Retirement Planning Workbook

RULE OF TIME VALUE OF MONEY 1. CMPD : a. We can set our calculator either BEGIN mode or END mode when we don’t use PMT. We can say that in case of using n, I, pv, fv, c/y we can set out calculator either begin or end mode. b. N means number of periods in normal case without considering PMT. For ex. Mr. invested Rs.100 for 10 years 6 months, then n would be 10+6/12 c. I means rate of interest. d. Pv means present value. For ex. I invest Rs.20000 for 10 years. Here pv is 20000. Pv means lump sum payment. Present value can be negative or positive as per situation. e. Pmt means regular payment. For ex. Saving Rs.2000 p.a. for 10 years, therefore 2000 is pmt. It can be positive or negative f. Fv means future value. For ex. If I receive Rs. 1 crore after 10 years. Here fv is 1 crore. Fv is always lump sum payment received or paid after some periods. g. P/y means number of payments in a year. For ex. I invest Rs.1000 p.m. for 12 years. Here p/y is 12 h. C/y means how many compounding in a year. For ex. rate of interest 12% p.a. compounding monthly therefore C/Y=12. 2. When money comes in (receiving or cash inflows) consider positive sign, when money goes out(investing or cash outflows) consider negative sign. 3. When there is role of regular payment means PMT in a step, following points should be kept in mind: a) We should always consider set begin or end as per the question. b) If nothing mentioned about regular saving whether in the beginning or end of every period, we always consider BEGIN, reason in all schemes we have to deposit money in advance. c) During post retirement life if nothing mentioned about the withdrawal of money (begin or end). We should consider always BEGIN as we need money immediately after retirement. We follow only in case of deferred annuity. d) In case of loan if nothing mentioned about repayment whether is made in the beginning or end of every period, we should consider END as logically first we get money then very next period we make repayment. e) N means total number of payments. CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 1

Ex1. Mr. Sharma saves or withdraws Rs.2000 p.m. for 10 years. Here n is 10*12 = 120 Ex2. Mr. X saves or withdraws Rs.5000 per quarter for 10 years. Here n is 10*4 = 40 f) P/y means total number of payments made in a year. Ex1. Mr. X saves or withdraws 2000 p.m for 10 years, here p/y=12 but n=10*12=120. (As n means total numbers of payments made.) Ex2. Mr. X saves Rs.2000 per quarter for 15 years. Calculate future value if ROI 10% p.a. compounding half yearly. First we should check whether there is role of regular payment in this question. If yes we should consider first of all set begin or end Here we will consider set=begin (as if nothing mentioned for saving in the beginning or end then we always consider BEGIN) N=15*4=60 (as N is total number of payments are made in that period). I=10 Pv=0 (as there is no lump sum payment) Pmt= -2000 P/y=4 (total number of payment in a year) C/y=2 (total number of compounding in a year) Fv=solve=275680.6996 4. If we need to calculate the present value of regular payment which is increasing by inflation or growth like in salary, we should always use real rate of return, otherwise generally we never use RRR. For Ex. Mr. Sharma saves (or salary) Rs.5000 now and increasing by 10% p.a. in a scheme of 30 years. Calculate the present value if rate of interest is 12% p.a. SET =BEGIN N =30 I =(12-10)/1.10 Pmt =5000 PV =solve =116921.050 In case of salary we can calculate the net present value of all future income We can solve it by using growing annuity formula also. First we can calculate the future value using growing annuity formula and then discount it by 12% for 30 years. But better to use RRR. CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 2

5. We never use real rate of return while we invest money. 6. We never use real rate of return in a step of calculating future value of the regular payment. 7. We use inflation when cost of a goal ( Household Expenses, Car, Education, House, Marriage, World Tour Etc) is given in today’s term ( present cost ) and we want to find cost of the same in future. Following examples will help you to comprehend this: a) Current cost of house hold expenses (HHE) Rs.1 lac p.a., inflation 6% p.a. if you calculate cost of HHE p.a. after 30 years, we have to inflate it for 30 years considering it as PV. As we need to know HHE annually we are not adding all expenses in this questions therefore can’t consider it as pmt. Step to solve: Set = end/begin N =30 I =6 pv = 100000 fv = solve(574349.12) or we can use formulae Fv = Pv(1+r)n b) Current cost of house hold expenses Rs.50000 p.m. inflation 7% p.a. if you want to know your monthly house hold expenses after 25 years, you simply inflate it by 7% for 25 years. Step to solve: Set = end/begin n = 25 (don’t consider 25*12 as you need to know only monthly expenses after 25 years) I =7 pv = 50000 fv =solve(271371.63) or fv = 50000(1.07)25 8. In CMPD function if n and i in same unit, p/y and c/y must be 1. For ex. Ram saves Rs.2000 per month for 10 years in a scheme that generates 2% p.m. interest, calculate future value? CMPD Set = begin (as nothing mentioned begin or end, we always consider begin ) CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 3

N = 10*12 = 120 (as total number of payments ) I =2 Pmt = -2000 p/y =c/y=1 ( as n and i in same unit, same unit means both are in terms of months ) fv = ?(996046.63) 9. CASH FUNCTION: a) Cash function is always better to use in cases where payments are not constant. b) In cash editor 1 means beginning of first period (month or year), 2 means beginning of second period or end of 1st year. c) Whenever we calculate future value, we need to take care of last entry. For example Mr. X saves 2000 today and 3000 next year and calculating future value after 2 years. We put 2000 in first entry 3000 in second entry and third entry must be zero as 3rd entry is end of 2 years or beginning of 3rd year. c) When we calculate future value after 10 years or 15 years, 11th entry or 16th entry must be utilized as 11th entry means end of 10th and 16th entry means end of 15th. d) We can use RRR to calculate the net present value of payments which are increasing by some rate. Following examples will help you to comprehend the same: Ex. Current cost of higher education 5lacs p.a. for first 2 years and Rs3 lacs for next 3 years. Inflation 8% p.a. and rate of interest 12% p.a. what is the net present cost of education? i. Case 1 : Higher education starts now. Solution by using cash function: I = (12-8)/1.08 1 = 500000 2 = 500000 3 = 300000 4 = 300000 5 = 300000 Npv = solve ii. Case 2 if higher education starts after 15 years. Page 4 Solution by using cash function: I = (12-8)/1.08 1 to 15 entries = 0 16 = 500000 CFP Level 2 - Module 1 – Retirement Planning - Workbook

17 = 500000 18 = 300000 19 = 300000 20 = 300000 Npv = solve e) Internal rate of return i.e. IRR is used to calculate the rate of interest of uneven cash inflows and outflows. Following examples will help you to comprehend the same: Ex. 1 If I invest Rs.2000 today and receive Rs.1200 after 1 year, Rs.600 after 2 years, Rs.500 after 4 years. Calculate rate of interest (IRR or CAGR )? Sol. We cannot use CMPD. We have to use CASH FUNCTION 1 = -2000 2 = 1200 3 = 600 4 =0 5 = 500 ( as 5th entry means end of 4th or beginning of 5th ) IRR = Solve Ex. 2 There is a scheme in which Rs.100000 p.a. to be invested for first 5 years and inflows 1 lac p.a. will start from the end of 10th year (beginning of 11th year) for 10 years. Now in this case you need to calculate the rate of interest (IRR OR CAGR). Sol. We can solve it by using CASH FUNCTION not CMPD 1 to 5 entries = -100000 6 to 10 entries = 0 11 to 20 = 100000 IRR = Solve CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 5

