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

Caselet: Meera, aged 40, wants a retirement corpus at age 60 that gives annual expenses of ₹9,00,000 (in today's money) at retirement. Inflation is 6% a year. Using the first-year expense at retirement as today's expense inflated for 20 years, with (1.06)^20 taken as 3.2, what is her first-year retirement expense and the corpus needed if the corpus is 25 times that first-year expense?

Inflating ₹9,00,000 by 3.2 over 20 years gives a first-year retirement expense of ₹28,80,000. Multiplying by 25 gives a required corpus of ₹7.2 crore. The expense must be inflated to retirement-date value before applying the corpus multiple.

  1. AFirst-year expense ₹28,80,000; corpus ₹7.2 croreCorrect
  2. BFirst-year expense ₹19,80,000; corpus ₹4.95 crore
  3. CFirst-year expense ₹28,80,000; corpus ₹2.88 crore
  4. DFirst-year expense ₹10,80,000; corpus ₹2.70 crore

Explanation

First-year expense = 9,00,000 × 3.2 = ₹28,80,000. Corpus = 28,80,000 × 25 = ₹7,20,00,000 = ₹7.2 crore. Check: 7.2 crore / 25 = 28.8 lakh. Distractors use a wrong multiplier or wrong corpus multiple (10 times for 2.88 crore).

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