the light of the facts cited above which of the following statements is correct? a) The gift to Mr. X is invalid because he used undue influence to induce Mrs.Y to change her will. b) The gift to Mr. X is valid because there was no undue influence, a different attorney added codicil, and her act of adding codicil was with her free consent. c) The gift to Mr. X is invalid because he knew Mrs. Y was on her last days so he set the circumstances and obtained the gift. d) The gift to Mr. X is valid because the gift was with her consent though he took the advantage of her loneliness and induced her make a favour. 115. Mr. X working in a Legal Firm as Legal Advisor is always under an apprehension that his profile of giving legal advice to clients is full of risk. He plans to take Professional Indemnity Insurance to minimize his professional risk but he is not sure that what is the scope of the policy? He has approached you for your advice. You advise that the Professional Indemnity Insurance has the following scope: a) Any error and/or omission on his/her part committed whilst rendering professional service. b) Any liability arising out of any criminal act or act committed in violation of any law or ordinance is not covered. c) Legal cost and expenses incurred in defence of the case. d) All of the above. 116. You have identified some insurance needs for Mr.X and MrsX as follows: Page 43 I. Health Insurance CFP Final Level: Workbook

II. Accident & Disability Insurance III. Home Insurance IV. Travel Insurance According to you what should be the order of priority for these insurance needs? a) i), ii), iii), iv) b) ii), i), iii), iv) c) iii), ii), i), iv) d) i), iii), ii), iv) 117. Right now Mr.X& Mrs. X both are getting House Rent Allowance included in their salary and they are living in Mr. X’s apartment &Mr.X is claiming deductions u/s 24(b) and 80C on account of housing loan EMIs. He wants to know the right proposition of taxation of his HRA. Mr.X shall ______________. a) not get any exemption for HRA b) not get any deduction u/s 24 (b) c) not get any deduction u/s 80C d) get the eligible exemption from HRA along with deduction u/s 24 (b) & 80C 118. Mr. X has asked you a practicing CERTIFIED FINANCIAL PLANNER CM about the ownership of CFPCM mark in the world. You have explained to him that _________________. a) CFPCM mark is owned by FPSB India b) CFPCM mark is owned by FPSB across the world c) CFPCM mark is owned by CFP Board across the world d) CFPCM mark is owned by FPSB, Denver (US) outside the United States 119. Mr. X wants to invest in order to build up a corpus when he returns to India a decade later. In consideration of different choices available to him, taxation is also one of the aspects which he CFP Final Level: Workbook Page 44

is considering in the proposed investment. He wants to have least operating costs and optimum tax treatment of his investment kitty when he requires the same. As per the currently prevailing tax provisions, what investment option is most suitable for Mr. X. a) Equity option in any Unit Linked Pension Plans of a life insurance company b) Equity option in any Unit Linked Insurance Policy c) Equity Growth fund in any established Mutual Fund Scheme d) All of the above 120. Mr. X wants to know if he makes some withdrawals from his PF account for arranging funds for Mr. X. How will the interest be calculated on the amount of money withdrawn? a) Interest shall be credited from the beginning of the current year on the money withdrawn, up to the last day of the month preceding the month of such withdrawal. b) Interest shall be debited from the beginning of the current year on the money withdrawn, up to the last day of the month preceding the month of the withdrawal. c) Interest shall be debited from the beginning of the current year on the money withdrawn, up to the last day of the month of the withdrawal. d) Interest shall be credited from the beginning of the current year on the money withdrawn, up to the last day of the month of the withdrawal. 121. 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 Mr.X? a) A significant 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 knowledgeable than Mr.X and hence may not need to explain the recommendation and basis in a manner that Mr.X may comprehend. CFP Final Level: Workbook Page 45

c) As a CFP Certificant, you shall enter into an engagement with Mr.X only after securing sufficient information to be satisfied that Mr.X's needs and objectives warrant the relationship. d) As a CFP Certificant, you shall confirm in writing to Mr.X where a subsequent instruction given by him alters the financial strategy of his portfolio under your supervision. 122. Mr.X wants to know whether he is eligible to withdraw from his Employees’ Provident Fund for purchase of his new house. a) Yes, as he has been a member of the fund for more than 3 year b) No, as he has not been a member of the fund for more than 10 year c) Yes, as he 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, as he 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. 123. Mr.X 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? a) Simple Mortgage b) Usufructuary Mortgage c) English Mortgage d) Equitable Mortgage 124. After preparing the Financial Plan of Mr.X, you have given following notes to the Plan: I. These recommendations are made for your benefit only. II. These recommendations are based on the information provided by you on your current situation; we expect this information to be complete and accurate. III. Returns on investments will depend on market conditions and the policy of fund management followed by fund manager CFP Final Level: Workbook Page 46

IV. 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. a) Disclosures b) Disclaimers c) Executive summary d) Additions 125. Mr.X & Mrs.X want a written assurance from you that in case they appoint you as their Financial Planner, in no case you will disclose their personal/financial information to any of your firm’s partners and the same shall remain exclusively with you. With reference to FPSB Code of Ethics examine the following statements in this context: I. Yes, you can give such an assurance II. No, you cannot give such an assurance III. You can give such an assurance subject to specific written consent from all the partners of the firm IV. In this case the client should be dealt in personal capacity outside the scope of the firm Which of the above statement/s is/are true? (2) a) Both 1 & 4 b) Only 1 c) Both 1 & 3 d) Only 2 126. Mr. X wants to know from you the difference between the “Portfolio Management Scheme” being offered by many prominent financial institutions and the services offered by you as a Financial Planning practitioner. Examine the following statements: I. In PMS there is a unique profit & loss sharing structure while a CFP is not entitled to participate in profits of his/her client II. PMS is more of a packaged product to suit broad requirements rather than meeting specific needs of clients CFP Final Level: Workbook Page 47

III. PMS is mainly offered by financial institutions while Financial Planning service is mainly dominated by Individuals only IV. In PMS, the service provider may not cater to overall Financial Planning objectives of the client Which of the above statement/s correctly differentiate/s a PMS from a Financial Planning Service? a) Only 1 b) Only 1 & 3 c) Only 2 & 4 d) Only 1, 2 & 4 127. Mr. X has been buying gold ornaments from time to time as investment. You as a planner however advise that she should also look at the features of Gold ETFs for investment purposes. I. Gold ETFs score over physical gold as she can have same returns from gold, but without the making charges II. There is no wealth tax on Gold ETFs & long term capital gain becomes applicable after a year III. There is no entry load or exit load in a Gold ETF IV. Problems relating to purity of gold bought, storage & insurance costs are avoided in Gold ETFs Which of the above statements are relevant and correct? (2) a) 1 & 2 b) 2 & 3 c) 1, 2 & 4 d) 2 & 4 CFP Final Level: Workbook Page 48

128. Mr.X is due to get refund from Income Tax Department of two earlier Assessment years. His friend told him that this amount can be set off against the current tax liability. According to you this information is __________. a) True b) False c) True, if specific permission is taken from the assessing officer d) True, if a letter is taken from the concerned Commissioner of Income tax and attached with the Returns 129. Some time back Mr. X’s investment advisor, also a CFP, recommended him a savings product stating that it offered an assured annual return of 12%. Mr. X was sceptic about the returns and did not invest. You realize that the product has been misrepresented. In reality it is the simple rate of interest with a lock in period of 10 years. According to you ________. a) the advisor has violated Code of Ethics of Fairness b) the advisor has violated Code of Ethics of Integrity c) the advisor has violated Code of Ethics of Professionalism d) the advisor has violated Code of Ethics of Diligence 130. Mr. X proposed to buy another life insurance policy which also offered Critical Illness Rider for an additional premium. Mr. X was considering a sum assured of ₹50 lakh for the death benefit and ₹ 2 Lakh under Critical Illness. Before finalizing the same Mr. X wants to know that in case he is identified with a disease, covered under Critical Illness Rider, after 2 years of having taken the policy, what amount would he receive as claim under the Critical Illness Rider? (2) a) A sum of ₹ 2 Lakh shall be paid when such a disease is identified and certified by a Doctor. b) Actual Expenses, subject to a maximum of the Rider amount, shall be paid after treatment of disease. c) Rider benefit is available only in case of death of the Insured person by the disease. d) A sum of ₹ 2 lakh shall be paid when disease is identified and another ₹ 2 Lakh shall be paid at the time of death. CFP Final Level: Workbook Page 49