Conceptual Questions with Solutions First 9 questions to be solved using information given below: Current age of Mr. X 30, retirement age 60, life expectancy 85, Rate of interest = 12% p.a. , Inflation = 7% p.a. Current house hold expenses p.a. Rs.4 lacs Current cost of marriage Rs.25 lacs Current cost of education Rs.10 lacs Current cost of house Rs.50 lacs Current cost of world tour Rs.10 lacs Solve the following questions on the basis of above information: Q1. How much Mr. Sharma should saves monthly for 10 years for higher education if required after 10 years? Sol. Cost of education today=1000000 Step 1. Cost of education after 10 years @7% inflation=10L*(1.07)^10=1967151 Or Set = begin/End N = 10 I =7 PV =-1000000 FV = solve = 1967151 Step 2. Set = Begin N =120 I =12 FV =1967151 P/Y =12, C/Y = 1 PMT =solve = -8780.51 Q2. How much he should saves monthly for 15 years for purchasing house after 15 years? Sol. Current house of house today=50,00,000 Page 6 Step 1. Cost of house after 15 years @7% inflation = 5000000*(1.07)^15 = 1,37,95,157 CFP Level 2 - Module 1 – Retirement Planning - Workbook

Step 2. Set = Begin N =180 I =12 PV =0, FV=13795157 P/Y=12, C/Y=1, PMT =-28,985 Q3. How much should be saved quarterly for 20 years for marriage if required after 20 years? Sol. Current cost of marriage = Rs.2500000 Cost of marriage after 20 years = 2500000*1.07^20 =Rs. 96,74,211 Set = Begin FV =9674211 N =20*4 I =12 P/Y =4 C/Y =1 PMT =solve = -31,255 Q4. What would be annual house hold expenses at age 60 Sol. Household expense at age 60 = 400000*1.07^30 = 30,44,902 Or N=30 ,I=7, PV = -400000, FV = solve = 30,44,902 Note: we consider annual expenses pv and find fv reason we need to know HHE annually at retirement, some students think HHE annually then why not consider it as pmt. More explanation is that if I say I need daily pocket money Rs.1000 and wants to know what daily pocket money I would require after 30 years. That means we need to inflate Rs.1000 for 30 years considering it as pv not pmt. If we want to know total expenses incurred in 30 years, might be it will be consider as pmt. Q5. How much corpus will be required at age 60 if Mr. X requires Rs.10 lacs per annum( fixed or without considering inflation ) during post retirement life. Sol. Set = Begin N =25 I = 12 CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 7

PMT =10,00,000 PV =-87,84,315 Q6. How much corpus will be required at age 60 if he would require Rs.10 lacs per annum inflation adjusted during post retirement life. Sol. Set = Begin N =25 I = (12-7)/1.07(4.6728971196) PMT =10,00,000 PV = solve = -1,52,48,586.44 Q7. If Rs.100 lacs will be required at age 60, how much Mr. X should save monthly during pre- retirement life Sol. Set = Begin N =30*12 I =12% FV =100,00,000 P/Y =12 PMT =solve = -3,245.72 Q8. If saving Rs.5000 pm during pre-retirement life, how much corpus would be at age 60? How much can be withdrawn monthly fixed amount during post retirement life? And how much can be withdrawn annually inflation adjusted during post retirement life? Sol. Step 1 Step 2 Set = Begin Set = Begin N =360 N = 300 I =12 I =12 PMT =-5000 PV =-15404866 P/Y =12 P/Y =12, C/Y = 1 C/Y =1 PMT = solve = 1,53,849 FV =solve = 1,54,04,866 CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 8

Step 3 Set = Begin N = 25 I =(12 – 7)/1.07(4.6728971196) PV =-15404866 P/Y = 1, C/Y = 1 PMT = solve = 10,10,248.79 Q9. If saving Rs.50000 half yearly during Pre-retirement life, how much corpus would be at age 60? How much can be withdrawn quarterly fixed amount during post retirement life? And how much can be withdrawn monthly inflation adjusted during post retirement life? Sol. Step 1 Step 2 Set = Begin Set = Begin N =60 N =100 I =12 I =12 PMT =-50,000 PV =-26284755 P/Y =2 P/Y =4 FV = solve = 2,62,84,755 PMT = solve = 7,80,144 Step 3 Set = Begin N =300 I =(12-7)/1.07(4.6728971196) PV =-2,62,84,755 P/Y =12 PMT =solve = 1,46,671.69 Q10. Mr. Sharma aged 30 years starts saving Rs.15000 at the end of every year. His retirement age is 58 years and life expectancy is 78 years. If his investment earns 8.25% per annum and the inflation rate is expected to be 5%, what amount would he have as nest egg and how much CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 9

amount can he spend in the beginning of every year inflation adjusted after retirement leaving no estate for his hire. Sol. Step 1 Step 2: Set : End Set : Begin PMT = -15000 PV = 1491655 N = 58-30 = 28 N = 80-58 = 22 I = 8.25 I = RRR = (8.25-5)/1.05 FV = solve = 1491655, PMT = solve = -91655 Q11. How much amount should Reema save at the end of each year from the age of 30 years until her retirement at age 60 years, so that she will be able to spend Rs. 35000 at the end of every month after retirement. Her life expectancy is 75 years. The inflation is expected to be 4.5% and interest on investment is 6.5% per annum. Sol. Step 1: Step 2: Set : End Set : End N = 15 X 12 N = 30 I = (6.6-4.5)/1.045 I = 6.5 PMT = -35000 PMT = solve = - 63434 P/Y = 12 FV = 5479108 PV = solve = 5479108 Q12. Ram, aged 25 plans to retire at age 55. His life expectancy is 75. His current annual expenditure is Rs.250000. He estimates no reduction in his expenses post-retirement. If interest rate is expected to be 8.5% and inflation is 5% p.a. estimate how much will he have to save in the beginning of each year in order to achieve his target, provided he does not wish to leave an estate. Sol. Step 1: Step 2: PV = -250000 Set : Begin I =5 PMT = 1080486 N = 55-25= 30 N = 75-55 = 20 FV = solve = 1080485.594 I = (8.5-5)/1.05 PV = solve = -16110165.6 Step 3 : Set : Begin CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 10

FV = 16110165.6 N = 55-25 = 30 I = 8.5 PMT = solve = -119535.58 Q13. Mr. X aged 25 years is currently spending Rs.100000 per annum. If the rate of inflation is 5% and he wishes to raise his standard of living at the rate of 2% every year throughout his service, what amount would he be requiring to spend during the first year of his exit from service if he wishes to enjoy 90% of his standard on retirement at the age of 55 years. Sol. Set = End/Begin PV = -100000 i = 5+2=7 n =30 FV = solve =761255.5 Then we will take 90% of FV. Therefore he would requires Rs.685103 Q14. An employee aged 30 years saves Rs.10000 at the end of every year till his retirement age of 60. His life expectancy is 80 years, interest rate is 8% and inflation rate is 6%. How much money can he spend in the beginning of every year of his retirement if he wishes to leave an estate of Rs.200000 for his heirs? Sol. Step 1 Set = End N = 60-30 = 30 I =8 PMT = -10000 FV = solve = 1132832 Step 2: Investment has to be done at 8% for the accumulation of Estate Note : Whenever we need fixed amount in future and calculate present value, we need to discount it by only rate of interest not by inflation or RRR Set: End/begin N = 20 I =8 PV = Solve = -42909 CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 11

