Finoptions Management Solutions

1. Sumit (current age is 46 years) has a life expectancy at birth of 70 years when he was
born. Sonia has a life expectancy at birth of 75 years when she was born. ssume that
their life expectancies ha!e not change". Sumit is planning to buy an annuity when he
retires at age 60# to be pai" to him or his wife till any one of them is ali!e. $hat shoul" be
the time "uration of this annuity if the present age of his wife is 4%.
. 1& years
'. 15 years
(. 10 years
). 1* years.
&. )e! current age is %5 yrs an" has a life expectancy of 75 years. +is wife present age is %7
years with a life expectancy of *0 years .he is planning to buy an annuity for his post
retirement life &5 years hence. $hat shoul" be the time "uration of this annuity,
. 1& years
'. 10 years
(. 15 years
). 1* years.
%. -abin"ra an" shi!ani are rea"y to retire .they want to recei!e the e.ui!alent of -s.50000
in to"ay/s rupee at the beginning of each year for the next &0 years. 0hey assume
in1ation will be a!erage 4 2 o!er long run # an" they can earn *2 return on their
in!estments. $hat lumpsum "o they ha!e to in!est to"ay
. -s.5%01*0
'. -s.715%6%
(. -s.3&53&6
). -s.7*1104
4. 0he retirement corpus is -s. & crore built up in -am/s (current age is %*)in!estment in
mutual fun"/s pension scheme at his age 60.4f -am/s house hol" monthly expenses are
-s. *0#000 p.m. currently an" in1ation is estimate" at 62 p.a. +ow many years the
retirement corpus will last, ssume all with"rawals are "one in the beginning of the
month. 0he monthly annuity post5retirement is "rawn by with"rawal from this scheme
which is presume" to grow perpetually at a (6- of 10.&2.-am /s agree to contain their
lifestyle expenses# post5retirement# to 752 of the pre5retirement lifestyle. +owe!er#
in1ation will be e7ecti!e post5retirement also.
. 3 years & months
'. 11 years * months
(. 14 years 1 month
). 16 years 6 months
5. Sahil (current age 40) is 8een to buy a "eferre" annuity policy for his retirement perio" in
which he recei!es a 9xe" nnuity of -s. % :a8h p.a. starting from his retirement. $hat
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maximum one5time payment shoul" he pay to"ay for this policy if the applicable "iscount
rate is *2 p.a. for the whole term, (ssume all annuity 4nstallments are re.uire" in
annuity "ue mo"e life expectancy =70 retirement age 55).
. -s. *#74#&51
'. -s. 7#7%#&71
(. -s. 6#47#5&&
). -s. *#03#431
6. -ampal (current age 46)# wants to purchase now a "eferre" annual annuity certain
payable from his age of 60 years till he attains *0 years. nnuity amount of -s. 1#00#000
e!ery year woul" be pai"# 9rst installment "ue at the en" of 60 years. $hat approximate
lump sum amount shoul" he in!est now if the in!estment remains,0hroughout in )ebt
<utual ;un" Scheme,( retirement age 60# life of expectancy rate of return*2)
) -s. %#61#000
') -s. 5#7%#500
() -s. 1%#%4#%00
)) -s. *#71#*00
7. Somya(current age %*) wants to ma8e an arrangement so that one5thir" of her present
li!ing>personal monthly expenses can be met for the next 17 years till she stops earning
at the age of 55 years# an" thereafter the whole of her li!ing>personal monthly expenses
all a"?uste" to in1ation till she is ali!e. She wants to 8now what approximate lump sum
amount she is re.uire" to in!est in ris8 free instruments in or"er to ensure such cash 1ows
from the beginning of next month.
(present expenses %0000 pm# # life expectancy 75#in1ation rate 52# ris8 free rate of return
7.52 )
. -s. 54.60 :a8h
'. -s. 57.&5 :a8h
(. -s. 55.40 :a8h
). -s. 55.15 :a8h
*. @rabhat expects his post retirement househol">li!ing monthly expenses to be 752 of pre
retirement expenses an" he expects to li!e till the age of *0 years. Aou a"!ice him to
in!est the retirement corpus in a pension scheme of a mutual fun" yiel"ing 102 p.a.
"uring post retirement perio" to get such in1ation a"?uste" monthly expenses. $hat
approximate corpus @rabhat shoul" ha!e for his retirement 15 years hence to
accommo"ate his post retirement househol">li!ing expenses, (ssume this pension
scheme woul" ma8e monthly payments in annuity "ue mo"e) current age 45# retirement
age60# in1ation rate62#current expenses 40000pm
. -s. 1&& la8h
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'. -s. 1&0 la8h
(. -s. 11* la8h
). -s. 1&4 :a8h
3. Sunan"a an" ?ay want to ta8e retirement together after &5 years from now. 0hey are
con9"ent of meeting their "ay to "ay nee"s at 752 le!el of their current househol"
expenses (sub?ect to in1ation till retirement). 0he couple also wishes to spen" -s. 10 la8h
e!ery year (the then cost5at the beginning of e!ery year) in tra!elling an" en?oying their
retirement# in a""ition to their househol" expenses. +ow much corpus they shoul" ha!e at
the time of retirement to meet these expenses, ssume they shall be spen"ing at least 1&
years into retirement an" the fun" is in!este" in a post tax>ris8 free in!estment yiel"ing
102 per annum. (current age of ?ay an" Sunan"a = %5 yrs# current expenses = -s 60000
pm #in1ation rate = 62)
. -s. %15.43 la8h approx.