131. Mr.X’s relative, Prashant, met with an accident while driving the car. His car insurance had expired a couple of days before the accident. Mr. X wants to know whether Prashant’s claim will be settled by the insurance company in such a situation. a) This is to be seen in light of the governing terms and conditions of the expired policy. b) If the accident occurs within 15 days after the expiry of policy the claim is payable. c) The cover lapses the moment the policy expires thus denying him any claim. d) Insurance company will take renewal premium along with penalty and then settle his claim. 132. Mr. X’s brother in law is an NRI. He wants Mr. X to make some investments on his behalf whenever the right opportunity arises. You suggest a) Mr. X’s brother in law should prepare a Notarized affidavit in Mr. X’s favour. b) Mr. X’s brother in law should prepare a Special Power of Attorney specifying transactions that can be carried out by Mr. X. c) Mr. X should prepare a General Power of Attorney that gives him the right to do transactions on behalf of his brother in law. d) Mr. X should not get into such an arrangement due to complex tax laws related to NRI investments. 133. Mr. X has not done any Estate Planning as of now. Even his father has not prepared any Estate Planning documents. As Mr. X is the only son of his parents, along with his 3 sisters, what is most suitable for him? a) Mr. X’s father should first prepare his Will and on the basis of that Will Mr. X should prepare his own Will. b) Mr. X should prepare his own Will without waiting for his father’s Will. c) There is no need for any Estate Planning as Mr. X is the only son of his parents. d) Mr. X should prepare his Will by including his father’s property but with an inbuilt provision for his sisters on account of that property. CFP Final Level: Workbook Page 50

134. During the initial discussions Mr. X wants to know from you the nature of compliance by which you are bound to FPSB India’s Code of Ethics. You have explained to him that for every practicing CFP certificate it is _____ to adhere to FPSB India’s Code of Ethics. a) Discretionary b) Mandatory c) Obligatory d) Depends upon the country of operation 135. Keeping in view the present uncertainty in the global financial markets, Neeru wants to know the most probable risk faced on their portfolio of GOI taxable bonds. According to you which amongst the following is the most likely option? a) Volatility b) Price c) Currency d) Inflation 136. Mr. X has not prepared any Will as on date. He wants to know in case he dies intestate, as per prevailing Hindu Succession law in India, which of his existing family member/s can be denied share of his estate in case of a dispute. a) His father. b) His mother and father. c) His daughter if she is married. d) All members have a share on his property on an equitable basis. 137. Till date the couple has never given any attention to their individual insurance needs. Most of the insurance needs of the family are taken care by the company’s group insurance policy which provides all common risk protection to the family. You have explained to Mr. X that this group insurance policy may not cater one important risk which is ________. a) Life insurance CFP Final Level: Workbook Page 51

b) Health insurance c) Liability insurance d) Disability insurance 138. Mr. X has told you that Mr. X’s would be father in law wants to give a sum of ₹ 10 lakh to the family on the occasion of Mr. X and Priya’s marriage next year. Mr. X wants to know from you how should this gift be accepted from Tax Planning perspective? a) It should be received in Priya’s name b) It should be received in Mr. X’s name c) It should be received in Mr. X’s father name d) It should be received in the name of either Mr. X or Priya 139. Ajay has informed you that his insurance agent has not deposited one of the insurance premiums collected in cash from them, to the life insurance company. The family came to know about this when they got a notice informing the possible lapse of the policy. Ajay wants to know the most suitable remedy available to them in such a situation. a) They can claim premium from the insurance company for which the agent was working. b) They can get a criminal case registered against the agent and also file a complaint against the agent with the insurance company. c) They can pursue with the agent to refund their premium. d) They can get a case registered against the company and the agent, both. 140. Mr. X wants to know that if at any point of time they are required to withdraw some amount prematurely from Aakash and Sanjana’s PO RD account, what rate of interest will be charged from the account holders on the withdrawal amount as per PO RD Rules. a) No premature withdrawal is allowed. b) 1% + applicable rate of interest in PO RD account. c) 2% + applicable rate of interest in PO RD account. d) 15% per annum. CFP Final Level: Workbook Page 52

141. Mrs. X has told you that her husband is willing to open a Senior Citizen Saving Scheme account after his retirement. She wants to know whether the family can also open a separate account in the same scheme in her husband’s HUF name at the same time. According to you_______. a) No they cannot. b) Yes they can. c) Yes, they can but subject to maximum amount deposited in her husband’s individual account or ₹ 15 lakh whichever is lower. d) Yes, they can but subject to maximum amount deposited in her husband’s individual account or ₹ 15 lakh whichever is higher. 142. Mrs. X seeks your opinion on taking suitable risk covers, having seen the tragedy with her husband. Your advice is ______. a) she should go in for a term insurance to take care of her mortgage liability b) she should take disability insurance for herself and health insurance for all members of the family c) a suitable health insurance for Clifford is must during his stay in Germany d) All of the above 143. Before finalizing the Financial Plan, Mrs. X tells you that she wants to entrust the estate issues to a solicitor friend, Mr. Larry D’Silva. Which of the following is your best stand? a) This is not permissible as per the Rules of FPSB India. b) This is permissible subject to such an arrangement finding an explicit mention in the Financial Plan for the said activity. c) This is permissible subject to the advice of the solicitor being integrated into the Financial Plan and monitored along with the Plan. d) You may enter into an MoU with the Solicitor and may also have a revenue sharing model. CFP Final Level: Workbook Page 53

144. Which of the following is true? a) The primary method of dealing with this risk is life insurance. b) The financial planner should request information about existing life insurance policies to help assess whether adequate support is available. Different types of policies are appropriate in differing circumstances. c) The planner will evaluate the amount of insurance available and also whether the types of policies in place are best suited to the needs of the client. d) All of the above 145. You have started working on the financial plan for Dr. Mishra. One day he called you & told that for Estate Planning aspects of his financial plan he shall be taking the services of his brother, an advocate. As per FPSB Code of Ethics how would you proceed in this aspect? a) This is not possible as the Financial Plan has to cover all aspects. b) This must be stipulated in writing. c) Prior consent of Dr. Mishra’s wife must be taken. d) Prior consent from his brother must be taken. 146. One day, while sitting in the office of his stock broker, Dr. Mishra heard some discussions about demutualization of Stock Exchanges in India. Dr. Mishra is unaware about this term and has thus asked you about this concept.According to you _________. a) In demutualization, the administration of Stock Exchange is kept isolated from its trading brokers/members b) Demutualization refers to privatization of all government owned Stock Exchanges in India c) Demutualization refers to Self-Regulatory Organizations (SRO) structure of Stock Exchanges in India d) All of the above 147. Dr. Mishra is planning to take a life insurance policy as per you advice. His agent has suggested him that he should take “Critical Illness Rider” on the new policy and thereby save 60% portion CFP Final Level: Workbook Page 54

of his health insurance premium by taking this rider with this policy. Dr. Mishra wants to take your advice whether he should replace his health insurance by this rider as by doing this transaction he is saving 60% of his current health insurance premium. According to you, he should ____________. a) Not replace his health insurance with this rider as both have different features b) Replace this health insurance as there is a direct saving on the premium c) Reduce his health cover by 50% and take the 50% rider as suggested by the agent d) Both options are same and anyone may be opted 148. Recently one of the life insurance agents has informed Dr. Mishra that if one takes a life insurance policy under “Key Man Insurance”, one can get deduction of the premium of this policy from their taxable income. According to you ________. a) Dr. Mishra can claim deduction but the maturity value of this policy shall be taxable in his hands b) Key Man Insurance is not applicable in his context c) Ts is applicable on second life insurance policy only d) None of the above 149. Acting upon your advice Dr. Mishra decides to take a life insurance plan for himself. At the time of choosing mode of payment, Dr Mishra has asked you the difference between various modes of payment of insurance premium (monthly/quarterly/half yearly/yearly) from claims perspective, in case if any. According to you ___________. a) Monthly mode is better because in case of claim the same shall be payable against the minimum possible paid premium b) There is no difference among all options from claims perspective c) Yearly mode is better because it offers a rebate in premium to the Life assured d) Choice may be different depending upon the age of the life assured 150. An understanding of the client’s ------------ is necessary for several reasons. First, it enables the financial planner to assess the importance of a particular income source and to plan for its CFP Final Level: Workbook Page 55

