Skip to content

NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Portfolio Construction Process

Meera, aged 35, wants Rs 50,00,000 after 10 years for her child's education. She will invest a lump sum today in a portfolio expected to earn 10% p.a. compounded annually. Given that (1.10)^10 = 2.5937, approximately how much must she invest today, and what is the main implication if the portfolio actually earns only 8%?

She must invest about Rs 19.28 lakh today, found by discounting Rs 50 lakh at 10% for 10 years. If the portfolio earns only 8%, the corpus falls to about Rs 41.6 lakh, so she would need to invest more or extend the horizon.

  1. AAbout Rs 19.28 lakh; the shortfall means she must invest more or extend the horizonCorrect
  2. BAbout Rs 25.00 lakh; the shortfall is immaterial
  3. CAbout Rs 19.28 lakh; a lower return does not affect the goal
  4. DAbout Rs 22.50 lakh; she should shift entirely to debt

Explanation

PV = 50,00,000 / 2.5937 = about Rs 19.28 lakh. At 8%, the same sum grows to 19.28 x 2.1589 = about Rs 41.6 lakh, a shortfall of about Rs 8.4 lakh. She would need to invest more, extend the horizon or accept a lower goal.

Did you get it right without looking?

One question tells you little. A timed set on Portfolio Construction Process shows your real accuracy, how long you take and where you lose marks.

Practise Portfolio Construction ProcessFree diagnostic mock

More Portfolio Construction Process questions