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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Miscellaneous Aspects of Retirement Planning

Caselet: Mr. Rao, 60, retires with a corpus of Rs 80,00,000. His annual expenses are Rs 4,80,000 today, and the adviser assumes the corpus earns 8% a year and he withdraws at the start of each year. Considering only the first year, if he withdraws Rs 4,80,000 at the start of the year, what is the corpus at the end of year 1?

The corpus at the end of year 1 is Rs 81,21,600. After the start-of-year withdrawal of Rs 4,80,000 the balance is Rs 75,20,000, which then grows at 8% for the year to Rs 81,21,600.

  1. ARs 81,21,600Correct
  2. BRs 80,00,000
  3. CRs 86,40,000
  4. DRs 75,52,000

Explanation

Withdraw at start: 80,00,000 - 4,80,000 = 75,20,000. Growth at 8% = 75,20,000 x 1.08 = 81,21,600. Rs 80,00,000 ignores both effects, Rs 86,40,000 ignores the withdrawal, and Rs 75,52,000 wrongly deducts the withdrawal after adding only some growth.

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