potential replacement in case it suddenly ceases (such as salary during a wage earner’s disability). In addition, it helps the planner assess the client’s ability to meet financial goals by allocating some of the income to savings and investments or consumption, as appropriate. a) Income b) Revenue c) Expenses d) None of the above 151. Sneha wants partition of his father-in-law’s HUF to claim her share and her husband’s share out of the HUF’s assets. In principle, Dr. Mishra is not keen for the same and wants to know whether his wife can legally demand partition of his father’s HUF as she is also one of the member in the same? a) Yes b) No c) With prior permission from IT Department only d) Data insufficient 152. A Mutual Fund agent has told Dr. Mishra that bigger the AUM of the fund the better it is. Which of the following statements are correct? 1. The bigger the fund AUM, the lower the expense ratios and in that sense it could be better. 2. The bigger the funds AUM, lesser are the chances of showing break-out returns as stock buying becomes difficult without moving the price upwards. 3. The bigger the fund AUM the worse-off a mid & small cap fund would be, due to its limited pool of stocks. 4. The smaller the AUM of a small cap fund the better it is due to lower expenses & higher returns. a) Only 1 is correct b) Only 1 & 2 are correct c) Only 1, 2 & 3 are correct CFP Final Level: Workbook Page 56

d) All are correct 153. While interacting with you during the data collection sessions, Gunjan and Neerja became so impressed with your professional approach and the trust created that the couple requested you to become a whole time legal guardian of their kids regarding execution of all required financial steps at every stage in future even without further recourse to the couple. As per FPSB Code of Ethics, is this possible for you? a) Yes b) Yes, but you can do it in your individual capacity and not in professional capacity. c) Yes, but in that case you will not be in a position to charge any professional fee from the couple. d) No 154. Gunjan wants to know which of the health insurance plans of insurer XYZ he should opt for, from the cost effectiveness perspective, if he wants to take minimum sum assured of ₹ 1 lakh per member of his family. a) Individual Member Policy b) Family Floater Policy c) Gunjan should take 50% risk cover under both the policies d) Gunjan should take 75% cover under individual policy and 25% cover under Family floater policy 155. Gunjan & Neerja want to ensure a life annuity for their kids. You have suggested an immediate annuity plan from a life insurance company in which they can buy the policy by paying a lump sum premium and the kids will start getting annuity from the end of 1st policy year. Gunjan and Neerja will be the proposers for the beneficiaries Mayank and Manas, respectively in these policies. The Life Insurance company is giving 4 annuity options. From the perspective of ensuring maximum benefit to their children, which option should be chosen by the couple? a) Life Annuity CFP Final Level: Workbook Page 57

b) Life Annuity certain for 15 years c) Joint life last survivor d) Joint life last survivor with return of purchase price 156. The Post Office MIS accounts of Mayank and Manas were opened on 01-10-2020. The couple wants to know how much amount will be received from each of these accounts if they are closed today on 6th Sep 2021 a) No premature closure is allowed in PO MIS account within one year b) ₹ 2.94 lakh from each account c) ₹ 2.97 lakh from each account d) ₹ 3.00 lakh from each account 157. Gunjan wants to know that the income from PO MIS accounts of both kids shall be added in whose taxable income as the amount of one account was gifted by the Gunjan’s parents and that of other account was gifted by Neerja’s parents? a) Income from both accounts shall be added to the taxable income of Gunjan. b) Income from both accounts shall be added to the taxable income of Neerja. c) One account's income in Gunjan’s and the other in Neerja’s taxable income. d) Income shall not be added in the incomes of Gunjan and Neerja. 158. Amaranth prefers Comprehensive Insurance for his fleet of taxies. This time while renewing his policy, he was surprised to notice that the premium was more for one of the taxis than what he paid last year. On investigating, he found that the insurance company has charged a “Malus” on the premium and therefore the premium is more. Amaranth wants to know what “Malus” is. You explain “Malus” as the extra premium which insurance company charges on the ____________________. a) Basis of his overall claim experience in motor insurance policies issued by that company in the last 3 years CFP Final Level: Workbook Page 58

b) Basis of claim lodged by the policy owner in the last year policy c) Basis of accidental track record of the driver of the insured vehicle d) Commercial passenger carrying vehicles 159. Amaranth wants to take a life insurance policy on the life of his father as well as both his brothers, because all of them are playing a crucial role in managing his business. However, in case of any eventuality he wants to reserve all legal rights of receiving the policy benefits in his name. He wants to know whether it is legally possible for him. a) Yes, he can take the policy in the desired way. b) Yes, but he cannot reserve the right to receive the policy benefits in his name. c) No, in the absence of insurable interest he cannot take their life insurance policy. d) Data insufficient 160. In your initial meeting, to make an impression on your client, you discuss the Financial Plan made by you for a famous doctor and also his spending habits with Arvind. Which Code of Ethics prohibits you to have such a discussion with Arvind? a) Code of Ethics of Professionalism b) Code of Ethics of Confidentiality c) Code of Ethics of Fairness d) Code of Ethics of Integrity 161. You advise Arvind to buy a ₹ 50 Lakh life insurance term plan. While filling the proposal form for purchase of this term plan Arvind does not mention details of another Life Insurance policy, taken by him earlier, from a different insurance company. In case of any mishap, under which principle the claim of Arvind could be questioned by the present Insurer, if facts of his earlier insurance policy become known? a) Principle of Insurable Interest b) Principle of Utmost Good Faith c) Principle of Waiver and Estoppel CFP Final Level: Workbook Page 59

d) Principle of Indemnity 162. While analyzing and evaluating Arvind & Sudha’s personal and financial information in his Financial Planning process, which of the following tasks have been completed by you at this stage? 1. Identifying alternative investment vehicles. 2. Identifying financial strengths and weaknesses. 3. Recommending specific tax strategies. 4. Preparing preliminary financial statements. a) 2 and 4. b) 1, 2 and 3. c) 2, 3 and 4. d) 1, 2, 3 and 4. 163. Tarun wants to know whether he is entitled to deal with you on behalf of Ragini for preparation and execution of her Financial Plan. As per FPSB Code of Ethics, what is the correct option in this context? a) Tarun cannot represent Ragini on such matters as the assets are in her name. b) All investments should first be transferred in Tarun’s name. Only afterwards Tarun can deal with you. c) You can verbally cross check with Ragini and if she has no objection, you can deal with Tarun. d) You should seek written authority from Ragini before start of discussions or draft of letter of engagement. 164. Tarun has heard about professional indemnity policy and would like to know the applicability of this policy in the context of Ragini. According to you _________. a) By use of this policy, Ragini can assure her sponsors of the performance of her obligations towards them CFP Final Level: Workbook Page 60

b) By use of this policy, Ragini can protect her sponsors from the risk of her non-performance in the competitions c) This policy can insulate Ragini from the unseen losses by the persons having her confidential financial information d) This policy is not applicable in her context 165. While drafting a risk management plan for Ragini, you have arrived at her initial insurance requirements as follows: I. Life insurance II. Health Insurance III. Disability Insurance IV. Property Insurance According to you what should be the most suitable priority order of these insurance needs for Ragini from the given options? (2) a) I, III, II, IV b) II, III, IV, I c) III, IV, II, I d) III, I, II, IV 166. Tarun is the nominee in the existing Post Office NSC investments of Ragini. Tarun wants to know in case these NSCs are pledged to a bank for availing a loan, what impact will it have on his nomination in these NSCs. a) His nomination shall stand as it is. b) His nomination shall stand cancelled as soon as any pledge is made. c) No pledge is permitted for NSC. d) Decision on carry forward of existing nomination upon pledge of NSCs is a privileged right of the Post Master of the Post Office concerned. CFP Final Level: Workbook Page 61

