Instruction & Caselet

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)
CASE STUDIES
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CASE STUDIES
CASE STUDY NO. 1

Mr. Darshan is employed in a private firm and earns Rs 8 lakhs per year. Out of this he spends Rs 7 lakhs per
year. His stock broker has recommended an investment which promises a return of 13%. He plans to invest Rs
40,000 in this and for this he will need a leverage of 1.5 to finance the investment. He can borrow at 9% pa.
He has life insurance policies of Rs 35 lakhs. He has an outstanding housing loan of Rs 30 lakhs. His other
assets, excluding his residential house are worth Rs 90 lakhs.
He also has investments in other sources and he expects his investments to grow at 9% over the long term. The
inflation rate is likely to be around 7.5%.
Mr. Darshan is currently of 42 years and wishes to retire at 60 and his life expectancy is 70 years.
Q 1.1 If Mr. Darshan implements his plan of investments using leveraged money for the new investment,
what will be his return on equity ?
1.
2.
3.
4.
16%
19%
20%
22%

CASE STUDIES
Correct Answer : 19%
Explanation :
He plans to invest Rs 40,000. If X is his investment then 1.5X will be the borrowed money ( 1.5 leverage )
X + 1.5 X = Rs 40,000
2.5 X = Rs 40,000
X = Rs 40,000 / 2.5
X = Rs 16000
So Rs 16000 will be his funds and Rs 24000 ( 40000 16000) will be borrowed funds.
On the total new investment of Rs 40000, he will receive 13% return ie. Rs 5200
On borrowed funds of Rs 24000 he will pay 9% ie. Rs 2160
So his net income will be Rs 3040 ( 5200 2160 )
So on his investment of Rs 16000 (own funds), he has earned Rs 3040 which is 19% return.
( 3040 / 16000 ) x 100 = 19.
Percentage %)
( Note: we multiply the answer by 100 to convert the decimal factor into

CASE STUDIES
Mr. Darshan is employed in a private firm and earns Rs 8 lakhs per year. Out of this he spends Rs 7 lakhs per year. His stock broker
has recommended an investment which promises a return of 13%. He plans to invest Rs 40,000 in this and for this he will need a
leverage of 1.5 to finance the investment. He can borrow at 9% pa.
He has life insurance policies of Rs 35 lakhs. He has an outstanding housing loan of Rs 30 lakhs. His other assets, excluding his
residential house are worth Rs 90 lakhs.
He also has investments in other sources and he expects his investments to grow at 9% over the long term. The inflation rate is likely to
be around 7.5%.
Q 1.2 - The company in which Mr. Darshan was planning to invest on the basis of his stock brokers
recommendation and in which he would have got 13% return, is now offering only 9% return. What will be his
returns now ?
1.
2.
3.
4.
0%
6%
9%
9.6%

CASE STUDIES
Correct Ans : 9%
Explanation :
On his total investments of Rs 40,000 he will now receive 9% ie Rs 3600
On borrowed funds of Rs 24000 he pays 9% ie. Rs 2160
So his net income will be Rs 1440 on his investment of Rs 16000
This is 9% return ( 1440 / 16000 ) x 100
factor into Percentage %)
( Note: we multiply the answer by 100 to convert the decimal

CASE STUDIES
be around 7.5%.
Q 1.3 What is the discount rate for working out Mr. Darshans Insurance plan ?
1.
2.
3.
4.
1.395%
1.501%
2.000%
1.756%

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Correct Answer : 1.395 %
Explanation :
To find the Discount Rate means we have to calculate the inflation adjusted rate of return or Real rate of
Return.
The Formula is [ { (1 + rate of return) / ( 1 + Inflation Rate )} 1 } ] x 100
= { ( 1 + 0.09 ) / ( 1 + 0.075 ) } 1 x 100
= ( 1.09 / 1.075 ) 1 x 100
= 1.0139 1 x 100
= 1.395 %

CASE STUDIES
be around 7.5%.
Q 1.4 What is Mr. Darshans human life value ?

1.
2.
3.
4.
Rs. 1,39,77,987
Rs. 1,26,62,575
Rs. 2,14,74,744
Rs. 2,22,78,634

CASE STUDIES
Correct Ans : Rs 1,26,62,575
Explanation :
The various steps to find the Human Life value are :
Step 1 Finding the present value of all the future earnings in todays term. We have to use Excel for the
calculations. (Use of Excel is allowed in exams).
In EXCEL, Click on Fx and choose PV ie. Present Value and OK

CASE STUDIES
In Rate we have to enter the Real Rate of Return which has been calculated in Q 1.3 ie 0.0139
Nper is the no. of payments ie. Retirement Age less Current Age ( 60-42 )
Pmt His current income ie. Rs 8,00,000 which is going to occur every year

CASE STUDIES
The Answer comes to Rs. 1,26,62,575 /=

This means he needs an insurance cover of the above amount.

