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Q. 2. You are analysing net worth statement of your client. She took a car loan of 8 lakh @ 12% p.

a three years
ago and a personal loan of rs 3 lakh @ 18 p.a a year ago. There are 2 more years remaining in the tenure of both
the loans. She gets a wind fall of rs 6 lakh . She ask you whether to invest this in bank Fd @ 9% p.a for 2 years .
You advice her to repay both loans and invest the amount of EMI’s systematically every month in tax efficient
market oriented security. You estimate in a return band of 8-10% her revised net worth with lower tax incidence
after 2 yrs . If she adheres to your advices her net worth may rise b/w
A. 73000 to 91000
B. 32000 to 46000
C. 28000 to 41000
D. 37000 to 52000

Car Loan Per Loan

Loan 800000 300000

ROI 12% 18%

Tenure Yrs 5 3

EMI 17,796 10,846

PV now 3,78,038 2,17,244 Total Loan Balance 5,95,282 Will be closed now

Total EMI 28,641 FD rate 9%

FV @8%through SIP 7,40,734.56 FD Amount 6,00,000 Rs. 27,874.56

FV@10% ” 7,54,271.66 FV 7,12,860.00 Rs. 41,411.66

Difference between the FV through SIPs and FD FV will be 740735-712860 = 28875 or 754272-712860=41412

say 28000 to 41000

Answer will be Rs.28000 to 4100

Rajesh, aged 35 years, wishes to retire at 60. If his present monthly expenses are Rs. 50,000 and life expectancy

is 75 years, calculate the additional corpus required in case he lives longer by 10 years than his life expectancy.

Assume inflation to be 7.5% p.a.

there is missing investment rate or return on invest post retirement yrs

let assumes return rate is 8%

then first u go for

1ST

1-find 50000 pm exps with inf rate 7.5% at age 60 = 304916

2-find RRR=8-7.5/1.075=0.46512

3-FIND THE PV OF ALL FUTURE EXPS AT AGE OF 60

N-15*12 I-0.46512 PV-? PMT- 304916 FV-0 P/Y-12 C/Y-1 PV=53028525

2ST HERE HIS LIFE EXPn increase by 10yrs after 75 age it means that he lives at age of 85

1-find 50000 pm exps with inf rate 7.5% at age 60 = 304916

2-find RRR=8-7.5/1.075=0.46512

3-FIND THE PV OF ALL FUTURE EXPS AT AGE OF 60 BUT


N-25*12 I-0.46512 PV-? PMT- 304916 FV-0 P/Y-12 C/Y-1 PV=86384854

find the short fall =86384854-53028525=33356328

As you suggested here are the questions I faced in yesterday’s RAIP paper

Four questions (exactly same) given below which have appeared in your blog were asked

Car damage insurance,

Fire in mall,

Comparing return on Insurance Policy

Bungalow damage

I therefore thank you for your blog which helped to prepare for exam.

Four questions were very similar from sample papers although slightly tweaked.

Factory insurance by Reinstatement method,

Air condition insurance on replacement basis with (WDV instead SLM) method,

Insurance requirement based on increasing income and expenses,

Insurance requirement based on need basis

Around 5 – 6 questions on insurance policy calculation. All the questions were tweaked and far different from

sample papers.

One on maturity value with money back policy

One of death claim,

One of SV,

One on return on policy investment component on maturity value

One of loan amount on money back policy

One on comparing returns of money back policy paid up value with 8% return

The additional questions which did not appeared in your blog were as below

Pardon me for not remembering the exact answers and the wording and figures in the questions, but I tried to

reproduce the essence of the question here.

1) Ramesh to car loan of Rs 8 Lakhs and personal loan of Rs 3 lakh. The rate of interest is 12 % and 18 % with

monthly reducing basis. He made windfall gain of Rs 6 Lakhs in 2013. His financial advisor advised him to repay

these loans and invest the monthly installment in Bank deposits with interest rate between ranges of 8 – 10 %. He

has two more years to repay these loans. Do you think the advice given to him is correct?