167. Tarun wants to know relative advantages of having exposure to Gold as an asset class through Gold Exchange Traded Funds (Gold ETFs) which can be purchased and traded as units through the Demat A/c. Which of the following is mostappropriate in this context? a) In Gold ETF, Long Term Capital Gains tax is levied after one year of purchase against 3 years in case of physical Gold. b) In case of an investor holding physical Gold, he has to pay Wealth tax after the net wealth crosses a certain limit. c) Most of the Gold ETF schemes available in India reflect international prices of Gold and are insulated from local demand-supply factors d) Securities Transaction Tax (STT) is applicable on purchase and sale of Gold ETF. 168. Ragini wants to donate to the National Sports Fund some amount out of the ₹ 1 crore which she is likely to get as award. Tarun wants to know if any benefit is available to Ragini under the Income Tax Act on account of this donation. a) The whole amount received shall be tax free and there shall be no tax benefit on such donation. b) The amount received will be taxable but the part donated will be tax free under section 80- G. c) The donated amount can be off-set against her earnings from endorsements. d) No benefit will be available as her taxable income is above ₹ 10 lakh. 169. Tarun is eager to know when is the right time for him to start Estate Planning for Ragini. In your opinion the same ____________. a) Right now b) After Ragini’s marriage c) After Ragini’s retirement d) There is no need for her Estate Planning as she is having sufficient wealth and there is no dependent on her CFP Final Level: Workbook Page 62

170. While interacting with you, Sahil came to know about your investing style, viz. Direct Equity investment and some schemes of Mutual Funds. He wants to know whether you can manage some of his money in your investments and assign him appropriate share in the profits thereof. As per FPSB Code of Ethics is it possible for you? a) Yes b) Yes, but with prior permission from FPSB against a written proposal letter from Sahil c) Yes, but with a proper written agreement in which all terms and conditions must be stipulated in advance d) No 171. Employment with a ---------company generally has more uncertainty than employment with a --- -------, ------------company. The financial planner needs to make a judgment regarding the stability of the income stream because it can affect what types of investments might be appropriate, how much debt can be handled by a household, and other financial advice issues. a) Mature company, Small start up b) Start-up, mature and financially sound company c) Big name in industry, start up d) None of the above 172. Sahil wants to accumulate retirement funds in one of the government schemes. His friend has suggested him ‘New Pension Scheme’ of the Government of India, which is effective from 01- 01-2004. Sahil wants to know whether the said scheme has provisions whereby he can also start investing in this Scheme in near future. a) Yes b) No c) The Scheme is only for Senior Citizens d) The Scheme is only for Government employees CFP Final Level: Workbook Page 63

173. Sahil has informed you that his previous employer has not paid gratuity due to him till this date. Sahil now wants to know if any remedy is available to him in this matter. a) Sahil can move an application to the Controlling Authority which may further forward it to the District Collector for recovery of the same from the company. b) Sahil can go to Civil Court and file a recovery suit against the company. c) Sahil can go to Labor Court and file a recovery suit against the company. d) Sahil can file a police complaint against his previous employer and get a cheating case registered. 174. Sahil has informed you that his Post Office MIS account is maturing next month. He wants to know whether this account can be extended further and, if so, for what duration? a) Cannot be extended. b) Can be extended for 24 months. c) Can be extended for 60 months. d) Can be extended for 72 months. 175. Sahil wants to liquidate immediately some of his assets for investing in fresh business opportunities. As he would have large cash with him and it may take about 2 months before the same is invested in business purposes, Sahil wants to know the ideal investment option for this money for this short period. Your suggestion would be _________. a) he should invest this money in a Bank FDR b) he should invest this money in Long Term Bonds c) he should invest this money in the Liquid Funds Scheme of a Mutual Fund d) he should invest this money in Equity Growth Scheme of a Mutual Fund 176. Sahil has informed you that the joint MIS account of Aniket& Akhil was opened from the sale proceeds of some gold ornaments which were gifted to Namrata by Sahil’s father. Sahil wants to know the tax treatment of the interest income received from this account? a) Interest income shall be taxable in the hands of Sahil. CFP Final Level: Workbook Page 64

b) Interest income shall be taxable in the hands of Namrata. c) Interest income shall be taxable in the hands of Sahil’s father. d) Data insufficient to ascertain the taxability of the interest. 177. Sahil’s father-in-law is a well-established businessman and Namrata is their only child. He wants to include Sahil as a member in their HUF. Is it possible? a) Yes b) No c) Yes, but with prior permission from IT department d) Yes, but first Sahil’s father-in-law should prepare a non-recoverable Will in favor of Sahil 178. While drafting a Financial Plan, on examining the annual cash flow of Mr. X you have observed one crucial factor. How would you explain that factor? a) His personal expenses’ proportion is too high and needs to be curtailed. b) His net cash flow is too high to justify a small housing loan. c) Excess cash which is not routed to a suitable liquid and tax efficient investment. d) Net cash flows will decrease in future year 179. Which of the following is qualitative information? a) How the client makes investment decisions, b) What the client expects from investments, c) What the client knows about investing, d) How the client views risk, and so on. e) All of the above 180. While entering into a relationship with you, Mr. X assumed that you being a practicing Certified Financial Planner, you are fully able to take care of the execution of all aspects of his Financial Plan, i.e. Taxation, Insurance, Investments, etc. As per FPSB Code of Ethics, what is the best proposition in this context? CFP Final Level: Workbook Page 65

a) This is the right assumption which can be made about all Certified Financial Planners b) The scope and limitations of the services of the Certified Financial Planner needs to be disclosed in the beginning, specifically in writing, by the Certified Financial Planner to the client. c) A Financial Planner can never take care of all aspects of a Financial Plan. d) A Financial Planner is concerned with only making a Financial Plan and not its execution. 181. Mr. X is seeking your advice regarding suitability of a health insurance plan for his family. Taking into account the health status of the family, what would be your advice? a) The family has good liquidity to take care of any sudden medical expenses, hence no health insurance policy is required. b) Given fairly good medical history, they should postpone taking health insurance for 5 more year c) A floater policy which covers the medical expenses of any member of the family, as well as disability insurance of Mr. X, at least, must be taken. d) Mr. X can save upto ₹25,000 under section 80 D by taking a suitable health cover to that extent. 182. Mr. X wants to know the tax treatment of the withdrawals by way of switch-outs he is making out of his Money Market Mutual Fund (MMMF) to the equity scheme and in the pension scheme.In your opinion __________. a) the income related to every monthly withdrawal shall be subject to normal rate of tax applicable to Mr. X b) the income related to monthly withdrawals shall be subject to Capital Gains Tax as is applicable to debt instruments c) the MMMF being a mutual fund scheme, all income received on withdrawal shall be tax free d) these being switch-outs, no money is being withdrawn, hence no incidence of tax CFP Final Level: Workbook Page 66

183. Recently in an unfortunate event, one of Mr. Agrawal’s brother died in a road accident. He was a bachelor and he died intestate. His parents were living with his deceased brother. Apart from Mr. Agrawal there are three other siblings of the deceased. Mr. Agrawal wants to know the applicable order of priority as per Hindu Succession Act for the disposition of his deceased brother’s property. (3) a) Both parents will get the priority over all siblings of Mr. Agrawal including Mr. Agrawal himself. b) All siblings of Mr. Agrawalwill get the priority over their parents. c) Mr. Agrawal’s mother will get priority over her husband and sons. d) All of them will have equal right over the property of the deceased 184. You have selected a Mutual Fund scheme which has stocks in its portfolio which move together and have a high correlation. How will that impact the risk and return of Mr. X's portfolio? a) The Mutual Fund portfolio will have a return that is lower than the stocks included in it, but have a risk that is higher than the risk of the stocks. b) The Mutual Fund portfolio will have a return that is the average of the stocks included in it, but have a risk that is lower than the risk of the stocks. c) The Mutual Fund portfolio will have a return that is the average of the stocks included in it, but have a risk that is higher than the risk of the stocks. d) The Mutual Fund portfolio will have a return and risk, which lies in the range of risk and return of the stocks included in it. 185. You, being a Financial Planner, would help Mr. X to set his financial goals in __________. a) Any term as desired by him b) Both current & future money terms c) Current money terms d) Future money terms CFP Final Level: Workbook Page 67

