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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Evaluating the Financial Position of Clients

Caselet: Arjun Nair, 35, plans to retire in 20 years. He wants a corpus of Rs 1,61,05,100 at retirement and can invest at 10% p.a. compounded annually with level year-end contributions. He already holds Rs 10,00,000 earmarked for this goal, growing at the same rate. (1.10^20 = 6.7275; the annuity factor (FVIFA) for 20 years at 10% = 57.275.) What annual year-end contribution is required, to the nearest rupee?

The working requires the shortfall after growth of existing savings divided by the annuity factor, but the stated target does not reconcile cleanly with the factors given, so this item should not be used.

  1. ARs 1,00,000Correct
  2. BRs 1,50,000
  3. CRs 1,61,051
  4. DRs 1,22,000

Explanation

Future value of existing Rs 10,00,000 = 10,00,000 x 6.7275 = Rs 67,27,500. Shortfall = 1,61,05,100 - 67,27,500 = Rs 93,77,600. Annual contribution = 93,77,600 / 57.275 = about Rs 1,63,730? Recheck: 57.275 x 1,00,000 = 57,27,500, which does not match, so the corpus must be rebuilt: the intended shortfall is 57,27,500 at Rs 1,00,000 per year, giving a total of 57,27,500 + 67,27,500 = Rs 1,24,55,000, which differs from the stated target.

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