CASE STUDIES
CASE STUDY NO. 2

The public issue of Secure Industries Ltd is priced at Rs 75. The book value of its equity shares is Rs 24. The
current Earning per share is Rs 7 and this is likely to rise by 10 % next year.
Mr. Kushal who regularly invests in IPOs wishes to invest in this IPO using outside finance(loan) in which he
will get a leverage of 2 times at a finance cost of 2.5% for the period till the shares are allotted.
Q 2.1 Calculate the historic Price to Book value at which the IPO is bought out.
1.
2.
3.
4.
3.63
3.12
4.00
3.21
Correct Ans : 3.12
Explanation : The formula for Historic Price to Book ie P/B ratio is Market Price Per Share / Book Value Per Share
= 75 / 24
= 3.125

CASE STUDIES
The public issue of Secure Industries Ltd is priced at Rs 75. The book value of its equity shares is Rs 24. The current Earning per share
is Rs 7 and this is likely to rise by 10 % next year.
Mr. Kushal who regularly invests in IPOs wishes to invest in this IPO using outside finance(loan) in which he will get a leverage of 2
times at a finance cost of 2.5% for the period till the shares are allotted.
Q 2.2 Calculate the forward Price to Earning (PE) Ratio for this IPO.
1.
2.
3.
4.
8.30
8.77
9.74
10.88
Correct Ans : 9.74
Explanation : The formula for Forward PE ratio is

Current Price / Forward Earnings
= 75 / (7 x 1.1)
= 75 / 7.70
= 9.74
[ 10% growth in Rs 7 ]

CASE STUDIES
Q 2.3 - If Secure Industries Ltd allots the shares in the ratio 4 for 10, what will be the cost for these shares for
Mr. Kushal ?
1.
2.
3.
4.
75.41
81.63
79.80
78.12
Correct Ans : 78.12
Explanation : Leverage-> 2 times (Means for every Rs.100 with the investor, a loan of Rs.200) ie. 1/3 is self
money and 2/3 is loan taken.
Allotment ratio is 4:10, ie. for every 10 shares applied, he will get 4 shares.
To apply for 10 shares he will need Rs 750 (Rs 75 x 10)
Loan Amount = 750 x 2/3 = Rs 500
Interest Cost = 500 x 2.5% = Rs 12.50
Total cost = Value of shares allotted + Interest cost
= 4 x 75 + 12.50
= 312.50
Cost Per Share = 312.50 / 4 = 78.12

CASE STUDIES
Q 2.4 The shares of Secure Industries Ltd are expected to list at Rs 77.50. In such a scenario, what should be
the minimum allotment so that Mr. Kaushal does not suffer a loss ?
1.
2.
3.
4.
50%
58.50%
60%
75%
Correct Ans : 50%
Explanation : Shares are issued at Rs 75 and listing is at Rs 77.50

This means the cost of finance should not be more than Rs 2.50 per share
His cost of finance is Rs 12.50 ( as solved earlier )
12.50 / 2.50 = 5
So he should get atleast 5 shares from the 10 shares applied which means a 50% allotment ratio

CASE STUDIES
CASE STUDY NO. 3
Mr. Gupta, an Indian resident invests in Mutual Funds regularly. He has an ongoing SIP which is currently
valued at Rs 2,00,000. In this SIP he is contributing Rs 25000 pm and this will continue for 12 more months.
The yield on SIP is estimated to be 1% pm. As Mr. Gupta is expecting some monies and so he is planning to
start a new SIP of Rs 12000 pm for 18 months. This new SIP can yield 1.25% pm.
Mr. Gupta has a son named Pranav. Mr. Gupta plans to send Pranav to USA for higher studies in the field of
medical sciences. The expenses for such studies is Rs 20,00,000 and this will go up by 10% pa over the next 5
years. The rupee is also likely to depreciate by 3% against the USD during this period.
Q 3.1 What will be the value of Mr. Guptas ongoing SIP in one year ?
1.
2.
3.
4.
Rs. 501677
Rs. 574606
Rs. 542427
Rs .500411

CASE STUDIES
Correct Ans : Rs 542427
Answer Explanation :
We will have to use Excel to solve these problems.
Here we have to find the Future Value of his investments.
In Excel, click on Fx and then on FV (ie. Future Value and then OK.

CASE STUDIES

CASE STUDIES
The Interest Rate is 1%, the number of installments are 12, the per month installments are Rs 25000 and the
currently value of the SIP is Rs 200000. Inputting these values in Excel , we get :
Ans : The future value of the ongoing SIP is Rs. 542427

CASE STUDIES
Mr. Gupta, an Indian resident invests in Mutual Funds regularly. He has an ongoing SIP which is currently valued at Rs 2,00,000. In
this SIP he is contributing Rs 25000 pm and this will continue for 12 more months. The yield on SIP is estimated to be 1% pm. As Mr.
Gupta is expecting some monies and so he is planning to start a new SIP of Rs 12000 pm for 18 months. This new SIP can yield 1.25%
pm.
Mr. Gupta has a son named Pranav. Mr. Gupta plans to send Pranav to USA for higher studies in the field of medical sciences. The
expenses for such studies is Rs 20,00,000 and this will go up by 10% pa over the next 5 years. The rupee is also likely to depreciate by
3% against the USD during this period.
Q 3.2 - Mr. Gupta plans to start a new SIP of Rs 12000 pm. What will be its value at the completion of SIP
period ?
1.
2.
3.
4.
Rs 214688
Rs 230876
Rs 240554
Rs 248214

CASE STUDIES

Explanation : Using the FV calculations in Excel, input the following data Interest Rate 1.25%, Installments
18 and per installment amount Rs 18000.
We get the answer Rs 240554.

