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

Caselet: Mrs. Menon, 55, wants Rs 6,00,000 of annual expenses (in today's money) from age 60. Inflation is 5% a year. Using 5 years of inflation, her first-year expense at age 60 is closest to which amount? (1.05^5 = 1.2763)

Her first-year expense at 60 is about Rs 7,65,800. Compounding Rs 6,00,000 at 5% inflation for five years multiplies it by 1.2763, giving roughly Rs 7,65,780. Simple addition of inflation would understate the figure.

  1. ARs 7,65,800Correct
  2. BRs 7,50,000
  3. CRs 6,30,000
  4. DRs 9,00,000

Explanation

6,00,000 x 1.2763 = 7,65,780, about Rs 7,65,800. Rs 7,50,000 uses simple interest (5 x 5% = 25%), Rs 6,30,000 applies only one year of inflation, and Rs 9,00,000 is an unsupported figure.

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