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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 to retire at 60 and expects to need Rs 50,000 per month in today's money at retirement. Assuming inflation of 5% a year, the monthly expense in the first month of retirement will be closest to which value? (Use (1.05)^20 = 2.65)

The monthly expense will be about Rs 1,32,500. Inflating Rs 50,000 at 5% for 20 years multiplies it by 2.65, so 50,000 x 2.65 equals Rs 1,32,500. The adviser must use future-value compounding, not simple addition, to estimate retirement needs.

  1. ARs 1,00,000
  2. BRs 1,32,500Correct
  3. CRs 1,65,000
  4. DRs 2,65,000

Explanation

Future expense = 50,000 x (1.05)^20 = 50,000 x 2.65 = Rs 1,32,500. Rs 1,00,000 wrongly assumes simple doubling, and Rs 2,65,000 uses a multiplier of 5.3 by mistake. Rs 1,65,000 applies an incorrect factor.

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