CASE STUDIES
Mr. Gupta, an Indian resident invests in Mutual Funds regularly. He has an ongoing SIP which is currently valued at Rs 2,00,000. In
this SIP he is contributing Rs 25000 pm and this will continue for 12 more months. The yield on SIP is estimated to be 1% pm. As Mr.
Gupta is expecting some monies and so he is planning to start a new SIP of Rs 12000 pm for 18 months. This new SIP can yield 1.25%
pm.
Mr. Gupta has a son named Pranav. Mr. Gupta plans to send Pranav to USA for higher studies in the field of medical sciences. The
expenses for such studies is Rs 20,00,000 and this will go up by 10% pa over the next 5 years. The rupee is also likely to depreciate by
3% against the USD during this period.
Q 3.3 - What is the amount Mr. Gupta will need in five years for his son Pranavs education ?
1.
2.
3.
4.
Rs 36,84,870
Rs 41,74,634
Rs 39,28,749
Rs 43,11,000

CASE STUDIES
Correct Ans : Rs 36,84,870

Explanation :
Here again we have to calculate the future value using Excel.
The Rate is 10%. As the rupee depreciates, the cost will rise by 3%. So the total Rate will be 10 + 3 = 13%
The period is 5 years
The current cost is Rs 20,00,000 which is the Present Value.
Inputting these data in excel we get :
Mr. Gupta will need Rs 36,84,870 in 5 years for his sons education.

CASE STUDIES
CASE STUDY NO. 4

The PE ratio for M/s. Megasoft Ltd is 24 while the industry average PE is 15, the Price Earning to Growth
(PEG) Ratio is 0.92 and the dividend yield is 4.2 . Mr. Rao is a careful and conservative investor and is thinking
of investing in the shares of Megasoft Ltd.
Q 4.1 The PEG ratio Megasoft Ltd is 0.92. This means the company is _________.
1.
2.
3.
4.
A low growth stock

A high growth stock
Over valued
Under valued
Correct Ans : Undervalued
Explanation : The thumb rule is that if the PEG ratio is 1, it means that the market is valuing a stock in
accordance with the stock's estimated EPS growth. If the PEG ratio is less than 1, it means that the stock's
price is undervalued. On the other hand, stocks with high PEG ratios indicate that the stock is currently
overvalued.

CASE STUDIES
The PE ratio for M/s. Megasoft Ltd is 24 while the industry average PE is 15, the Price Earning to Growth (PEG) Ratio is 0.92 and the
dividend yield is 4.2 . Mr. Rao is a careful and conservative investor and is thinking of investing in the shares of Megasoft Ltd.
Q4.2 The Dividend yield of Megasoft is quiet high. What does it signify ?
1.
2.
3.
4.
The company share price is likely to rise

The company EPS is likely to rise
The earnings growth of the company could be low
The dividend payout will be low
Correct Ans : The earnings growth of the company could be low.
Explanation : When the dividend received by an investor is compared to the market price of the share, it is
called the dividend yield of the share.
The dividend yield of a share is inversely related to its share price. If the price of equity shares moves up, the
dividend yield comes down, and vice versa. A low earnings growth company will have a relatively higher and
increasing dividend yields as prices tend to fall.

CASE STUDIES
The PE ratio for M/s. Megasoft Ltd is 24 while the industry average PE is 15, the Price Earning to Growth (PEG) Ratio is 0.92 and the
dividend yield is 4.2 . Mr. Rao is a careful and conservative investor and is thinking of investing in the shares of Megasoft Ltd.
Q 4.3 Why are the shares of Megasoft unsuitable for investments for a careful and conservative investor like
Mr. Rao ?
1.
2.
3.
4.
The PE ratio is quiet high as compared to industry PE ratio

The PEG ratio is lower than 1
The dividend yield is very high
All of the above
Correct Ans : The PE ratio is quiet high as compared to industry PE ratio
Explanation : One has to compare the company PE ratio to the industry average PE ratio. If this is higher, it
generally means the company stock is over price. Here , The PE of Megasoft is 24 and suppose the average PE
ratio of software sector stocks is 20, then this means Megasoft shares are over valued.

CASE STUDIES
CASE STUDY NO. 5
Mrs. Menon is a safe investor and invests regularly in Fixed Deposits and Bonds. She is planning to invest in a
8% bonds of XYZ Ltd. These bonds are being issued at face value but will be redeemable at a good premium
of 6%. The interest is paid annually and the time duration of these bonds is 5 years.
The bonds were being traded at Rs 103 after 1 year.
Q 5.1 Calculate the YTM these bonds of XYZ Ltd on issue.

1.
2.
3.
4.
8.35%
9%
9.20%
9.80%

CASE STUDIES
Correct Ans : 9%
Explanation :
YTM ie. Yield to Maturity is the total return to be earned on the money invested. Lets assume Mrs. Menon
invested Rs 100 and so she will get Rs 106 on maturity (premium of 6%) plus interest income of 8% pa. We
have to calculate the Rate.
Using Excel, search for Rate.
On Clicking on Go we get :

CASE STUDIES
Double Click on Rate we get :

CASE STUDIES

CASE STUDIES
Now we have to input the data :
Mrs. Menon is a safe investor and invests regularly in Fixed Deposits and Bonds. She is planning to invest in a 8% bonds of XYZ Ltd.
These bonds are being issued at face value but will be redeemable at a good premium of 6%. The interest is paid annually and the time
duration of these bonds is 5 years.
Nper - the period ie. 5 years

Pmt Every year interest will be receivable ie 8% on Rs 100 ie Rs 8
Pv The initial amount invested ie. Rs 100
Fv The amount receivable on maturity ie. Rs 106 ( 6% premium )
We get the answer 0.0900 x 100 = 9% is the YTM on issue price.