186. The estimated value of a real estate asset in a financial statement of Mr. X, prepared by you would be based upon the: a) Basis of the asset, after taking into account all straight-line and accelerated depreciation. b) Mr. X's estimate of current value. c) Current replacement value of the asset. d) Value that a well-informed buyer is willing to accept from a well-informed seller where neither is compelled to buy or sell. 187. Mr. X has asked you to give him a written assurance that if you prepare a Financial Plan for him, then in no case you would reveal any of his information to any other person, including his family member As per FPSB Code of Ethics, is it possible for you? a) Yes b) No c) Yes, but with prior consent of all relevant family member d) No, because client has no authority to demand such type of assurance 188. After working on the restructuring of the existing portfolio of Mr. X Chaudhary, you have recommended for a major shift into equities and he has acted upon your advice implicitly. Unfortunately in the current year, equities performed badly and Mr. X’s portfolio lost almost 50% of the original investment. If he blames you for the same, then on what ground you may seek relief? a) Volenti non fit injuria (to a willing person one cannot do injustice) b) Caveat emptor (let the buyer beware) c) Cuiusvishominisesterrare (every human can make a mistake) d) Ignorantialegis non excusat (ignorance of the law is no excuse) 189. Mr. X wants to take your advice about his Retirement Planning. He is eager to know the time when he should plan for his retirement? a) Immediately CFP Final Level: Workbook Page 68

b) At the time of dissolution of his joint family c) In case he does not get re-elected as an MLA d) After the demise of his father 190. Mr. X is seriously concerned with the on-going rising inflation. Taking a bitter experience of his earlier equity investments, he is keen to do some investments in debt instruments. Keeping in view the constantly rising inflation rate into account, which type of investment, from the given options, is advisable for Mr. X in the current scenario? a) Bank FDR b) Long Term Bonds c) Short Term Bonds d) Floating Rate Bonds 191. Mr. X has not done any Estate Planning as of now. Even his father has not prepared any Estate Planning documents. As Mr. X is the only son of his parents, along with his 3 sisters, what is most suitable for him? (2) a) Mr. X's father should first prepare his Will and on the basis of that Will Mr. X should prepare his own Will. b) Mr. X should create his own Will without waiting for his father’s Will. c) There is no need for any Estate Planning as the family is a joint family & Mr. X is the only son of his parents. d) Mr. X should create his Will by including his father’s property but with an inbuilt provision for his sisters on account of that property. 192. Professional judgments helps bridge the process of financial planning with the practice of financial planning. a) True b) False CFP Final Level: Workbook Page 69

193. Financial Planner stands in --------------relation with the client. A financial planner places the interest of the client first, at all times acting honestly, in utmost good faith, and in a manner he or she reasonably believes to be in the best interest of the client. a) Fiduciary b) Best c) Better d) None of the above 194. A financial planner-client relationship is ----------------and based on open and regular communication that alerts the client to any potential conflict or bias, to any change in business practices or philosophy, or to any impending actions or consequences so that the client can anticipate or mitigate their impacts a) Transparent b) Cordial c) Fiduciary d) None of the above 195. How does the financial planning professional put a client’s interest first? a) Abide by the supporting principles. b) Act in accordance with professional expectations. c) Provide full and appropriate disclosure. d) Act with transparency. e) Manage conflicts of interest. f) Secure fully informed client consent. g) Communicate the compensation and remuneration model. h) Doing these things will go a long way toward being a financial planning professional. i) All of the above CFP Final Level: Workbook Page 70

196. When government benefits are not provided or not sufficient, privately-owned health insurance cover is necessary a) True b) False c) Not required d) None of the above 197. ---------------------is the ability to be aware of emotions and direct your behaviour appropriately. - ------------------ allows an individual to delay initial, current needs so you can pursue more important, significant goals. a) Self-management b) Self- awareness c) Emotional nature d) None of the above 198. It is the ability to pick up on other people’s emotions (accurately) and understand what is happening with them. It may include stepping into the other person’s shoes to feel what they feel, even when doing so does not mirror your own feelings. a) Self-management b) Self- awareness c) Social competence d) None of the above 199. -----------is the ability to use awareness of your own emotions, along with those of others, to successfully manage the interaction. Doing this encompasses clear communication and effective handling of conflict. This skill supports your ability to engage with many people, including those of which you may not be particularly fond. a) Relationship management b) Social awareness CFP Final Level: Workbook Page 71

c) Empowerment of self d) None of the above 199. -----------------is more than simply meeting with a client, hearing what they want and providing a potential solution or two. For a Financial Planner, ---------------requires learning about the client and their dreams and goals. a) Client engagement b) Relationship management c) Social awareness d) None of the above 200. ------------is the process of learning about the client – really learning about the client. --------- can include both qualitative and quantitative information, and the primary focus for the financial planner is to discover the client’s life dreams and goals, along with information to help facilitate the process of developing strategies to help the client achieve those goals. What is this process called? a) Discovery b) Collecting data c) Analysis d) None of the above CFP Final Level: Workbook Page 72

PART - 2 Case Study Based MCQs (3 Mark Questions) In this workbook, here you have 10 Comprehensive Cases and each case followed by 25 to 40 questions for your to practice. Remember, your exam will have only 1 case but since that’s not shared in advance, hence you need to practice more case studies and understand what type of questions generally come and how to solve them. CFP Final Level: Workbook Page 73

CFP Final Level: Workbook Page 74

Case Study – 1 (Reference Date: 1st April, 2020) Ashwin, aged 34 years, is employed with an oil exploration company since December 2003. He is an engineer by profession and is part of project team that manages oil rigs worldwide. He has to tour extensively in different parts of the world in connection with the company’s projects. He has approached you, a CFPCM practitioner, for preparing his Financial Plan. He is staying in his own house at Vadodara. His wife Sumedha, aged 31 years, is working in a private sector bank as Manager. They have a son Prateek aged 4 years, and a year old daughter Aslia. The family’s monthly house hold expenses are ₹70,000 p.m. (excludes EMI on loans and insurance premium). Ashwin’s parents stay in their ancestral house at Bikaner. His father is engaged in a small business. Ashwin however supports his parents financially to the extent of ₹ 10,000 p.m. Ashwin’s Monthly Salary (FY 2020-2021) Basic Salary : ₹ 60,000 50% of Basic salary Dearness Allowance1 : ₹ 15,000 ₹ 7,500 House Rent allowance : Actual expenses up to ₹ 1,250 per month ₹ 7,500 Transport Allowance : 12% of Basic Salary Medical Reimbursement : Entertainment Allowance : PF & Superannuation : Sumedha’s Monthly Salary (FY 2020-2021) Basic Salary : ₹ 40,000 30% of Basic salary Dearness Allowance : ₹ 10,000 ₹ 1,600 House Rent allowance : ₹ 7,500 12% of Basic Salary Transport Allowance : Executive Allowance : PF & Superannuation : Couple’s Assets & Liabilities (As on 31stMarch, 2020) 1 100% of DA received forms part of salary for retirement benefits. DA not part of PF Contribution. Page 75 CFP Final Level: Workbook

