Skip to content

NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Case Studies in Comprehensive Financial Advice

Caselet: Meena, 35, wants to retire at 60 and expects to live to 85. Her current annual expenses are Rs 6,00,000. Assume inflation of 5% a year until retirement. She plans to withdraw her first-year retirement expense at the start of retirement. What is the approximate annual expense in the first year of retirement? (Use 1.05^25 = 3.386)

The first-year retirement expense is about Rs 20,31,600. Current expenses of Rs 6,00,000 are compounded at 5% inflation for 25 years, a factor of 3.386. Simple-interest or short-period calculations understate the compounded effect of inflation.

  1. ARs 20,31,600Correct
  2. BRs 30,00,000
  3. CRs 18,00,000
  4. DRs 12,60,000

Explanation

Future expense = 6,00,000 x 1.05^25 = 6,00,000 x 3.386 = Rs 20,31,600. Rs 30,00,000 wrongly adds simple inflation (25 x 5% x 6 lakh plus base). Rs 12,60,000 uses only 5 years of growth. Rs 18,00,000 is a simple-interest error.

Did you get it right without looking?

One question tells you little. A timed set on Case Studies in Comprehensive Financial Advice shows your real accuracy, how long you take and where you lose marks.

Practise Case Studies in Comprehensive Financial AdviceFree diagnostic mock

More Case Studies in Comprehensive Financial Advice questions