FV = 200000 Step 3: Payments from the retirement corpus: Set: Begin N = 20 I = 1.8867 PV = - (1132832 - 42909) PMT = Solve = 64709 He will be able to withdraw Rs.64709 in the first year. Q15. Rahul, aged 25, plans to retire at the age of 60. His life expectancy is 75. His current annual expenditure is Rs.225000. He estimates no reduction in his expenses post-retirement. If interest rate is expected to be 9.5% and inflation at 9% p.a. estimate how much will he have to save in the beginning of each year in order to achieve his target, provided he does not wish to leave an estate. Sol. Step 1: Step 2: Set : End/begin Set : Begin PV = 225000 PMT = 4593143 I =9 N = 75-60 = 15 N = 60-25= 35 I = (9.5-9)/1.09 FV = Solve = -4593143 PV = solve = - 66737933.59 Step 3: Set : Begin FV = 66737933.59 N = 60-25 = 35 I = 9.5 PMT = Solve = -252175 Q16. Mr. Manan who is aged 30 years had been saving in beginning Rs.25000 p.a. in a scheme for the past 5 years. He is expecting to retire at 58 and has a life expectancy of 73 years. If he expects a fixed annual expense in the beginning of every year after retirement of Rs.400000 and 6% per annum interest on his savings. Calculate the additional savings required to be CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 12

done in the beginning of every year to fund his retirement. (Assuming Pre-retirement rate of interest is 9.5% p.a.) Sol. Step 1: Step 2 Set : Begin Set : Begin N = 15 N =5 I =6 I = 9.5 PMT = 400000 PMT = 25000 PV = Solve = -4117993 FV = Solve = 165471 Step 3 Set : Begin N = 28 I = 9.5 PV = -165471 FV = 4117993, PMT = Solve = -14968 Q17. Geeta is 31 years old and plans to retire at 53. His Life expectancy is 75 years. Dinesh, his Financial Planner, estimates that Geeta will require Rs. 60,000 in today’s terms at the end of first month after retirement. He wishes to leave behind an estate of Rs.10, 00,000 for his legal heirs. Inflation rate is 5% p.a. and the rate of interest earned is 13% p.a. What amount he shall save at the end of every year till his retirement to accumulate the required corpus? Sol. Step 1: Calculate the expense amount for the first month post retirement: Set = End N =22 I =5 PV =-60000 FV =Solve=175,515.64 Step 2: Calculate the required retirement corpus: Set = End N =22 x 12 I =(13-5)/1.05 = 7.62 CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 13

PV =Solve=-22,911023.56 PMT = 175,515.64 P/Y =12 Step 3: Calculate the amount to be saved separately for Estate Set =End N =22 I =13 PV =solve=-67,963.27 FV =1000000 Step 4: Calculate the regular savings required to accumulate the combined corpus at retirement End N =22 I =13 PMT =Solve=-217,828.87 FV =(22911023.56 + 67963.27) = 22978986.83 Q18. Nitin is 29 years old and plans to retire at the age of 60. He earns Rs.8,00,000 p.a. & maintains a household expenditure of Rs.220000 p.a. His life expectancy is another 27 years after retirement. Calculate the amount of savings required to fund his retirement if he wishes to save in the beginning of every month and require 75% of his final working year expenses in the first year of his retirement? (Interest rate is 9% p.a. and Inflation is 5% p.a.) Solution: Step 1: Calculate the expenses required in the first year of retirement Set = End N =31 I =5 PV =165000 (220000 x 75%), FV =Solve=-748776.5165 Step 2: Calculate the required retirement corpus Page 14 Set = Begin N =27 I =(9-5)/1.05 PV =Solve=-12968588.6 PMT =748776.5165 CFP Level 2 - Module 1 – Retirement Planning - Workbook

Step 3: Calculate the monthly savings required to accumulate the corpus Begin N =31 x 12 = 372 I =9, PMT=Solve=-6893.59 FV =12968588.6 P/Y =12 Q19. Ms. Seema is 21 years old and plans to retire at 50. Her life expectancy is 74 years. Mr. Gupta her Financial Planner, estimates that She will require Rs. 85,000 in the first month after retirement. Inflation rate is 7.6% p.a. and the rate of return is 8.5% p.a. compounded quarterly. Calculate the amount that can be passed on as estate if she saves Rs. 182,267 at the end of every year? Sol. Step 1: Calculate the total accumulation Set = End N = 29 I =8.50 PMT =-182267 FV =Solve=21734571.82 C/Y =4 Step 2 CNVR N =4 I = 8.5 Eff = solve = 8.7748 Step 3: Calculate the retirement corpus required Set = Begin N =24 x 12 I =(8.7748-7.6/1.076) = 1.091818 PV =Solve=-21559773.29 PMT = 85000 P/Y =12 C/Y = 1 CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 15

Step 3: Calculate the FV of remaining amount of accumulated savings at retirement Set = End/begin N =24 I =8.50 PV =-( 21734571.82-21559773.29)=-174798.53 FV =Solve=1315880 P/Y = 1 C/Y =4 Q20. Mr. X has just retired with a lump sum of Rs 25,00,000 as retirement benefits in total. Currently he is 60 and life expectancy for him is 75 years. He intends to take a world trip after 4 years, which would cost an amount of Rs 4.2 lakhs in current prices and wants to buy a new car of Rs 2.75 lakhs immediately. Calculate what amount is available to him in the beginning of every month for post-retirement living expenses, considering inflation at 5 % and rate of return is 8 % p.a.? Sol : Method 1 Step 1: Calculate the amount required to set aside right now for the World Trip Amount = 420000*1.05^4/1.08^4 = 375242 Step 2: Calculate the monthly withdrawal amount out of the remaining funds Begin N =15 x 12 I =(8-5)/1.05 PV =-(2500000-375242-275000)=-1849758 PMT =Solve= 12588.04292 P/Y =12 Method 2: Step 2 = begin Step 1 Set =4 Set : begin =8 N =4 N = 5105120.625 I =5 I = solve = 375242.0196 PV = -420000 FV PMT = 0 FV = 510512.625 PV Step 3: Calculate the monthly withdrawal amount out of the remaining funds Page 16 CFP Level 2 - Module 1 – Retirement Planning - Workbook

Begin N =15 x 12 I =(8-5)/1.05 PV =-(2500000-375242-275000)=-1849758 PMT =Solve= 12588.04292 P/Y =12 Q21. Manan, an NRI, has been working in the USA for the past 5 years. He is aged 45 and has a family of wife and 2 children to support. He has been saving Rs. 11 lakh at the end of every year for the past 5 years and hopes to save the same amount for the next 11 years that he plans to live in the USA. He would like to return to India 11 years from now. It is estimated that inflation would remain at an average of 6% for the next 30 years. His life expectancy is placed at 75 years. However if the estimated spend per month, for his family is Rs. 100,000 p.m. now how long the corpus will last? (Assuming the rate of return 10% p.a. and 8% p.a. in USA and India respectively). Sol: Step 1: Calculate total accumulation at the time of coming to India Set = End N =(5+11)=16 I =10 PMT =-1100000 FV =Solve=39544702.85 Step 2: Calculate monthly expenses after migration End/begin N =11 I =6 PV =-100000 FV =Solve=189829.8558 Or 100000*1.06^11 = 189829.8558 Step 3: Calculate the time the corpus will last Page 17 Begin N =Solve=251.6 months = 251.6/12= 20.97 years I =(8-6)/1.06 PV =-39544702.85 PMT =189829.8558 P/Y =12 CFP Level 2 - Module 1 – Retirement Planning - Workbook

Q22. Mr. Ramesh is 35 years old NRI, working abroad for past 5 years. He has been saving Rs. 2,00,000/- at the end of every year for past 5 years and wants to continue saving until he returns back to India. He plans to return to India after 18 years from now. Inflation is expected to be 6% p.a. His investment earns 8.2% p.a. interest. Expected life expectancy is 83 years. If he wants to withdraw Rs. 6,00,000/- p.a. post retirement, will the corpus last till his lifetime? If not, by what amount he must increase his annual savings? Sol. Step 1: Calculate accumulated amount at current level of savings End N =23 I =8.2 PMT =-200000 FV =Solve=12504159.5 Step 2: Calculate how many years this corpus will last Begin N =Solve=26.83 I = 2.08 PV =-12504159.5 PMT =600000 Corpus is short. Step 3: now we will calculate the required corpus for 30 years expenses post retirement Begin N =30 I =2.08 PV =Solve=-13575488.9 PMT =600000 Step 4: Calculate the corpus accumulated till now: End N =5, I =8.20 PMT =-200000 FV =Solve=1178008.41 Step 5: Calculate the regular saving amount required from now on to accumulate target corpus End N =18 CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 18