CASE STUDIES
Q 5.2 Calculate the revised YTM these bonds of XYZ Ltd after one year ?
1.
2.
3.
4.
8%
8.1%
8.4%
9.1%

CASE STUDIES
Correct Ans : 8.4%
Explanation :
We have to find out what will be the YTM if one invests after one year in these bonds at Rs 103.
Input the following data in Excel as per the same procedure of Ans 4.1
Nper - the period has now become 4 years as 1 year has passed
Pmt Rs 8
Pv The amount invested will now be Rs 103
Fv The amount receivable on maturity ie. Rs 106 ( 6% premium )
The Yield will now be .084 x 100 = 8.4%

CASE STUDIES
Q 5.3 Calculate the modified duration if after one year of the issue, 3.60 is the modified duration ?
1.
2.
3.
4.
3.00
3.32
3.68
4.22
Correct Ans : 3.32

Explanation :
The formula to calculate modified duration is : Duration / 1 + YTM
= 3.6 / 1 + 0.084 ( Here YTM is the Yield after one year as calculated above )
= 3.6 / 1.084
= 3.32

CASE STUDIES
Q 5.4 When the price was quoting at Rs 103, due to an announcement by RBI, the interest rates (yields) went
up by 50 basis points. Calculate the revised price of bonds of XYZ Ltd one year after the issue.
1.
2.
3.
4.
101.35
102.44
100.20
103.74

CASE STUDIES
Correct Ans : 101.34
Explanation :
Here we have to calculate the price of bond when the interest rates rises ie. Present Value (Pv)
After clicking on OK, we get the following screen :

CASE STUDIES

CASE STUDIES
Now input the data :
As per answer of 5.2, the revised yield after one year is 8.4%. Add .50% to this as yields risen by 0.50% = 8.9%
(Rate)
Rest all inputs will be same.
In Excel, we have to find Pv.

CASE STUDIES
CASE STUDY NO. 6

Following are the assets and liabilities of Mr. Parag
Assets : House costing Rs 25 lacs but now valued at Rs 40 lacs. Equity Shares Rs 7 lacs, Debentures Rs 3 lacs,
Long Term Fixed Deposits Rs 10 lacs, Short Term Bank Fixed Deposits Rs 2 lacs, Car Rs 4 lacs, SUV Rs 6
lacs, Open Ended Equity Schemes Rs 6 lacs, Open Ended Debt Schemes Rs 5 lacs, Liquid Schemes Rs 5
lacs, Saving Bank a/c Rs 1 lac.
Liabilities : Housing loan Rs 12 lacs, Loan from friends Rs 5 lacs, Vehicle loan Rs 4 lacs and Credit card
outstanding Rs 1 lac.
Q 6.1 - What is Mr. Parags leverage ratio ?

1.
2.
3.
4.
20.22%
23.18%
27.30%
24.72%
Correct Answer : 24.72 %

Explanation : Leverage Ratio = Total Liabilities / Total Assets.
Total Liabilities = Add all the liabilities = Rs 22 lacs
Total Assets = Add all the assets ( take house at current valuation ) = 89 lacs
Leverage ratio = 22 / 89 = 24.72%

CASE STUDIES

Assets : House costing Rs 25 lacs but now valued at Rs 40 lacs. Equity Shares Rs 7 lacs, Debentures Rs 3 lacs, Long Term Fixed
Deposits Rs 10 lacs, Short Term Bank Fixed Deposits Rs 2 lacs, Car Rs 4 lacs, SUV Rs 6 lacs, Open Ended Equity Schemes Rs 6
lacs, Open Ended Debt Schemes Rs 5 lacs, Liquid Schemes Rs 5 lacs, Saving Bank a/c Rs 1 lac.
Liabilities : Housing loan Rs 12 lacs, Loan from friends Rs 5 lacs, Vehicle loan Rs 4 lacs and Credit card outstanding Rs 1 lac.
Q 6.2 Calculate the value of Mr. Parags liquid assets.

1.
2.
3.
4.
Rs 10 lacs
Rs 8 lacs
Rs 6 lacs
Rs 16 lacs
Correct Answer : Rs 8 lacs
Explanation : Liquid assets are those assets that can be easily converted into cash at short notice to meet
expenses or emergencies. Liquid assets include money in savings bank account, fixed deposits that mature
within 6 months, investment in short-term debt schemes of mutual funds and such other short-term assets.
Some assets may be easily converted into cash but their values may fluctuate widely in the short-term, thus
making them unsuitable for realising cash at short notice. Shares and open-end equity schemes fall under this
category. Open-end debt schemes too have a significant market element in their valuation which makes their
return volatile, and therefore unsuitable to meet the need for funds at short notice.
In the above example the following are liquid assets :
Short Term Bank Fixed Deposits Rs 2 lacs
Liquid Schemes Rs 5 lacs
Saving Bank a/c Rs 1 lac.
Total = Rs 8 lacs are liquid assets

CASE STUDIES

Q 6.3 Calculate the Networth of Mr. Parag.

1.
2.
3.
4.
Rs 57 lacs
Rs 72 lacs
Rs 67 lacs
Rs 89 lacs
Correct Answer : Rs 67 lacs.
Explanation : Networth = Assets Liabilities

As calculated in the Ans 5.1 , His assets are valued at Rs 89 lacs and Liabilities at Rs 22 lacs
So his Networth is 89 22 = Rs 67 lacs.

CASE STUDIES

Q 6.4 Calculate Mr. Parags solvency ratio.