Assets: : ₹ 75.00 lakh (Municipal Value) Hous : ₹ 3.50 lakh (Depreciated Value) Car : ₹ 6.20 lakh (Account balance in Ashwin’s name) PPF (maturity on 1st April 2027) Insurance – Money Back policy2 : ₹ 4.00 lakh (sum assured) Child Plan – Life Insurance3 : ₹ 20.00 lakh (Sum Assured) Gold Ornaments : ₹ 6.50 lakh (Valued 22 karat less 10%) Sovereign Gold Bonds4 : ₹ 2.90 lakh (quoted value) Equity Mutual Fund Scheme5 : ₹11.87 lakh Balanced Mutual Fund Scheme : ₹ 3.28 lakh Debt Mutual Fund Scheme6 ₹ 7.67 lakh Portfolio of Equity Shares : ₹ 18.32 lakh Term deposits ₹ 3.50 lakh (in Sumedha’s name) Cash/Bank Balance : ₹ 2.25 lakh (Cumulatively in accounts of Ashwin & : : Sumedha) Liabilities: ₹ 15.40 lakh (Principal Outstanding) Home loan7: ₹ 2.77 lakh (Principal Outstanding) Car Loan8: Goals: 2 Ashwin purchased the 20-year policy on 18th November, 2013; annual premium ₹ 26,864; 20% of sum assured (SA) payable on survival each on expiry of 5th, 10th and 15th years and 40% of SA payable with accrued bonuses on survival of the term 3 Purchased by Ashwin on the life of Prateek on his 3rd birthday for a term of 20 years; annual premium ₹ 44,347 4 Sumedha purchased 100 units @Rs.3,150 in September 2019 Series, maturity date 30-Sep-2027, coupon @2.75% p.a. payable half-yearly on 30-Mar and 30-Sep every year. 5 Four schemes out of which one is diversified large cap growth fund (Rs. 5.71 lakh), one is mid-small cap fund (Rs. 3.83 lakh), and two are sector specific funds on Banking (Rs. 1.26 lakh) and Information Technology (Rs.1.07 lakh). 6 Two schemes, one is short term debt fund in Growth option (current value Rs. 2.59 lakh) acquired through Rs. 10,000 monthly SIP continued for 2 years, the last SIP on March 1, 2018; the other is Gilt fund subscribed in New Fund Offering (May 20, 2017) for Rs. 2 lakh in Growth option with further contributions of Rs. 1 lakh each on Feb 11, 2018 and on June 17, 2019 7 Home loan of Rs. 20 lakh taken on 1st November, 2014 to acquire a house of 1050 sq.ft. built up area valued at Rs. 40 lakh then. Loan details: fixed interest of 8% p.a., tenure 15 years, first EMI paid on 1st December, 2014. Loan shared in 60:40 ratio, major share by Ashwin 8 Car loan of Rs. 5 lakh taken on 1st April, 2018 at a fixed interest of 11% p.a. for a 4-year term. First EMI paid on 1st April, 2018. CFP Final Level: Workbook Page 76

1. To provide for higher education of Prateek and Aslia. The expenses, at current cost, required for each child for 4 years; ₹8 lakh at their respective age of 18, and ₹ 3 lakh p.a. for 3 subsequent years; cost escalation 8% p.a. 2. Marriage expenses of ₹ 20 lakh (current cost) for each child at their respective age of 27 years which increases 8% p.a. 3. Retirement corpus at Ashwin’s age of 60 to sustain the same lifestyle till their expected life time. 4. A bigger house 3 year from now, valued at ₹ 1.40 crore today. 5. To start building a separate dedicated fund for annual vacation expenses of ₹ 2 lakh (current cost) to be utilized during 15 years to Ashwin’s retirement; cost escalation 8% p.a. Life Parameters: : 80 years Ashwin’s Expected Life : 82 years Sumedha’s Expected Life 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. 4) Liquid MF Schemes : 6.00% p.a. 5) Gold & Gold ETF : 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 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 77

Case Study - 1 (Ashwin) Reference Date 1st April 2020 (1) Ashwin wants to know the amount needed by him to buy the new house after 5 years. This could be done by utilizing the net amount from the sale proceeds of his existing house after 5 years. After deducting the outstanding loan amount and a sum of ₹ 10 lakh towards meeting capital gains tax liability on existing house and furnishing expenses of new house. [3 marks] A) ₹ 1.03 crore B) ₹ 84 lakhs B) ₹ 1 crore D) ₹ 1.08 crore (2) You give a quick look at the assets and liabilities of the couple, and before drawing a comprehensive picture of adequate insurance protection and a strategy to achieve the same, you suggest to take cover on an immediate basis, which is _______. [2 marks] A) They must take Mortgage Redemption Insurance or an equivalent term insurance to cover. Their outstanding loans B) They must take Accident Insurance C) They must take Critical illness insurance D) They must take Unit Linked Insurance Policies for their financial goals (3) Calculate Net worth of Ashwin and Sumedha, Considering financial assets only. [3 Marks] A) ₹3782000 B) ₹ 5599000 C) ₹ 1817000 D) ₹ 2655000 (4) You compute the value of additional life cover ( ignoring child plan) for Ashwin by considering current household expenses, required inflation adjusted to the extent of 70% until Sumedha age of 55 years and 50% of then expenses for the remaining period of her expected life by considering investment in debt MF schemes. This cover required comes to ______.[3 marks] A) ₹ 2 crore B) ₹ 1 crore C) ₹1.40 crore D) ₹1.55 crore CFP Final Level: Workbook Page 78

(5) Ashwin requires Education expenses for each child at their respective age of 18 (₹ 8 lakh at current cost) and for three subsequent years (₹3 lakh p.a. at current cost). Expenses escalate at 8% p.a. All withdrawals are made in the beginning of the financial year. What monthly amount is to be invested in equities with immediate effect up to one year prior to the required expenses for the First Child to achieve this goal? (5 Marks) A) 21800 B) 27000 C) 26553 D) 25223 (6) For accumulating funds for the goal of annual vacations, you suggest, a lump sum investment of ₹ 15 lakh and further investment of ₹ 3lakh annually increasing by 25% every year from next year till 7th year. The amount accumulated from this fund is switched to risk free instrument 3 years prior to the actual usage for the purpose. What return would be needed by Ashwin from the asset allocation fund to achieve the goal? [4 marks] A) 15% B) 16% C) 9 % D) 10% (7) Towards the marriage goal of the children, you suggest Ashwin to make maximum permissible subscriptions to his PPF account towards the end of every financial year and extend the account thrice beyond initial maturity for terms of 5 years each with similar subscriptions. The fourth term is maintained without further contribution. Ashwin shall withdraw about 50% of accumulation for the marriage expenses of Prateek and the remaining for the marriage expenses of Aslia. What are the expected individual withdrawals and shortfalls in meeting the marriage expenses? ( Assuming marriage expenses escalates @ 8% p.a. ) [5 marks] A) Pratik ₹ 53 lakh, 39% shortfall; Aslia ₹ 33 lakh 70% shortfall B) Pratik ₹ 63 lakh, 38% shortfall; Aslia ₹ 33 lakh 70% shortfall C) Pratik ₹ 60.7 lakh, 48% shortfall; Aslia ₹76 lakh 49% shortfall D) Pratik ₹ 54 lakh, 39% shortfall; Aslia ₹ 33 lakh 70% shortfall CFP Final Level: Workbook Page 79

(8) Calculate Ashwin income tax liability for AY 2021-22. If he contributes maximum permissible contribution to his PPF account. Also, he pays 5000 p.a. Health Insurance premium for his dependent brother, 20000 p.a. for health insurance for his family and 30000p.a for his parents who are not senior citizen he earns interest of 10500 on his savings bank account and 90000 (net) on the fixed deposits during FY 20-21. [5 Marks] A) ₹ 99040 B) ₹ 18540 C) ₹17480 D) ₹166680 (9) Ashwin invested in shares of XYZ ltd on 12th October 2017₹35 below its Face Value. He received Dividends of ₹20 per share, ₹30 per share on 8th December 2018 and 30th November 2019 respectively. If he sells the entire holding of shares at the par value today, what returns would he have got from this transaction? [3 Marks] A) 46.5% B) 45.6% C) 44.6% D) 46.6% (10) Ashwin saw the acronym CFPCM against your name in your business card. He wants to know about the same. You tell him that ________. [2 Marks] A) CFP marks are owned outside the US by US based FPSB Ltd B) FPSB India is the owner of CFP marks within Indian Territory C) The US based FPSB Ltd. is licensed globally to administer CFP marks D) The US based FPSB Ltd. and FPSB India are respectively licensed to issue CFP certification in US and India (11) Ashwin wants to know what the most appropriate instrument is/are to replicate exactly the equity market returns over a sufficiently long period with the least cost and risks. [2 Marks] (i) Diversified Growth schemes of Mutual Funds (ii) Equity Index Funds (iii) Growth Option of ULIPs (iv) Exchange Traded Funds of Equity Indices (v) A portfolio of Large Capitalized stocks A) (i) and (ii) B) (ii) and (iv) C) (i) and (iii) D) (iv) and (v) CFP Final Level: Workbook Page 80