I =8.20, PV=-1178008.41 PMT =Solve=-228054.7 FV =13575488.9 As Ramesh is already saving Rs. 200,000 he only needs to increase annual savings by Rs. 28,054. Q23. Megha is 25 years old and has just joined her first job. She is concerned for funding her retirement and is thinking of starting saving Rs.55,000 p.a. at the end of every year in a Bank F.D. earning 10% p.a. till retirement. She will retire at the age of 60 years and her life expectancy is 75 years and require Rs.1,32,417.4 p.a. (current terms) towards her retirement expenses in the first year of her retirement. How much estate she can leave for her dependents? (Inflation is expected to be 6.5% p.a.) Sol: Page 19 Step 1: Calculate the retirement corpus accumulated Set: End N = 35 I = 10 PMT = -55000 FV = Solve = 1,49,06,340 Step 2: Expenses annually at retirement: Set: End/begin N = 35 I = 6.5 PV = -132417 FV = Solve = 1200000 Step 3: desired retirement corpus Set: Begin N = 15 I = RRR = 3.2863 PMT = 1200000 PV = Solve = 1,44,94,418.81 Step 3: amount of Estate Excess amount at retirement = 1,49,06,340 – 1,44,94,418 = 411922 Set: End/begin N =15 I =10 CFP Level 2 - Module 1 – Retirement Planning - Workbook

PV =411922 FV =Solve=17,20,700 Q24. Mrs. And Mr. Sharma both are working in ABC Ltd. Company. Their combined monthly expenses are Rs.45000 p.m. they want to increase their standard of living by 2% every year till their retirement but expect to need only 80% of their last month’s expenses in their retirement. Calculate how much they should save at the end of every year if they both expect to retire after a period of 35 years from now. Mrs. and Mr. Sharma are expected to live 20 years and 15 years after their respective retirement. Mrs. Sharma will require 60% of their combined expenses to survive. (Inflation is 6% p.a. and discount rate is 9% p.a.) [Assume monthly expenses at the end] Solution: Step 1: Calculate their individual current expenses. Mr. Sharma’s expenses = 45000 * 0.40 = 18000 Mrs. Sharma’s expenses = 45000 * 0.60 = 27000 Step 2: Calculate the retirement corpus required by the Mrs. and Mr. Sharma on their respective retirement dates. Mr. Sharma Calculate the expenses at the time of retirement SET: END N = 35 I =6+2=8 PV = -18000 FV = Solve = 266136.19 Now, calculate the corpus required at the time of retirement SET: End, N = 15*12 = 180 I = RRR = 2.8301 PMT = 266136.19 * 0.8 = 212908.95 PV = Solve = - 31276867.69 ———— (a) P/Y = 12 Mrs. Sharma Page 20 Calculate the expenses at the time of retirement SET: END CFP Level 2 - Module 1 – Retirement Planning - Workbook

N = 35 I =6+2=8 PV = -27000 FV = Solve = 399204.29 Now, calculate the corpus required at the time of retirement SET: End N = 20 *12 = 240 I = RRR = 2.8301 PMT = 399204.29 * 0.8 = 319363.43 PV = Solve = - 58669406.2 —————— (b) P/Y = 12 Step3: Calculate the savings required. Set: End N = 35 I =9 FV = a + b = 89946273.89 PMT = Solve = -416976.30 Q25. Mr. Gupta retires ( at age 60 )today has two fixed life annuities, one provided by his invested pension plan at Rs.10,000 per month and the other provided by his employer at Rs.25,000 per month. He has a second house which currently is let out at Rs.3 lakh p.a. rental. The rentals are expected to increase at 8% p.a. compounded. He currently spends Rs.30,000 per month which will rise annually at inflation of 7 % p.a. If he invests excess amount at the end of every year in an instrument of return 9 % p.a. and utilizes this fund in case of shortfall in funding household expenses, what could be the approximate size of this fund 30 years after retirement? (age 90) Sol. In this question it is mentioned that he invests excess amount at the end of every year, therefore we consider: Total annuities received end of year 1 = (10000+25000)*12= Rs.420000 Total rent received end of year 1 = Rs.300000 Total house hold expenses end of year 1 = 30000*12 = Rs.360000 There are three methods to solve this question: CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 21

Method 1: We can calculate the future value of both annuities, rent and house hold expenses if invested Future value of both annuities if invested Set = end n = 30 I =9 pmt = 420000 Fv = solve = 57249166 Future value of rent using growing annuity formula Fv = 300000 (1.09^30 – 1.08^30 )/(0.09-0.08) ( we use end formula as saving end of every year) = 96150647.4 Future value of house hold expenses using growing annuity formula considering inflation as growth rate Fv = 360000(1.09^30-1.07^30)/(.09-.07) = 101797622 Total surplus after 30 years = (57249166+96150647.4-101797622) = Rs.51602191 Method 2: We consider at age 61 he has Rs.420000 from his both annuities, so we calculate present value of future annuities at age 61. Set = begin n = 30 I =9 pmt = 420000 pv = solve = -4703279 At age 61 he has rent Rs.3 lacs, so we calculate the present value of future rent at age 61 (Considering growth rate as inflation) Set = begin N = 30 I = (9-8)/1.08 Pmt = 300000 Pv = solve = -7899212 Similarly present value of households expenses at age 61 Set = begin N = 30 I = (9-7)/1.07 CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 22

Pmt = -360000 Pv = solve = 8363137 Net surplus at age 61 = (4703179 + 7899212 – 8363137 ) = 4239354 Now this amount will be invested for 29 years ( 90-61) Therefore surplus after 30 years means at age 90 = 4239354 * (1.09)^29 = Rs.51602189 Method 3: Before solving the same question I need to explain an important concept i.e. A client retirement age 60, life expectancy 65, roi 10% p.a., inflation 8% p.a. If this client needs Rs.100 at age 61 ( end of year ) and thereafter inflation adjusted. Age amount required present value in today’s term ( at age 60 ) 60 nil 0 61 100 90.9090 62 108 89.2562 63 116.64 87.6333 64 125.9712 86.0400 65 136.0489 84.4756 Total Pv 438.3141 If we use CMPD We need to discount 100 by inflation for 1 year i.e. 100/1.08 = 92.5925, now we can say client needs inflation adjusted Rs.92.5925 end of every year that means at age 60 he will require Rs.100 ( 92.5925*1.08 ) Steps to be followed: Set = end N =5 I = (10-8)/1.08 Pmt = 100/1.08 Pv = solve = -438.3141 But in the same question if we say client needs Rs.100 at the end of every year inflation adjusted till life expectancy, how much corpus he must have at age 60? Steps to be followed: Set = end N =5 I = (10-8)/1.08 Pmt = 100 Pv = solve = -473.38 CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 23