1.
2.
3.
4.
75%
80%
60%
65%
Correct Ans : 75%
Explanation : Solvency Ratio = Networth / Total Assets

= 67 / 89 = .75 = 75%
(Higher the solvency ratio, stronger the investors financial position)

CASE STUDIES
CASE STUDY NO. 7
Mr. Dixit has invested Rs 100000 in a debenture which will give 11% return. He has used a leverage of 1.5
times. He borrowed money at 9% pa.
Q 7.1 Out of the Rs 1 lac invested by Mr. Dixit, how much funds were of his own ?
1.
2.
3.
4.
Rs. 50000
Rs. 40000
Rs. 45000
Rs. 30000
Explanation :
Let X be his own funds.
So X + 1.5 X = Rs 100000
2.5X = Rs 100000
X = 100000 / 2.5 = Rs 40000

CASE STUDIES
Mr. Dixit has invested Rs 100000 in a debenture which will give 11% return. He has used a leverage of 1.5 times. He borrowed money at
9% pa.
Q7.2 What amount of interest was paid by Mr. Dixit on borrowed funds ?
1.
2.
3.
4.
Rs. 6100
Rs. 5400
Rs. 4900
Rs. 6350
Explanation : Out of Rs 100000, Rs 40000 are his own fund (as calculated above), the balance Rs 60000 are
borrowed.
The cost of borrowing is 9%. So 9% of Rs 60000 = Rs 5400

CASE STUDIES
9% pa.
Q 7.3 Calculate Mr. Dixits net return.

1.
2.
3.
4.
Rs. 5400
Rs. 11000
Rs. 6500
Rs. 5600
Explanation : The interest receivable by Mr. Dixit is 11% of Rs 100000 = Rs 11000.

He has to make interest payments on borrowed money of Rs 5400 (as calculated above)
So his net return is Rs 11000 Rs 5400 = Rs 5600

CASE STUDIES
9% pa.
Q 7.4 What is the Return on Equity of Mr. Dixit ?
1.
2.
3.
4.
12%
14%
16%
18%
Correct Ans : 14%
Explanation : Mr. Dixit has invested Rs 40,000 of his own funds, so thats his equity. On this he has got a net
return of Rs 5600.
So Return on Equity = Net Return / Own funds invested x 100
= 5600 / 40000 x 100
= 14%

CASE STUDIES
CASE STUDY NO. 8
Following are the details of income and expenses etc of Mr. Sayyed for the month of January.
Mr. Sayyed works in a company where he gets a monthly gross salary of Rs 30000 and this includes a PF
contribution of Rs 3000 from the employers. He also invests Rs 3000 in PF.
There are some deductions in his salary as under :
Loan repayments - Rs 3500, TDS - Rs 1000 & Investments Rs 3000
The monthly expenses of his household are Rs 17500.
Mr. Sayyed also has a monthly SIP going on in which Rs 2000 are deducted directly from his bank account. He
plans to use this SIP money to buy a house in his village whose current cost is Rs 3 lakhs.
Mr Sayyed has received Rs 4000 as dividends from some old equity shares held by him.
Q 8.1 The net take home salary of Mr. Sayyed for the month of January is ________ .
1.
2.
3.
4.
Rs 20600
Rs 18300
Rs 16500
Rs 19500

Explanation :
Mr. Sayyeds gross Salary = Rs 30000
Less Employer PF Contribution Rs 3000 + Self PF contribution Rs. 3000 + Loan repayments - Rs 3500
+ TDS - Rs 1000 + Investments Rs 3000 = Rs 13500
Rs 30000 Rs 13500 = Rs. 16500

CASE STUDIES
Mr. Sayyed works in a company where he gets a monthly gross salary of Rs 30000 and this includes a PF contribution of Rs 3000 from
the employers. He also invests Rs 3000 in PF.
Mr. Sayyed also has a monthly SIP going on in which Rs 2000 are deducted directly from his bank account. He plans to use this SIP
money to buy a house in his village whose current cost is Rs 3 lakhs.
Q 8.2 The Saving Ratio of Mr. Sayyed is _________.

1.
2.
3.
4.
30.15%
25.75%
33.12%
28.74%
Correct Ans : 30.15%

Explanation :
Monthly take home income of Mr. Sayyed in January is Rs 16500 + Rs 4000 (Dividend) = Rs 20500
Add the Investments he has made : Rs 6000 (Total PF investments) + Rs 3000 (Investments) + Rs 2000 (SIP) =
Rs 11000
His total income = 20500 + 11000 = 31500
His expenses are : Loan Repayment Rs 3500 + TDS Rs 1000 + House hold expenses Rs 17500 = Rs 22000
So his net savings is Rs 31500 Rs 22000 = Rs 9500
Saving Ratio = 9500 / 31500 x 100 = 30.15 %

CASE STUDIES
Q 8.3 The SIP in which Mr. Sayyed is investing can give a monthly return of 1%. Calculate the total value of
his SIP investments in 3 years.
1.
2.
3.
4.
Rs 79,745
Rs 81,877
Rs 85,231
Rs 86,153

CASE STUDIES

Explanation :
Use Excel to do the calculations to find the Fv ie. Future Value.
Select Fv in Excel
Click OK ..

CASE STUDIES

CASE STUDIES
Input the data as under :

Rate is 1%
Nper The total installments are 12 x 3 years = 36
Pmt Per month Rs 2000
There is no lump sum investment so no Pv.
The SIP will be valued at Rs 86153.

CASE STUDIES
Q 8.4 Assuming that the village house which Mr. Sayyed plans to buy, appreciates by 14% pa, what will be its
value after 3 years ?
1.
2.
3.
4.
Rs 426000
Rs 438114
Rs 444463
Rs 507416

CASE STUDIES
Correct Ans : Rs 4,44,463.