(12) As the rates in bank fixed deposits would be headed lower in the near future, you advise Ashwin to invest the FD maturity proceeds in a Mutual Fund scheme investing in long dated Government Securities. Your investment rationale, theoretically, is: [2 marks] A) Invested for more than one year, the debt oriented Mutual Fund scheme would result in tax efficient return, though pre-tax return may match with bank FD. B) With softening interest rates, the price of long dated Government Securities would also fall, thus better yield profile of such securities. C) This is a play on long duration with expected moderate trend in interest rates, thus scheme return though capital appreciation is expected. D) Higher actual income would be expected from the scheme with strengthening yield as the interest rates fall in the future (13) You have advised Ashwin to buy a Term Insurance for his life and also for the life of Sumedha, he wants to know the importance of waiver of premium rider? [2 Marks] A) It is useless as there will not be any amount to be received from the Insurance Company at the time of maturity of the policy B) It is very useful as all future premiums would be waived by the Insurance Company in case the Life assured becomes totally and permanently disabled C) It is same as Permanent Disablement rider hence need not be mentioned separately D) It is inbuilt with all the Term Insurance plans and thus need not be mentioned separately (14) You advised Ashwin and Sumedha about the parameters considered post-retirement investment return 8%, inflation 5% and specified longevity while working out retirement corpus. You informed that even marginal fall in expected return or rise in inflation post retirement and a slightly longer life span would adversely impact sustainability of corpus. You worked out the revised corpus by considering 6.5% annual yield, 5.5% inflation and 5 more years to Ashwin longevity. Additionally, he needs medical expenses of ₹12000 p.m.(present cost) after his retirement till Sumedha’s lifetime in both cases. What additional funds need to be accumulated by Ashwins’s retirement age? Also, by what percentage the retirement expenses should be curtailed to retain this cushion? [5 Marks] A) ₹1.46 crore; 18.66% curtailment B) ₹ 1.9 crore; 22% curtailment C) ₹ 85 lakh; 18.60% curtailment D) ₹ 80 lakh; 25% curtailment CFP Final Level: Workbook Page 81

(15) Considering the above revised corpus needed, you envisaged Ashwin that corpus need to be accumulated by considering only Equity shares portfolio holding along with a separate Asset allocation fund. He invest 70:30 in Equity: Debt for 5 years, subsequently, the accumulated amount in asset allocation funds and further monthly investment is rebalanced in the ratio of 40:60 in Equity and Debt for the next 15 years. At this stage, the accumulation in equity, Debt and equity shares portfolio are redeemed and transferred to a designated retirement fund yielding 8% p.a. which is used for drawing retirement expenses. Cumulative Monthly investments maintained up to this period are double in the last 6 years up to retirement. What is the monthly investment required? [4 Marks] A) ₹ 32910 B) ₹44850 C) ₹ 28410 D) ₹ 29900 CFP Final Level: Workbook Page 82

Additional Questions Q.1 Which is a better investment if ashwin & sumedha want to accumulate 200 grams of gold for the marriage of their children? A) Physical Gold B) Gold ETF C) Both D) None of these Q.2 Why Ashwin wants to take house hold policy? A) Household policy covers on reinstate value and goods cover on their market value B) Household policy covers Both house & goods cover on market value C) Household policy covers on reinstate value. D) None of the above Q.3 In your initial meeting, to make an impression on Mr. Ashwin, you discuss the Financial Plan made by you for a famous doctor and also his spending habits with Ashwin. Which Code of Ethics prohibits you to have such a discussion with Ashwin? A) Code of Ethics of Professionalism B) Code of Ethics of Confidentiality C) Code of Ethics of Fairness D) Code of Ethics of Integrity Q.4 You advise Ashwin to buy a Rs. 50 Lakh life insurance term plan. While filling the proposal form for purchase of this term plan Ashwin does not mention details of another Life Insurance policy, taken by him earlier, from a different insurance company. In case of any mishap, under which principle the claim of Ashwin could be questioned by the present Insurer, if the facts of his earlier insurance policy become known? A) Principle of Insurable Interest B) Principle of Utmost Good Faith C) Principle of Waiver and Estoppel D) Principle of Indemnity Q.5 You, being a Financial Planner, would help Ashwin to set his financial goals in _________. A) Any term as desired by him B) Both current & future money terms C) Current money terms D) Future money terms Q.6 Ashwin has not prepared any WILL as on date. He wants to know that in case he dies intestate as per prevailing Hindu succession law in India. Which of his existing family members can be denied a share of his estate in case of a dispute? A) His Mother B) His Father C) His wife D) His wife and kids CFP Final Level: Workbook Page 83

Q.7 Ashwin plans to pay off his loan after paying 5 more instalments. he took a loan of Rs. 450000 for 4 years at 11.25% p.a. on reducing monthly balance basis on 1st April 2018. The first EMI was paid on 1st May 2018 and thereafter on every 1st of the month. Prepayment of car loan would attract a penalty of 4% on the outstanding liability. What amount is required to prepay the loan with penalty?(Please ignore any other charges and taxes if applicable) A) Rs.210603 B) Rs.302457 C) Rs.256987 D) Rs.354787 Q.8 Ashwin proposes to invest in an upcoming housing project in suburban Mumbai for a flat worth Rs. 7,500,000 today. He proposes to make the down payment of Rs. 500,000 immediately. The balance amount is to be paid in instalments to the builder, 15% of the balance amount on 1st April 2020, 30% on 1st September 2020, 30% on 1st December 2020 and balance on 1st April 2021. In the meanwhile, he has researched on the various housing loan schemes offered by banks. He has finalised on one of the Banks that provides the loan at fixed interest of 10.5% p.a. disbursable as per time schedule agreed with the builder. The tenure of the loan is 15 years from the date of disbursement of first instalment and he pays the first EMI on 1st May 2020. He wants to know, what would be final EMI payable after the full disbursement of loan amount? A) Rs. 84,301 B) Rs. 78,740 C) Rs. 78,682 D) Rs. 77,377 Q.9 Ashwin also wants to know what would be the additional investment yield, over and above risk- free return i.e. 6% p.a. required for the retirement corpus of Rs. 3.4 crores to sustain till his proposed post-retirement period while providing her an inflation-linked monthly annuity of Rs. 1.6 lakh. A) 8.66% p.a. B) 2.16% p.a. C) 3.19% p.a. D) 0.32% p.a CFP Final Level: Workbook Page 84

Solutions Q1 D) 1.08 crore (Solution given below) Current value of the desired house ₹ 1.40 crore ₹ 19181213 (14000000*1.065^5) Value of the desired house after 5 years ₹ 75 lakhs ₹ 10275650 (7500000*1.065^5) Existing market value of the house ₹ 15.40 lakhs Value after 5 years Loan outstanding today Balance after 5 years from now Set = end Amortization N = 116 (180-64) Set End I = 8% PM 1 1 PV = 1540000 PM 2 60 Pmt = -19106 Balance? 890514 FV = 0 P/Y = 12 C/Y = 12 Sale proceeds of existing house ₹ 10275650 ₹890514 Less loan outstanding ₹1000000 ₹ 8385136 Capital gain tax liability ₹ 10796077 (19181213-8385136) Balance amount can be utilized Amount needed to buy new house Q2 A) They must take Mortgage Redemption Insurance or an equivalent term insurance to cover outstanding loans Q3 A) ₹ 3782000 (Solution given below) Financial Assets Value ₹5599000 PPF 620000 CFP Final Level: Workbook Page 85

Sovereign Gold Bonds 290000 Equity MF 1187000 Balanced MF 328000 Debt MF 767000 Equity Portfolio 1832000 350000 Term Deposits 225000 ₹1817000 Cash at bank 1540000 277000 Total liabilities ₹ 3782000 Home Loan Liability Car Loan ₹ 840000 p.m. Net worth = Assets – Liabilities 31 years ₹ 588000 (70% of 840000) Q4 C) ₹1.40 crore ₹ 10909729 (Solution given below) Current Expenses(Yearly) (7.5-5)/1.05 Current Age of Sumedha Amount Required 70% of current Expense ₹ 1896359 (588000*1.05^24) PV Today (31 to 55) ₹ 948179 (50% of 1896359) N = 24 ₹ 19172315 I = 2.38……. (RRR) PV =? (10909729) (7.5-5)/1.05 PMT = -588000 FV = 0 Page 86 P/Y = 1 C/Y =1 Expenses required at the age of 55 Amount required from 55 to 82 PV at the age of 55 (55 to 82) N = 27 I = 2.38……. (RRR) CFP Final Level: Workbook