We consider at age 61 he has Rs.420000 from his both annuities, so we calculate present value of future annuities at age 60. Set = End n = 30 I =9 pmt = 420000 pv = solve = -4314934.698 At age 61 he has rent Rs.3 lacs, so we calculate the present value of future rent at age 60 (considering growth rate as inflation) Set = End N = 30 I = (9-8)/1.08 Pmt = 300000/1.08 =277777.7778 Pv = solve = -7246983.53 Similarly present value of house holds expenses at age 60 Set = End N = 30 I = (9-7)/1.07 Pmt = -360000/1.07 = 336448.5981 Pv = solve = 7672602.401 Net surplus at age 60 = (4314934.698 + 7246983.53 – 7672602.401) = 3889315.827 Now this amount will be invested for 30 years (90-60) Therefore surplus after 30 years means at age 90 = 3889315.827 * (1.09)^30 = Rs.51602191 Q26. A retiree of age 65 has fixed pension of Rs. 15,000 per month. His household expenses have exceeded his pension of late and are Rs. 16,000 per month now. He has approached an approved lending institution under Reverse Mortgage Scheme. He is offered fixed monthly payments for 15 years at a rate of interest of 13.75% on Rs. 64 lakh eligible value of his home. He meets his annual expenses as increased by 6% inflation every year and invests the excess amount from his two fixed annuities, fixed pension and reverse mortgage stream, in an investment yielding 10% p.a. at the end of every year starting from this year onwards. You assess at the end of five years thus accumulated fund against the total liability under Reverse Mortgage and find that ______. ( FPSB QUESTION ) CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 24

SOL. In this question it is mentioned that he invests excess amount at the end of every year. Therefore we consider: Total amount of annuity received end of year 1 = (15000)*12= Rs.180000 First we calculate the monthly payment under reverse mortgage Set = Begin N = 15*12 = 180 I = 13.75 Fv = 6400000 p/y = 12 c/y = 12 ( generally in loan case FPSB considers p/y=c/y) pmt = solve = -10703 Total payment received under reverse mortgage end of year 1 = Rs.128436 (10703*12) Total house hold expenses end of year 1 = 16000*12 = Rs.192000 Now we can use method 2 or method 3 which are mentioned in previous question Method2: We consider at age 66 he has Rs.308436 (pension + reverse mortgage payment ) annuities, so we calculate present value of future annuities at age 66. Set = begin n =5 I = 10 pmt = 3084360 pv = solve = -1286137 At age 66 his household expenses are Rs.192000, so we calculate the present value of future household expenses at age 66 Set = begin N =5 I = (10-6)/1.06 Pmt = -192000 Pv = solve = 892675 Excess fund available with him at age 66 = 393462 (1286137-892675) Page 25 CFP Level 2 - Module 1 – Retirement Planning - Workbook

This excess amount can be invested only for 4 years ( till age 70) Therefore accumulated amount at age 70 = 393463*1.1^4 = 576083 Now we need to calculate the total interest which accrue after 5 years in reverse mortage Set = begin N = 60 I = 13.75 Pmt = 10703 p/y = 12 c/y = 12 fv = 926812 So net liability due to reverse mortgage loan = 350729 (926812-576083) This question can be solved using Method 3 also. Q27. Mr. Ram, aged 29 years, is working with a multinational company. He has a son, Rohan of age 4 years, and a year old daughter, Suni. He is concerned about (a) higher education expenses of his children. Expenses at their respective age of 18 years are Rs. 4 lakh p.a. (current cost) required for four years, cost escalation 9% p.a. (b) Marriage which current cost Rs. 10 lakh (current cost) for each child at around their respective age of 25 years, cost escalation 9% p.a. Assumption: ROI 10% p.a. He wants to know from you how much he should invest monthly only for first 10 years. Sol. First we will calculate the present value of education c ost of both children using cash function I =RRR=(10-9)/1.09 1 to 14 – 0 15- 400000 16-400000 17-400000 18-4,00,000 + 4,00,000 19-400000 20-400000 21-400000 NPV=Solve= 2740237.347 CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 26

Note: This type of problem can be solved through CMPD as well but better to solve through CASH function Solution using CMPD For first Child Begin N =4 I = (10-9)/1.09 Pmt = 400000*1.09^14 (cost of education when he reaches at age 18) Pv = 5274293.713 Net present value as on today = 5274293.713/1.1^14 = 1388886.379 For second child Begin N =4 I = (10-9)/1.09 Pmt = 400000*1.09^17 ( cost of education when she reaches at age 18) Pv = 6830363.31 Net present value as on today = 6830363.31/1.1^17 = 1351350.968 Therefore net present value of cost of education of both kids as of today = 1388886.379 + 1351350.968 = 2740237.347 Now we will calculate the present value of marriage of both kids using CASH function I =RRR=(10-9)/1.09=0 1 to 21-0 22-10,00,000 ( after 21 years ) 23-0 24-0 25-10,00,000 ( after 25 years ) NPV =Solve= 1628664.127 Or we can calculate other method Net Present value of cost of marriage of Rohan = 1000000*1.09^21 / (1.10)^21 = 825486.6772 Net present value of cost of marriage of Suni = 1000000*1.09^24 / (1.1)^24 = 803177.4501 Total net present value of cost of marriage of both = 825486.6772 + 803177.4501 =1628664.127 CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 27

Total net present value of cost of education and marriage of both kids = 2740237.347 + 1628664.127 = 4368901.474 Mr. Ram will save monthly for 10 years = Rs.56249.0832 Set = begin N = 120 I = 10 Pv = 4368901.474 p/y = 12 pmt = solve = 56249.0832 CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 28

THEORY 1. Which of the following discipline does not constitute a core financial planning component? (1 mark) a) Retirement Planning b) Insurance Planning c) Tax and Estate Planning d) Wealth Management 2. Wages to be considered for purpose of calculation of Gratuity to be paid to an employee not covered under “Payment of Gratuity Act”, 1972(POGA) is: (1 mark) a) Weighted average of wages drawn during the past 5 years b) Average wages drawn during the previous 8 months c) Average wages drawn during the previous 10 months d) Terminal wages drawn by him 3. What is the maximum amount of gratuity payable as per the Payment of Gratuity (amendment) act ? (1 mark) a) Rs.3,50,000 b) Rs.20,00,000 c) Rs.12,00,000 d) Rs.10,00,000 4. Can an employer have an arrangement to pay gratuity higher than that prescribed under the Act? (1 mark) a) No b) Yes, but always within the prescribed ceiling on the maximum amount c) Yes, but always at prescribed rate for each year of completed service d) Yes, at the same or higher rate and with or without the prescribed ceiling 5. What are the benefits available to the employees who are covered under the EPF and Misc. provisions Act, 1952 (1 mark) a) Benefit of Provident Fund and Family pension Scheme b) Benefits of Provident Fund and Employees’ Pension Scheme CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 29

c) Benefits of Provident Fund, Employees Deposit Linked Insurance Scheme and Employees’ Pension Scheme d) Benefits of Provident Fund, Employees Deposit Linked Insurance Scheme and Family Pension Scheme 6. What is the mandatory rate of PF contribution by Employee and Employer in a company covered under PF Act 1956? (1 mark) a) @12% of eligible salary b) @8.33% of eligible salary c) @10% of eligible salary d) Either@ 10% or @12% of eligible salary as decided by the employer 7. For Defined Benefit Plans, which of the following changes in actuarial assumption would increase plan costs to an employer? (1 mark) a) Higher rate of salary escalation b) Early retirement c) Longer life expected than predicted d) All of the above 8. Importance of Retirement planning is increasing in India. Which of the following is wrong? (1 mark) a) Fall of Joint Family system b) Increase in Longevity of life c) Financial freedom desired by retirees d) Positive attitude of retirees 9. Which of the following is a defined contribution plan? (1 mark) a) Leave salary b) Gratuity c) Unrecognized Provident Fund d) Voluntary Retirement Scheme 10. As an employee Rajesh has come to you with his questions on superannuation plans/ Annuity Plans to get more educated with current scenario. Deduction in respect of contribution for annuity plan to certain pension fund under 80C is allowed to a/an __________? (1 mark) a) Individual resident in Indian CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 30

b) Individual Assessee only c) Individual or HUF d) Any Assessee 11. To what extent the employer’s contribution to the PF and the Superannuation Schemes is treated as deductible expense? (2 marks) a) 12% of the salary of the employee b) 15% of the salary of the employee c) 24% of the salary of the employee d) 27% of the salary of the employee 12. Which of the following Financial Planning professional Skills would be categorized under the segment “Cognitive” (2 marks) a) Analyzing and integrating information from a variety of sources to arrive at solutions b) Using logic and reasoning to consider the strengths and weaknesses of potential courses of action c) Arriving at informed decisions when faced with incomplete or inconsistent information d) All of the above 13. The Payment of Gratuity Act, 1972 applies to the prescribed entities in which ______. (1 mark) a) 10 or more persons are or were employed on any day in the preceding 12 months b) 10 or more persons have completed continuous service in the preceding 12 months c) 10 or more persons are employed and at least one has completed 5 years of continuous service d) 10 or more persons are employed in the preceding 12 months and are also covered under Employees’ Provident Fund 14. Telling a client about research capabilities or the use of computers in your financial planning firm amounts to (2 marks) a) Unprofessionalism b) Show off c) Advertising d) Smart Thinking CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 31