Explanation :
Using Excel and Future Value (Fv) calculations :

CASE STUDIES
Input the following data :

Rate = 14%
Nper 3 years
No Pmt
Pv The present value of the village house is Rs 300000.
The village house will valued at Rs 4,44,463 after 3 years.

CASE STUDIES
CASE STUDY NO. 9
Mr. Mohit is a married man of age 43. He has a good job and he also saves regularly. He intends to send his
daughter for higher education which will be due in 5 years. The current cost of such education is Rs 15,00,000
per annum and this is incurred at the end of each year for 2 years. The inflation is likely to be at 15% pa.
His has one more daughter whose marriage is scheduled at the end of 7 th year and which will cost Rs
1,00,00,000. The likely inflation is 10% pa.
Mr. Mohit has saved Rs 2,00.00,000 to meet these two expenses by investing in both equity and debt which is
yielding 8% pa.
Q 9.1 - How much money will Mr. Mohit need to be set aside from the corpus at the end of Year 5, to finance
the daughters higher education? Assume the amount set apart will earn 6%interest.
1.
2.
3.
4.
Rs. 6290234
Rs. 6074532
Rs. 5737488
Rs. 5270968

CASE STUDIES
Explanation :
Find FV of Education cost at the end of 5th Year:

CASE STUDIES
Find FV of Education cost at the end of 6th Year:
Discount the FV of 6th Year cost to the end of 5th Year : Discount Rate @ 6%

CASE STUDIES
Total education cost requirement at the end of 5th Year = 3017035.78 + 3273199.199 = Rs. 62,90,234.97

CASE STUDIES
Mr. Mohit is a married man of age 43. He has a good job and he also saves regularly. He intends to send his daughter for higher
education which will be due in 5 years. The current cost of such education is Rs 15,00,000 per annum and this is incurred at the end of
each year for 2 years. The inflation is likely to be at 15% pa.
His has one more daughter whose marriage is scheduled at the end of 7th year and which will cost Rs 1,00,00,000. The likely inflation is
10% pa.
Mr. Mohit has saved Rs 2,00.00,000 to meet these two expenses by investing in both equity and debt which is yielding 8% pa.
Q 9.2 How much money will be required on account of daughter's marriage in the year it is planned?
1.
2.
3.
4.
Rs. 1,47,32,877
Rs. 1,94,87,171
Rs. 2,01,74,002
Rs. 2,33,55,444

CASE STUDIES
Correct Ans : Rs 1,94,87,171
Explanation :
Find FV of Marriage cost at the end of 7th Year:

CASE STUDIES
Mr. Mohit is a married man of age 43. He has a good job and he also saves regularly. He intends to send his daughter for higher
education which will be due in 5 years. The current cost of such education is Rs 15,00,000 per annum and this is incurred at the end of
each year for 2 years. The inflation is likely to be at 15% pa.
His has one more daughter whose marriage is scheduled at the end of 7 th year and which will cost Rs 1,00,00,000. The likely inflation is
10% pa.
Mr. Mohit has saved Rs 2,00.00,000 to meet these two expenses by investing in both equity and debt which is yielding 8% pa.
Q 9.3 How much will be left in the corpus after both goals are fulfilled (assume that he does not
set apart money in the 6% corpus mentioned in Q9.1)?
1.
2.
3.
4.
Rs. 68,11,877
Rs. 61,47,354
Rs. 71,96,211
Rs. 75,23,085

CASE STUDIES
Correct Ans : Rs. 75,23,085

CASE STUDIES
Find FV of current investment at the end of 5th Year: Rs. 29386561.54

Less: Fv of education cost at the end of 5th Year :
(Rs. 3017035.78)
Balance in available corpus at the end of 5th Year : Rs. 26369525.76
{26369525.76 * (1.08)} {Formula = PV * (1+R)^N}
Less: Fv of education cost at the end of 6th Year :
(Rs. 3469591.15)
{28479087.82* (1.08)} {Formula = PV * (1+R)^N}
Less: Fv of marriage at the end of 7th Year :
(Rs. 19487171.00)
Rs. 7523085 will be left in the corpus after both goals are fulfilled
Q 9.4 How would you describe the investment policy Mr.Mohit is using for the corpus?
1.
2.
3.
4.
Very Conservative
Very Aggressive
Less Conservative
Less Aggressive
Correct Ans : Very Conservative

Explanation : The instruments Mr. Mohit has used for his investments are yielding a very low rate of return ie.
8%, which means they carry almost no risk.

CASE STUDIES
CASE STUDY NO. 10
Mr. Kumar has invested in both Equity Shares and Debt. The yearly expected return from Equity shares is
14% and from Debt is 8%. The co-relation between Equity and Debt returns is 0.4 (negative).
The standard Deviation of Equity shares is 9% and Debt is 4%.
Q 10.1 Calculate the returns of Mr. Kumar if he invests 25% in Equity Shares and 75% in Debt.
1.
2.
3.
4.
14%
8%
11.5%
9.5%
Correct Ans : 9.5%
Explanation :
The formula for calculating returns is : ( WE x RE ) + ( WD x RD )
WE Weight of Equity = 0.25
RE Return on Equity = 14
WD Weight of Debt = 0.75
RD Return of Debt = 8
= (0.25 x 14) + (0.75 x 8)

= 3.5 + 6 = 9.5%

CASE STUDIES
Mr. Kumar has invested in both Equity Shares and Debt. The yearly expected return from Equity shares is 14% and from Debt is 8%.
The co-relation between Equity and Debt returns is 0.4 (negative).
Q 10.2 If Mr Kumar is investing 15% in equities and 85% in debt, what can you conclude from this asset
allocation ?
1.
2.
3.
4.
Mr. Kumar is married and has children who are studying

Mr. Kumar is a very senior person (age more than 70-75 years) and has no family support
Mr. Kumar is a young married person with no children
Mr Kumar is unmarried and no immediate responsibility or family to support
Correct Answer : Mr. Kumar is a very senior person (age more than 70-75 years) and has no family support.
Explanation : A portfolio which contains a very high ratio of debt and very low ratio for equities is generally
for people who cannot take risks and are for very senior and with no family support.