PV =? (19172315) PMT = -948179 FV = 0 P/Y = 1 C/Y =1 PV today ₹ 3379648 (19172315/1.075^24) Total Amount required Today ₹ 14289377 (10909729+3379648) Current Insurance cover ₹ 400000 Additional Insurance cover required ₹ 13889377 (14289377-400000) Q5 D) ₹ 25223 (Solution given below) First Child would complete 18 years in (after 14 years) April, 2034 Funds required for First Child till April, 2038 Second Child would complete 18 years in (after 17 years) April, 2037 Funds required for Second Child till April, 2041 Period of investment till March, 2031 (156 Months) 13 years Amount required in April, 2034 ₹ 2349775 (800000*1.08^14) Amount required in April, 2035 ₹ 951651 (300000*1.08^15) Amount required in April, 2036 ₹ 1027783 (300000*1.08^16) Amount required in April, 2037₹ 4070020 (300000+800000)*1.08^17 Amount required in April, 2038 ₹1198806 (300000)*1.08^18 Amount required in April, 2039 ₹ 1294710 (300000*1.08^19) Amount required in April, 2040 ₹ 1398287 (300000*1.08^20) PV of these amounts in April, 2033 ₹8398967 (go to cash function put I = 11% (In investment yielding 11% p.a. ) Then go to cash editor put 0 in 1 then feed The above figures respectively NOTE: we can use RRR and putting non inflated values in cash function. We will get the same NPV Monthly amount required till March, 2033 (one year prior to April 2033) CFP Final Level: Workbook Page 87

Set Begin N = 156 (13*12) I = 11% PV = 0 PMT = -25223 FV = 8398967 P/Y = 12 C/Y = 1 Q6 C) 9% (Solution given below) ₹ 2 lakh Current cost of annual vacation Cost scalation 8% Risk free rate 5.5% Vacation fund requires when due in 26 years ₹ 26275992 N = 16 I = -2.314……% (RRR) PV =? 26275992 PMT = -1479271 (200000*1.08^26) FV = 0 P/Y = 1 C/Y = 1 Required value in asset allocation fund before switch to risk free (3 years prior) 22376994 (26275992/1.055^3) This need to be accumulated by investing ₹3 lakh (increasing by 25% every year) in 6 annual investment. The return to be obtained in asset allocation fund is calculated by XIRR function in excel. 1. - 1500000 2. – 300000 3. – 375000 4. – 468750 5. –585937 6. –732421 7. –915527 8 to 23. 0 24. + 22376994 IRR 9% (8.62%) CFP Final Level: Workbook Page 88

Q7 C) Pratik ₹ 60.7 lakh, 48% shortfall; Aslia ₹76 lakh 49% shortfall (Solution given below) PPF Account Balance as on 31 March 2020 ₹ 620000 Account Initial Maturity 2025 Numbers of Subscription Remaining 7 years Numbers of subscription from 2027 to 2042 15 Rate of interest throughout 7.75% Maximum subscription at the end of every financial year (22 years) ₹ 150000 Accumulated balance as on March 2042 (Pratik’s age 26, Aslia age 23) ₹11266928 Set = end N = 22 I = 7.75% PV = -620000 PMT = -150000 FV =?( 11266928) P/Y = 1 C/Y = 1 Accumulated balance as on March 2043 (Pratik age 27) ₹12140115 (11266928*1.0775) 50% of accumulated amount withdrawn for ₹ 6070057.5 (12140115/2) Pratik marriage expenses Estimated expenses for Pratik ₹ 11742927(2000000*1.08^23) Shortfall in Meeting Pratik marriage expenses 48.30%((6070057.5/11742927)-1) Remaining amount in PPF accumulated till March 2046 ₹7593546 (6070057.5*1.0775^3) Estimated expenses for Aslia ₹ 14792706 (2000000*1.08^26) Shortfall in meeting Aslia’s marriage expenses 48.67% ((7593546/14792706)-1) Q8 D) ₹166680 (Solution given below) Income under the head salaries Basic salary 720000 (60000*12) CFP Final Level: Workbook Page 89

D.A 360000 (30000*12) H.R.A 180000 (15000*12) Transport allowance 90000 Medical reimbursement 15000 Entertainment allowance 90000 (7500*12) LESS STANDARD DEDUCTION 16(ia) 50000 Income from salary ₹ 1405000 Income under the head house property Self-occupied GAV nil Less u/s 24 (b) 119223 (Current Home loan outstanding ₹ 1540000, cal. EMI and Int. payment 1 to 12 installment in the current year) Refer question no. 1 for EMI calculation Loss from house property (-119223) Income from other sources Saving account interest 500 (exempt upto 10000 u/s 80 TTA) Interest on fixed deposit 100000 (90000/90 *100) Income from other sources ₹ 100500 Gross total income ₹1386277 Less deduction u/s 80 (c) 150000 PPF 45000 (if parents are not senior citizen then 25000) Deduction u/s 80 (d) Total income ₹ 1191277 0-250000 0% 0 Tax on total income Rs.169883 250001-500000 5% 12500 Rs.6795 500001-1000000 20% 100000 Add (cess) Rs. 176678 More than 10 Lacs 30% 57383 -Rs.10000 Less TDS Rs.166678 Tax Payable CFP Final Level: Workbook Page 90

Round off Rs.166680 Q9 D) 46.6% Go to XIRR function of excel 12-Oct-17 -65 8-Dec-18 20 30-Nov-19 30 1-Apr-20 100 XIRR 46.6% Q10 A) CFP marks are owned outside the US by US based FPSB Ltd Q11 B) (ii) and (iv) Q12 C) this is a play on long duration with expected moderate trend in interest rates, thus scheme return though capital appreciation is expected. Q13 B) It is very useful as all future premiums would be waived by the Insurance Company in case the Life assured becomes totally and permanently disabled Q14 A) ₹1.46 crore; 18.66% curtailment (Solution given below) Current age of Ashwin 34 years Retirement age 60 years Life expectancy of Ashwin 80 years Life expectancy of Sumedha 82 years Current expenses ₹ 70,000 p.m. Required annual expenses in the 1st year ₹ 2986765 (840000*1.05^26) after retirement (age of 60) PV of expenses required from Ashwin’s age ₹54356541 60 to Sumedha’s life expectancy Set = Begin (8-5)/1.05 PV =? (-54356541) N=25 I = 2.85……% (RRR) PMT = 2986765 FV = 0 P/Y=1, C/Y=1 CFP Final Level: Workbook Page 91

PV of medical expenses at Ashwin’s retirement to Sumedha’s life expectancy ₹9318264 Set = Begin N = 25 I = 2.85% (RRR) PV =? PMT = -512017 (144000*1.05^26) FV = 0 P/Y=1, C/Y=1 Initial total corpus required at the Ashwin’s retirement age ₹63674805 (54356541+9318264) Lower yield: higher inflation: increased longevity Revised inflation 5.5% Revised investment yield 6.5% Retirement corpus to last 85-60 = 25 years (Ashwin 85 now coincide with Sumedha’s 82) Revised PV required at the Ashwin’s 60 ₹66831281 (60 to Sumedha’s life expectancy) Set = Begin (6.5-5.5)/1.055 PV =? (-66831281) PMT = 2986765 N = 25 I = 0.94…..% (RRR) FV = 0 P/Y=1, C/Y=1 Revised PV of Medical expenses required at the Ashwin’s 60 ₹11456794 (60 to Sumedha’s life expectancy) Set = Begin PMT = 512017 N = 25 I = 0.94…..% (RRR) PV =? (-11456794) FV = 0 P/Y=1, C/Y=1 Revised total corpus required (Solve PV) ₹78288075(66831281+11456794) Cushion built on retirement corpus ₹14613270 = (78288075-63674805) Revised corpus to be withdrawn in the 1st year after retirement ₹2845699((2986765+512017) x 63674805/78288075) Pre-retirement expenses (at the given rate of inflation up to retirement) ₹ 3498782 CFP Final Level: Workbook Page 92