15. The following constitutes as one of the criteria for a Voluntary Retirement Scheme (VRS) to get approval of the tax authorities to claim exemption from income tax under the Income Tax Act 1961? (2 marks) a) The retiring employee should not be employed in another concern belonging to the same management b) The scheme to be offered to all the eligible employees of the organization including workers and executives c) The scheme to result in overall reduction in the existing strength of the employees of the organization. d) All of the above 16. Pick out an assessment or analysis from the following which a Financial Planner would normally not be engaging in while formulating a retirement planning strategy for a client? (1 mark) a) Analyzing and integrating information from a variety of sources to arrive at solutions b) Maintaining awareness of changes in the economic, political and regulatory environments c) Take an analysis of the minimum amount with which all other goals can be achieved so that maximum sums can go towards retirement goal d) Arriving at informed decisions when faced with incomplete or inconsistent information 17. Which of the following would not be an impact of higher than average inflation in the accumulation stage on the retirement corpus? (1 mark) a) The corpus needed on retirement would be larger for the same lifestyle to be maintained. b) Higher rate of interest due to higher inflation would give better compounding effect and hence a sustainable corpus. c) The real return on investing money today would be difficult to sustain the purchasing power from the corpus accumulated. d) Higher consumption would leave less investible surplus leading to a lower than required corpus 18. An individual begins to accumulate retirement corpus considering today’s inflation throughout the post retirement period. If the inflation actually turns out to be higher after retirement, the accumulated corpus would------- (1 mark) a) Be consumed earlier than anticipated b) Will last longer than anticipated c) Will not have any effect on consumption period d) More or less will be sufficient for retirement CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 32

19. Which of the following is true in regard to a financial planner’s liability? (1 mark) a) A disclaimer removes all liability b) A principal advisor is liable for actions of representatives c) Advice is distinguished from a recommendation d) An advisor may be held liable for failure to predict economic changes 20. When the government adjusts economic policy through the central budget, it is exercising: (1 mark) a) Monetary Policy b) Fiscal Policy c) Expense policy d) Exchange rate policy 21. Professional responsibility is based on: (1 mark) a) Contractual obligation b) A duty of care to the client c) Fiduciary relationship d) All of the above 22. What should be the status of Liabilities/Loans at the time of retirement? (1 mark) a) One can have liabilities and EMIs even after retirement b) Liabilities should be paid off before retirement c) It depends on individual responsibilities d) One can take loans etc. even after retirement 23. Which of the following should be most preferable engagement by an individual when approaching retirement? (2 marks) a) Succession planning to transfer wealth to next generation b) Looking for job opportunities after retirement c) Enter into long term commitments d) Assessing income generating potential of assets and maximizing income stream CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 33

24. To reduce stress in retirement, clients need to be: (2 marks) a) Encouraged to join clubs, pursue hobbies etc. b) Encouraged to set goals, plan their lifestyle and plan their finances c) Do not make any planning for retirement d) Encouraged to plan luxurious life 25. The Payment of Gratuity Act stipulates that the nomination for payment of Gratuity, in case of death of an employee has to be in favour of: (2 marks) a) The spouse of the employee only b) Any close relative of the employee c) Any member(s) of the family of the employee d) Any person as per the wish of the employee 26. Which of the following is not an essential component of a written Financial Plan? (2 marks) a) Statement of current situation b) Financial Plan Summary c) Service, fee and commission etc. d) Projections e) All of the above are essential components 27. A Financial Plan should be reviewed in the light of: (2 marks) a) Micro and Macro level changes b) Micro but not Macro Level changes c) Macro but not micro level changes d) Financial Plans do not require review 28. Which of the following data cannot be collected through the direct question? (2 marks) a) Current income b) Future income c) Risk Appetite D) Time Horizon CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 34

29. Is pension a statutory benefit in India and if so, for which segment of employees? (1 mark) a) All employees working in any sector b) All government employees c) All employees covered under the EPF and Miscellaneous Provisions Act,1952 d) All Government and public sector employees 30. A scheme providing pension benefits as per Income Tax provisions is called: (1 mark) a) Superannuation Scheme b) Retirement Scheme c) Pension Scheme d) Retirement Income Scheme 31. Pension from an approved fund entitles the pensioner to the benefit of: (1mark) a) Section 80 C b) Section 10 D c) Section 80 CCC d) Pension is taxable 32. The maximum contribution which an employer can pay to fund an approved superannuation scheme as percentage of the salaries of the employee is: (1 mark) a) 15% b) 12% c) 27% d) 27%-PF contribution being paid by the employer 33. In Retirement Planning, the most important point to be considered is: (2 marks) a) Level of Income b) Family size c) Present Wealth d) Time Factor CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 35

34. Generally Gratuity will be received: (2 marks) a) After normal Retirement b) Submission of resignation after any number of years c) On Being retrenched d) Any of the above 35. There is relation between Inflation and Money Supply: (2 marks) a) Indirect b) Direct c) Inverse d) Reverse 36. The Retirement objectives differ from person to person which in turn depend upon various factors like: (2 marks) a) Age, marital status b) Number of dependents and their ages c) Health and Preferences d) All of the above 37. It is important for a planner to note that the retirement planning should be done: (2 marks) a) Only a few years before retirement b) At the time of retirement c) Should start immediately on joining a job d) Should start in the early years of working life 38. An investor buys a pension policy from an insurance company after paying a premium of Rs.24000/- Other insurance premium paid is to the extent of Rs.94000/-. What is the total amount of benefit of tax available u/s 80c & 80 ccc? (3 marks) a) 118000 b) 150000 c) 94000 d) nil CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 36

39. A person has a basic salary of Rs.35000/- per month & there is a provident fund deduction of 10% towards a recognized provident fund. How much will be the tax benefit available for the individual? (3 marks) a) Deduction u/s 80C available on Employee’s contribution from gross total income subject to certain limits b) Exemption upto 12% of salary. Amount in excess of 12% is included in gross salary. c) Interest on Provident fund exempt u/s 10 upto 9.5% p.a. Interest credited in excess of 9.5% p.a. is included in gross salary. d) No exemption available (i) ABC (ii) ABCD (iii) AB (iv) AC 40. An employee wants to decide between contributing a sum of Rs.3500/- pm either to the provident fund or the public provident fund. The tax benefit in the two cases for the employee will be _____ (3 marks) a) Exempt under section 80CCC b) Exempt under section 80D c) Exempt under section 80C d) No tax benefits available 41. Profit Sharing plans are ______ (1 mark) a) Defined Benefit Plans b) Defined Contributions Plans c) Hybrid Plans d) None of the above. 42. The administrative charges for the EPS are paid by (1 mark) a) The employer only b) The employer & the government c) The Central Government only d) No administrative charges are paid. CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 37