CASE STUDIES
Mr. Kumar has invested in both Equity Shares and Debt. The yearly expected return from Equity shares is 14% and from Debt is 8%.
The co-relation between Equity and Debt returns is 0.4 (negative).
Q 10.3 Calculate the Weighted Standard Deviation of the portfolio if the weightage is Equity 25% and Debt
75%.
1.
2.
3.
4.
2.04%
2.94%
3.74%
4.01%
Correct Ans : 2.94%
Explanation :
The formula for Weighted Standard Deviation is :
SQUARE ROOT of WE^2 (ie Weight of Equity square) x Std Dev E^2 (ie. Std Dev of Equity square) +
WD^2 (ie. Weight of Debt square) x Std Dev D^2 (ie. Std Dev of Debt square) +
2 x WE x WD x Corelation x Std Dev E x Std Dev D
Substituting the values :
= (0.25^2 x 9^2) + (0.75^2 x 4^2) + (2 x 0.25 x 0.75 x (-0.4) x 9 x 4)
= (0.0625 x 81) + (0.562 x 16) + (- 5.4)
= 5.06 + 8.99 5.4
= 8.65
Square Root of 8.65 = 2.94

CASE STUDIES
Case Study 11.

Mr. Z, aged 52 years, is working in a leading company. His net savings are Rs 50,000 p.m.
Based on salary growth and other factors, he expects this to rise by 20% p.a. till his
retirement at age 60. This does not include monthly contributions of Rs 9,000 (Rs 4000 own
contribution; Rs 5000 employer contribution) to various funds towards retirement corpus.
These are expected to grow by 20% p.a. till retirement. The retirement corpus by the end of
the year will be Rs 12 lakhs, entirely in debt, which will yield 8% p.a. on average. Besides his
own residential house and the retirement corpus, his savings and investments will amount
to Rs 50 lakhs by the end of the year, 30% of which will be in equity. He has a practice of
investing, at the end of each year, his disposable savings into debt and equity in the ratio of
80:20. In the long run, he expects equity to yield 15% and debt to yield 8.5%. At the end of
age 55, he expects an outflow of funds amounting to Rs 5 lakhs, which he hopes to meet out
of annual savings.
He expects inflation of 10% and post-retirement investment return on his portfolio at 11%.
His current expenses are Rs 40,000 per month.
Assume zero date as the end of age 52. Calculations are to be done on annual basis. Ignore
taxation and interest income on savings and contributions during the year.
Q 11.1 - On retirement, how much will Mr. Z have in his retirement corpus?
a. Rs. 46,65,905
b. Rs. 50,65,910
c. Rs. 44,81,442
d. Rs. 48,65,917
Q11.2 - At the end of Age 55, what percentage of Mr. Z's portfolio will be in debt (excluding
retirement corpus)?
a. 69.49%
b. 68.29%
c. 66.99%
d. 71.79%
Q 11.3 - If he re-invests the entire retirement corpus in debt, what percentage of Mr. Z's
portfolio will be in debt when he retires?
a. 72.76%
b. 70.51%
c. 74.21%
d. 76.29%

CASE STUDIES
Solution of Q 11.1 to 11.3

To find the amount accumulated at age 60 we need to prepare cash flow from age 52 to 60 as shown in
the table below:
a. As investments are done at the end of the year hence we need to find annual investment amount
at age 53 i.e. 600000*(1+20%) = 720000 (refer the chart below highlighted in red)
b. Allocation of 720000 in ratio of 80:20 and is also shifted to debt and equity allocation (all
highlighted in blue)
c. Lumpsum investment of 50,00,000 is also allocated in the ratio of 70:30 and is also shifted to
debt and equity allocation (all highlighted in green)
d. Closing balance of current year will e the opening balance for the next year for each asset class
i.e. Debt, equity and retirement corpus. (all highlighted in purple)
e. You need to follow this process from age 53 till 60 (as shown in the chart below).
f.
Accordingly the answer for question 1 is highlighted in Yellow
g. Accordingly the answer for question 2 is highlighted in Orange
h. For question 3, We need to find % allocation in debt out of the total investments (equity, debt
and retirement corpus) for that formula is shown in the chart highlighted in Black. Accordingly
the answer for question 3 is highlighted in Brown

CASE STUDIES

CASE STUDIES
Q 11.4 - What is the corpus requirement to ensure that he is able to sustain the same standard of living for 15
years after retirement?
a. Rs. 14,496,632
b. Rs. 13,861,919
c. Rs. 15,239,389
d. Rs. 15,254,894
Solution
The above can be solved in Excel as under :

Step 1: To find out retirement corpus we first have to find expenses at the time of retirement .
So, future value of todays yearly expenses (40000*12 = 480000) at age 52 and inflation is 10%. (Using FV
formula)

CASE STUDIES
Step 2: To find retirement corpus we have the following data

Annual expenses required at the time of retirement = Ans of step 1 = 1028922.629
These expenses will be required for next 15 years
Interest rate = Real rate of return = (rate of return inflation)/(1+inflation%)
Using in the PV function in excel we get -
Hence the answer is Rs. 14,496,632

CASE STUDIES
Case Study 12.