'. -s. %&7.40 la8h approx.
(. -s. 40%.6%la8h approx.
). Bone of the abo!e
10. Suneel an" Sushma want to arrange for a retirement income stream of -s. &5#000 per
month in the 9rst month of Suneel/s retirement. Such income stream from then onwar"s
shall be in1ation a"?uste" for a perio" of 15 years. 0he couple also wants to pro!i"e a sum
of -s. 10 la8h (the then prices) to shish (current age &6y yrs )when he completes %0
years of age. n e.ui!alent !alue (in1ation a"?uste") will be pro!i"e" to the other two
chil"ren when they complete %0 years of age. Suneel wants to 8now the !alue of corpus
re.uire" at the time of his retirement on which is after 4 years from now. Aou estimate
that such corpus can be in!este" in an in!estment !ehicle which gi!es post tax return of
*.52 p.a. ccor"ing to you total corpus re.uire" shall be CCCCCCCCCCCCCC.
(4n1ation rate =52#current age Suneel = 54 yrs #age of other two chil"ren = &% an" &1
yrs .)
. -s. 6% la8h
'. -s. 60 la8h
(. -s. 66 la8h
). -s. 70 la8h
11. -ithi8 ((urrent age = 46 yrs) plans to retire at 60 years of age. Aou ha!e estimate" that
-ithi8 will re.uire an in1ation a"?uste" -s. 1.1 la8h in the 9rst month after retirement. +e
woul" in!est e!ery year -s. 1# 50#000 in D.uity <utual ;un"s starting from now till
retirement an" in )ebt base" <utual ;un"s after retirement. -ithi8 woul" set asi"e 602 of
his existing D.uity shares portfolio to in!est the same for his retirement corpus. $hat will
be the surplus>"e9cit in the re.uire" corpus at the time of retirement, (@lease ignore
charges an" 0axes if applicable)(life expectancy = *0 yrs #"ebt returns = *2#in1ation rate
= 52# e.uity returns = 1%2 current!alue of e.uity shares portfolio %3.65 la8h e.uity
mutual fun" returns = 1&2)
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. )e9cit of -s. 16 la8h
'. Surplus of -s. 1& la8h
(. )e9cit of -s. %1 la8h
). $oul" nearly meet the (orpus re.uirement
1&. @ost5retirement# -a?esh woul" re.uire 702 of his current personal annual expenses
a"?uste" for in1ation in the beginning of the 9rst year of his retirement. +e wants to lea!e
-s. &5 la8h cash# at then prices# for both his "aughters each as estate. +e wants to 8now
what monthly amount towar"s his retirement corpus an" estate is re.uire" to be in!este"
in an D.uity oriente" <; from to"ay onwar"s till his retirement. 4n the "istribution phase#
the corpus is in!este" in a @ension fun" yiel"ing annual in1ation5a"?uste" annuity yiel"ing
100 basis points abo!e ris8 free rate.
(<onthly expenses=-s.65000 #@resent age=43#retirement = 6& life expectancy= *0 -is8
free rate = 62# in1ation return= 5.52 # e.uity <; return = 1&2)
. -s. 74#1&1
'. -s. %7#075
(. -s. 5%#1&5
). -s. 51#05*
1%. Soniya wants to ma8e a pro!ision for his retirement fun" at the age of 60 an" his life
expectation is 75 years. She expects an annual increment of 42 in her househol"
expenses till her retirement. Soniya wants to lea!e a sum of -s. 10 la8h at the en" of her
life for an e"ucational trust establishe" by her for the e"ucation of poor chil"ren. She also
wants to ma8e an annual contribution of -s. & la8h to this trust at the en" of e!ery year in
the last 5 years of his life. ssume that she sol" out her plot at current !aluation of
-s.1500000 ?ust now an" in!ests the sale procee" in ris8 free instruments for this
arrangement. $hat shoul" be her compulsory annual sa!ing e!ery year en" to fun" this
arrangement, (4n"icate closest 9gure)
(current age =45 #ris8 free return= 62p.a # in1ation =4.52p.a# house hol" expenses =%
la8h p.a.)
. -s. &#&0#*00
'. -s. 5#75#3&3
(. -s. 4#5&#54&
). -s. 1#34#345
14. Sur?eet inten"s to buil" a retirement corpus of -s. & crore re.uire" at the age of 60 through
the speci9e" @ension scheme in which he regularly switches5in -s. 5#000 p.m. from the
<<<; >c from 1 pril &000 till <arch &01&. 0hereafter# he plans to continue a certain
amount through the S4@ mo"e of in!estment from his Salary ccount till his age of 5&. 4f
the sai" scheme/s BE grows at a (6- of 10.&2 throughout# what amount of S4@ woul"
you a"!ise him to maintain in or"er to achie!e the "esire" corpus,information accor"ing to
1 october &00*.
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(current age= %*#balance amount in pension fun" is march &00*=-s.573*7)
. -s. &5#&50
'. -s. %7#*41
(. -s. 4&#700
). -s. 45#300
15. lo8# age &5 years# plans to retire at age 60 an" his life expectancy is 75 years. +is current
expen"iture is -s. &00000 annually. +e estimates no re"uction of expenses post
retirement. +ow much will he sa!e per annum to achie!e his target# if in1ation rate is 62
an" expecte" yiel" from in!estment is 102, ssume he wishes to lea!e an estate of 102
of his sa!ings at the time of retirement.
) -s. 361&
') -s. 7%*7*
() -s. 66430
)) -s. *651
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