43. Definition of \"Family\" for the Employee’s Pension Fund means (1 mark) (i) wife in the case of male member of the Employees' Pension Fund; (ii) husband in the case of a female member of the Employees' Pension Fund ; and (iii) sons and daughters of a member of the Employees' Pension Fund ; (iv) The expression \"sons\" and \"daughters\" shall include children 2[legally adopted by the member]. a) None of the above b) All of the above c) Only 1 & 2 d) Only 1,2,& 3 44. As a person approaches the retirement date almost all his contributions to the retirement plan should be kept in investments which offer him the _____ (2 marks) a) Highest safety of capital B) Mostly into equity related avenues c) In banks to provide liquidity d) 70% in Equity and 30 in debt 45. A Recognized provident fund account is closed and the amount is withdrawn by the individual after 4 years. The amount received here is ____ (2 marks) a) Taxable b) Not taxable c) Partly exempt d) None of the above. 46. In the Senior citizen saving scheme the interest is payable monthly (2 marks) a) Above statement is True b) Above statement is False c) Neither of the above 47. ____ is a Defined Contribution Plan. (3 marks) a) Gratuity b) VRS c) Recognized Provident Fund CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 38

d) Leave Salary 48. Yogesh, your client wants to know for how long you his financial planning practitioner have to maintain the records secured from him to develop his financial plan from the date the documents were last acted upon ___ (3 marks ) a) Five years b) Seven years c) One year d) There is no such mandatory requirement. 49. EPS 1995 is applicable to employees of establishments falling within the preview of the ________ (3 marks) a) ESI act b) Workmen’s Compensation act c) Income tax act d) Provident fund act 50. Shyam opens his PPF account on 5th January 2012. When can he make his first withdrawal from his PPF account? (1 mark) a) After 31st March 2017 b) After 31st March 2019 c) 1st April 2018 d) 1st April 2019 51. Post office monthly income scheme earns a bonus of ___ at maturity. (1mark) a) Nil b) 5% c) None of the above 52. Wages for the purpose of gratuity payment as per the Act means: (1 mark) a) Basic Pay b) Basic Pay and Dearness Allowance c) Basic Pay, Dearness Allowance and House Rent Allowance d) Emoluments including all allowances like DA, City Compensatory Allowance and Bonus and Commission etc. CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 39

53. In the context of payment of gratuity as per the Act, which one of the following statements is true: (1 mark) a) Employees getting salary higher than Rs.6,500 are not entitled to get gratuity at all. b) All employees are entitled but on the salary up to Rs.6,500. c) All employees are entitled to get gratuity without any restriction on salary. d) Only those employees not covered under the Bonus Act are entitled to get gratuity. 54. In an establishment covered under the EPF & Miscellaneous Provisions Act 1952, can an employee remain uncovered? (1 mark) a) No, because all employees are statutorily required to be covered b) Yes, because the employees getting salary more than Rs.15,000 p.m. may be excluded by the employer, if he so wishes. c) Yes, because the coverage of an employee depends upon the joint will of the employee and the employer. d) Yes, because employer may include or exclude any number of employees as per his choice. 55. Who pays the contributions for the Employees’ Pension Scheme 1995? (1 mark) a) Employer only. b) Employer and Employee. c) Employer and the Central Government. d) Employer, Employee and the Central Government. 56. To avail the withdrawals from the PF for higher education, the member should have completed membership of the fund for a period of: (1 mark) a) 10 years b) 5 years c) 7 years d) None of the above 57. From which date did the Employees’ Pension Scheme become effective? (1 mark) a) 16th January 1995 b) 16th November 1995 c) 16th April 1995 d) 1st November 1995 CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 40

58. A member shall be entitled to pension if has rendered minimum eligible service of (1 mark) a) 5 years b) 10 years c) 20 years d) 33 years 59. The PPF account is initially meant for 15 years and then the subscriber can exercise his option for extension for a block of: (1 mark) a) 5 years b) 10 years c) 15 years d) 1 year 60. In which year can the subscriber to a PPF account take the first loan from the opening of the account? (1 mark) a) Third year b) Fifth year c) Second year d) Sixth year 61. The Prime Financial Goal under Retirement Planning is: (1 mark) a) To have assured returns b) To manage average income c) Arrange for cash flow liquidity d) Meeting family obligation 62. Lack of ------------- to meet the retirement income needs adds to the problems of people in a country like ours. (2 marks) a) Pension for retired people b) Social security system c) Lack of financial education d) Lack of proper and adequate products to take care of retired people’s requirements CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 41

63. The object of retirement planning is to ----------------- the income and expenditure during the post- retirement dependency period. (2 marks) a) Make a provision for b) Balance c) Provide the standard of living and d) None of the above 64. -----------------------Policy is a part of estate. (2 marks) a) Term Insurance policy b) Endowment plan c) Whole life policy d) Any of the above 65. The Payment of Gratuity Act, 1972 applies to the prescribed entities in which ______. (1 mark) a) 10 or more persons are or were employed on any day in the preceding 12 months b) 10 or more persons have completed continuous service in the preceding 12 months c) 10 or more persons are employed and at least one has completed 5 years of continuous service d) 10 or more persons are employed in the preceding 12 months and are also covered under Employees’ Provident Fund 66. The following statements regarding National Pension System are true, except: (1 mark) a) An active Tier I account is a pre-requisite for opening a Tier II account b) There is no limits on the number of withdrawals from Tier II account c) Tier II account provides facility of separate nomination and scheme preference d) Funds from Tier I account can be transferred to Tier II account 67. The percentage of loan eligible and the tenure of repayment period that can be availed from a PPF account is _____. (1 mark) a) 50% of the eligible balance and 3 years b) One-third of the eligible balance and 5 years c) 25% of the eligible balance and 3 years d) 25% of the eligible balance and 5 years CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 42

68. Contributions to the Employee Pension Scheme (EPS), 1995 are made as under: (1 mark) a) Employee- 8.33%, Employer- Nil, Central Government- 1.16% b) Employee- 12%, Employer- 12%, Central Government- Nil c) Employee- Nil, Employer- 8.33%, Central Government- Nil d) Employee- Nil, Employer- 12%, Central Government- 1.16% 69. Which of the following is inferential data, i.e. data that may not be correctly obtained by simply asking a direct question? (1 mark) a) Current income b) Retirement Age c) Risk appetite d) Time horizon 70. In establishing relationship with the client, which of the following situations of conflict of interest is not foreseen in the Financial Planning Practice Standards? (1 mark) a) Any circumstances or relationships or facts that would place CFP practitioner's interests in conflict with the client's interests b) Any advice that would be in conflict with financial products/services industry's business interests c) Any personal conflict that would affect a CFP practitioner's ability to work successfully with the client d) Any circumstances or relationships or facts that would place the interests of one client in conflict with another client 71. Which of the following is not an effect of rising inflation in a nation’s economy? (1 mark) a) It reduces the purchasing power of money. b) It increases uncertainty of future costs of input in the entire economy. c) It decreases the debt servicing burden of forex loans of a nation. d) It weakens the value of the nation's currency in the international markets. 72. This is not a described category under FPSB India’s Financial Planner Competency Profile to discuss the competent performance of a CFP professional. (1 mark) a) Financial Planning Body of Knowledge b) Financial Planner Professional Skills c) Financial Planner Code of Ethics and Professional Responsibility CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 43