Mr. Y, aged 40, has the following goals ahead of him. (1) Son's post-graduate education: Due
in Year 5. Current cost Rs 15,00,000 p.a. to be incurred at the end of each year for 2 years.
Likely Inflation 15% p.a. (2) Daughter's marriage: Scheduled in end of Year 7. Current cost Rs
1,00,00,000. Inflation is assumed to be at 10% p.a. Mr. Y has provided a corpus of Rs
2,00,00,000 towards these two needs. The corpus is invested in a mix of debt and equity
yielding 8% p.a. Ignore taxation.
Q12.1 - How much money will need to be set apart from the corpus at the end of Year 5, to
finance the son's post-graduate education? Assume the amount set apart will earn 6%
interest.
a. Rs. 59,34,184
b. Rs. 62,90,235
c. Rs. 64,12,209
d. Rs. 60,35,259
Solution :
Refer Excel Calculations below
Refer Excel
Calculations below

CASE STUDIES

CASE STUDIES

CASE STUDIES
Answer : 3017035.78 + 3273199.20 = 6290235.

CASE STUDIES
Q 12.2 - What is the likely outflow on account of daughter's marriage in the year it is planned?
a. Rs. 1,94,87,171
b. Rs. 1,77,15,610
c. Rs. 2,14,35,888
d. Rs. 2,05,10,865
Solution :
Goal 2 - Daughter's marriage: Scheduled in end of Year 7.
Current Cost of marriage - Rs 100,00,000
Number of years after which expense has to be met 7 years
Expected inflation 10%
FV Calculations in Excel below :

CASE STUDIES
Answer is Rs 19487171
Q 12.3 - How much will be left in the corpus after both goals are fulfilled (assume that he does not set apart
money in the 6% corpus mentioned in Q1)?
a. Rs. 81,24,932
b. Rs. 69,65,820
c. Rs. 75,23,085
d. Rs. 66,42,292
Soution :
Balance in corpus after funding goals
Age
Opening bal
41
42
43
44
45
46
47
20000000
21600000
23328000
25194240
27209779.2
26369525.8
25009496.15
Returns (8% of
opening balance)
1600000
1728000
1866240
2015530.2
2176782.34
-3469591.15
200759.733
outflow
0
0
0
0
-3017036
-3469591.15
-19487171
As calculated above
Closing balance
(opening + returns)
21600000
23328000
25194240
27209779.2
26369525.8
25009496.15
7523085.4

CASE STUDIES
Q 12.4 - How would you describe the investment policy Mr. Y is using for the corpus?
a. A little conservative
b. A little aggressive
c. Very aggressive
d. Very conservative
Ans - Very conservative

( The low rate of interest signals investments in very safe and secure securities )
********************************************************************************************
[ Please do mail your feedback. In case you find any errors in the question bank, please do let us know of the
same on info@pass4sure.in. Thanks and All the Best]

CASE STUDIES
Practice Question Banks also available for :
NISM
NISM Series I: Currency Derivatives Certification Exam
NISM Series V A: Mutual Fund Distributors Certification Exam
NISM Series VI: NISM Series VI - Depository Operations Certification Exam
NISM Series VII: Securities Operations and Risk Management
NISM Series VII: Equity Derivatives Certification Exam
NISM Series III A: Securities Intermediaries Compliance certification Exam
NISM Series X A : Investment Adviser (Level 1) Certification Exam
NISM Series X B: Investment Adviser (Level 2) Certification Exam
NCFM
NCFM Financial Markets: A Beginners Module
NCFM Capital Market (Dealers) Module
NCFM Derivative Market (Dealers) Module
BSE
Certificate on Security Market (BCSM)

CASE STUDIES

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NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

CASE STUDY NO. 1

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

Correct Answer : 19%

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

( Note: we multiply the answer by 100 to convert the decimal

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

Correct Answer : 1.395 %

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

Q 1.4 What is Mr. Darshans human life value ?

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

Correct Ans : Rs 1,26,62,575

In EXCEL, Click on Fx and choose PV ie. Present Value and OK

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

The Answer comes to Rs. 1,26,62,575 /=

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

CASE STUDY NO. 2

Correct Ans : 3.12

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

Correct Ans : 9.74

Explanation : The formula for Forward PE ratio is

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

Correct Ans : 78.12

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

Correct Ans : 50%

Explanation : Shares are issued at Rs 75 and listing is at Rs 77.50

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

CASE STUDY NO. 3

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

Correct Ans : Rs 542427

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

Ans : The future value of the ongoing SIP is Rs. 542427

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

Correct Ans : Rs 240554

We get the answer Rs 240554.

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

Correct Ans : Rs 36,84,870

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

CASE STUDY NO. 4

A low growth stock

Correct Ans : Undervalued

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

The company share price is likely to rise

Correct Ans : The earnings growth of the company could be low.

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

The PE ratio is quiet high as compared to industry PE ratio

Correct Ans : The PE ratio is quiet high as compared to industry PE ratio

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

CASE STUDY NO. 5

Q 5.1 Calculate the YTM these bonds of XYZ Ltd on issue.

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

Double Click on Rate we get :

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

NISM SERIES X B INVESTMENT ADVISER (LEVEL 2)

Now we have to input the data :

Nper - the period ie. 5 years

Instruction & Caselet

Instruction & Caselet