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

Mr. Sharma, aged 40, expects current annual expenses of Rs 6,00,000 to continue in real terms. Assuming inflation of 5% a year, the expense at retirement 20 years later will be closest to which figure? (Use 1.05^20 = 2.65)

The expense grows with compounding: Rs 6,00,000 multiplied by 2.65 gives about Rs 15,90,000 at retirement. Simple-interest growth would wrongly give Rs 12,00,000, because inflation compounds on prior-year increases.

  1. ARs 12,00,000
  2. BRs 15,90,000Correct
  3. CRs 13,25,000
  4. DRs 18,50,000

Explanation

Future expense = 6,00,000 x 1.05^20 = 6,00,000 x 2.65 = Rs 15,90,000. Rs 12,00,000 uses simple addition of 5% per year (100% total increase, a simple-interest error). Rs 13,25,000 uses 2.65 x 5,00,000, a wrong base. Rs 18,50,000 is unsupported by the data.

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