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

Mr. Rao, aged 40, wants a retirement corpus of Rs 2,00,00,000 at age 60. He assumes a post-tax return of 10% per year, compounded annually. He plans to invest a single lump sum today, ignoring all other savings. Approximately how much must he invest today? (Use (1.10)^20 = 6.7275)

He must invest about Rs 29.73 lakh today. The present value of the target is found by dividing Rs 2 crore by the 20-year compounding factor of 6.7275 at 10%, which gives roughly Rs 29,72,870. Other options ignore compounding or apply the factor incorrectly.

  1. ARs 29,73,000Correct
  2. BRs 40,00,000
  3. CRs 20,00,000
  4. DRs 13,45,500

Explanation

Present value = 2,00,00,000 / 6.7275 = about Rs 29,72,870, i.e. roughly Rs 29.73 lakh. Rs 40,00,000 results from dividing by simple growth of 2x with no compounding effect (simple interest at 10% for 20 years = 3x gives 66.7 lakh, not this), and Rs 13,45,500 multiplies instead of dividing by 6.7275 and scales wrongly. The correct approach discounts the target at 10% for 20 years.

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