d) Financial Planner Abilities 73. The following are critical parameter/s for a company’s stock to be included in an exchange’s equity index: (1 mark) a) Average price quoted in the last six months b) Market capitalization and liquidity c) Industry leadership in terms of sales volume d) Market trading span of at least three year 74. Which of the following is in adherence with the professional responsibility of a CFP professional towards the client? (1 mark) a) Competing with professionals in specialized services to internalize most deliverables b) Referring the client to other professionals for certain duration with transfer of liability c) Having legitimate difference of opinion on an issue from fellow professionals and the client d) Managing one's own prejudices and desires to achieve a proper balance of interests 75. Under Financial Planner Code of Ethics and Professional Responsibility, the principle of Fairness is most appropriately interpreted to mean that a CFP professional would__________ (1 mark) a) assess personal prejudices, feelings and desires in ascertaining the treatment he intended in a similar situation as the client's b) owe the client all due services meant to be fairly provided, without prejudices and with proper balance of interests c) be fair in charging, besides the terms of payment, for the services to be rendered outside the scope of engagement d) treat all clients regarding the same service and deliverables fairly equally 76. Mr. Naman died in an accident. His wife, who is working in a private co., is a nominee of his PPF account. She also has a PPF account in her name. She has consulted you for advice on the amount in her husband’s PPF account. You advise her ________________ (1 mark) a) she can transfer the funds standing in her husband’s PPF account to her own PPF account b) she can transfer the PPF account in the name of their only child c) she can continue the PPF account without transfer and also maintain her existing PPF account d) she should withdraw the amount as the PPF account is non-transferable, nor a nominee can continue the account CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 44

77. A client’s change in risk profile with advancing life stage would not be influenced by _____. (1 mark) a) higher investible surplus b) higher financial liabilities c) higher asset base d) higher tax liability 78. Which of the following factors does not necessarily support a lower corpus than the required future living expenses? (1 mark) a) Higher than expected inflation b) Income generating assets other than financial assets c) No liabilities post-retirement d) Regular income flow from working post-retirement 79. An incorrect estimation of lower inflation post-retirement would not result in _____ (1 mark) a) insufficient accumulated corpus b) cutting back or retrenchment in expenses c) reduced sustainability of corpus than desired d) increased standard of living 80. The process of retirement planning would generally not involve ________. (1 mark) a) concentrating on maximizing returns from corpus after retirement to leave a sizable estate b) projecting individual needs and goals into the future and making sound financial plan c) making a plan for covering lifelong living expenses & disposition of assets at death d) planning to maintain current lifestyle and providing cost of staying physically healthy after retirement 81. For defined benefit plans, which of the following changes in actuarial assumption would not increase plan costs to an employer? (1 mark) a) High rate of salary escalation b) A rising trend in the interest rates c) Early retirement d) Longer life expectancy predicted CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 45

82. Pick out an assessment or analysis from the following which a Financial Planner would normally not be engaging in while formulating a retirement planning strategy for a client? (1 mark) a) Analyzing and integrating information from a variety of sources to arrive at solutions b) Maintaining awareness of changes in the economic, political and regulatory environments c) Take an analysis of the minimum amount with which all other goals can be achieved so that maximum sums can go towards retirement goal d) Arriving at informed decisions when faced with incomplete or inconsistent information 83. If an individual is able to maintain the value of investments so that the investments in the future have the same purchasing power as before, he would be able to ________. (1 mark) a) buy more goods by utilizing those investments in the future than now b) encounter rise in prices even if inflation outpaces investment return c) more than offset increased prices as investments compound while inflation rises in straight line d) maintain the same standard of living in the future by utilizing investments 84. Which of the following would not be an impact of higher than average inflation in the accumulation stage on the retirement corpus? (1 mark) a) The corpus needed on retirement would be larger for the same lifestyle to be maintained. b) Higher rate of interest due to higher inflation would give better compounding effect and hence a sustainable corpus c) The real return on investing money today would be difficult to sustain the purchasing power from the corpus accumulated. d) Higher consumption would leave less investible surplus leading to a lower than required corpus. 85. An NPS account can be closed before attaining normal retirement age under all of the following circumstances, except _______. (1 mark) a) in case of the change in citizenship status b) when relocated to another city c) when account value reduces to zero d) on death of the subscriber CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 46

86. Under SwavalambanYojana scheme, Government will contribute _________ per year to each NPS–Swavalamban account opened in year 2010-11,2011-12 ,2012-13 for ___________ years. (1 mark) a) Rs.1000 and 3 years b) Rs.12000 and 3 years c) Rs.1000 and 5 years d) Rs.12000 and 5 years 87. Wages to be considered for purpose of calculation of gratuity to be paid to an employee covered under the Payment of Gratuity Act, 1972 is _____. (1 mark) a) average wages drawn during the previous 10 months b) average wages drawn during the previous 6 months c) weighted average of wages drawn during the previous 5 years d) wages last drawn by him CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 47

SOLUTIONS 1. (d) Wealth Management (Wealth management is a complete service to HNI’s, Retirement Planning, Insurance Planning and Tax, Estate Planning are main 2. (c) Average wages drawn by him during previous 10 months is considered for calculation of amount of gratuity to be payable 3. (b) Rs.20,00,000 is the revised maximum gratuity amount payable by any company covered under “Payment of Gratuity Act,1972. 4. (d)Yes, at the same or higher rate and with or without the prescribed ceiling 5. (c) Benefits of Provident Fund, Employees Deposit Linked Insurance Scheme and Employees’ Pension Scheme 6. @12% of eligible salary 7. (d) All of the above All the three changes will increase plan cost to employer 8. (d) Positive attitude of retirees 9. (c)Unrecognized Provident Fund 10. (b) Individual Assessee only 11. (d) 27% Employer can contribute maximum 27% to take maximum tax benefits 12. (d) All of the above are Cognitive for Financial Planning practitioners 13. (a) 10 or more persons are or were employed on any day in the preceding 12 months 14. (d) Smart thinking as it reassure many people and also marking gimmick for the planning through your firm 15. (d) All of the above 16. (c) Take an analysis of the minimum amount with which all other goals can be achieved so that maximum sums can go towards retirement goal 17. (b) Higher rate of interest due to higher inflation would give better compounding effect and hence a sustainable corpus. 18. (a) CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 48

19. (b) 20. (b) Fiscal Policy. Monetary policy is announced by RBI time to time to control excess money supply or to release money supply by changes in Repo, reverse repo, CRR and SLR changes 21. (d) All of the above 22. (b) 23. (d) Assessing income generating potential of assets is most important. Although a) and b) are important 24. (b) obvious answers 25. (c)Obvious answers 26. (e) All are essential components of a written plan 27. (a) Micro and Macro level changes 28. (c) Risk appetite has to be judged by asking indirect questions 29. (c ) 30. (a) 31. (d) 32. (d) 33. (d) 34. (a) 35. (b) 36. (d) 37. (d) The best option out of c and d 38 (a) Rs.118000/- Solution The maximum limit of benefits available under section 80C & 80CCC is Rs.150000. 39. (i) ABC 40. (c) Exempt under section 80C 41. (b) 42. (a) Page 49 CFP Level 2 - Module 1 – Retirement Planning - Workbook

43. (b) All of the above 44. (a) 45. (a) 46. (b) Interest is paid to be calculated 47. (c) 48. (b) 49. (d) 50. (c) The Rule of Partial Withdrawal from PPF A/c.: Anytime after the expiry of five years from the end of the financial year in which the initial subscription is made 51. (a) 52. (b) 53. (c) 54. (b) 55. (c) 56. (c) 57. (b) 58. (b) 59. (a) 60. (a) 61. (c) 62. (b) Social Security System 63. (b) 64. (c) Whole Life Plan 65. (a) 66. (d) Funds from Tier I account can be transferred to Tier II account 67. (c) 25% of the eligible balance and 3 years 68 (c) Employee- Nil, Employer- 8.33%, Central Government- 1.16% 69. (c) Risk Appetite Page 50 CFP Level 2 - Module 1 – Retirement Planning - Workbook