Ans:

– Yes as his net worth will increase between Rs 72500 to 110000


– Yes, as his net worth will increase between Rs xxxxxx to Rs xxxxxx ( I don’t remember the no)

– Yes, as his net worth will increase between Rs xxxxxx to Rs xxxxxx (I don’t remember the no)

-No, as his net worth will reduce between Rs 15700 to Rs 46500

2) Tow companies A and B purchase land in 2006. Company A completed construction in 2007 for Rs 70 lakhs and

started manufacturing plant in 2008 for Rs 1.5 cr. Company B completed the construction in 2009 for Rs 90 lakhs

and started manufacturing plant in 2009 for Rs 2 cr. Company A provides depreciation @ 10% on SLM method

whereas Company B provides depreciation on WDV method. What addition reserves Company A need to provide on

2013 as compared to company B.

Regret I do not remember the answer options.

3) Ashok, a doctor by profession of age 33 years and have productive practice till age 62. His annual income is Rs

40 lakhs and monthly expenses are Rs 60000 of which he accounts for 15%. He has 2 daughter age 6 and 12. He

wishes to provide fund of Rs 20 lakhs for each in today terms their education when they are 18 years old. He has

already made provision of Rs 27 lakhs towards this. He has insurance policy of Rs 15 lakhs. He wish to make

provision of his next 5 years and for non-working wife for next 40 years. How much insurance he should take now.

Regret I do not remember the answer options.

4) Mahesh, a lawyer by profession is 38 years old. He has three polices of Rs 20 lakh, RS 20 Lakhs and Rs 15

Lakhs money back with survival benefit of 15 % every 5 years of which 1 benefit is received. All these policies are

maturing at his age of 60. He has a 2 daughter age 10 and 12 years. His annual earning are Rs 30 Lakhs. He wish

to make provision of Rs 20 lakhs in today’s cost for each for their marriage when they will be 21 years. His monthly

expense is Rs 50000 of which he accounts for 25 %. Calculate the insurance he need considering his tenure for

next 10 years and for the expenses for his non-working wife for next 30 years.

Regret I do not remember the answer option.

5) Two different policies one with money back and other endowment were asked to compare with respect to cover

and returns and was asked to suggest which is more suitable for a man age 32 with monthly expense of Rs 35000

( policy holder account for 20%) and non-working wife for her expenses for 30 years.

Regret I do not remember the figures in questions and answer options as Time was out for me.

5) Vinita was recently divorced and has two children. The divorce decree requires that
she pay 1/3 of the college tuition cost for her children. The tuition cost is currently Rs.
15,000 per year and has been increasing at 7% per year. Her son and daughter are 12 and
16 respectively and will attend college for four years beginning at age 18. How much
should she save each month, beginning today for the next five years to finance education
for both the children (in nearest rupee)? Assume that her after-tax rate of return will be
9% and that general inflation has been 4% p.a.
A) Rs. 750
B) Rs. 745
C) Rs. 2,235
D) Rs. 2,500
Solution: Step 1) Tuition Cost for each child for Vinita = Rs 5000.
Calculate the Inflation adjusted present value of tuition expenses for both children using
Cash Mode: Inflation adjusted = ((1.9/1.07)-1)*100 = 1.869
D.Editor x-
1: 0, 2: 0, 3: 5000, 4: 5000, 5: 5000, 6: 5000, 7: 5000, 8: 5000, 9: 5000, 10: 5000.
NPV = 36158.96027 because son 6 year collage will begin age 18 for four year so 6+4=10 for son +four year
Step 2) so the present value of the education cost is 36158.96. The sum of money needed
to be invested monthly in begin mode until the youngest child is out of school:
Begin Mode: PV = 36158.96027, I = 9/12, N = 5*12,
PMT = -745

1.

Suryakant has an accident insurance policy which pays Temporary Partial Disability (TPD) benefit of Rs. 3,000 per

week, for upto 104 weeks. He meets with an accident and is disabled and bedridden for 6 months. He has available

leave of 4 weeks, after which he is on loss of pay. What benefit amount will he get from the insurance company? –

Marks : 4

(a) Rs. 60,000

(b)Rs. 72,000

(c) Rs. 66,000

(d)Rs. 78,000

2.

Binding Authority of an insurance broker means __________. – Marks : 2

(a) the authority of brokers to accept risks within certain limits and term as set out by the Insurers

(b)the contract by which a broker is bound to the insurance companies

(c) the contract by which a broker is bound to the clients

(d)the regulatory authority that binds brokers to the regulations

3.

A Life insurer receives an application for Rs. 20 crores. However the insurer is not ready to take this risk, but

simultaneously does not want to leave the business. The insurer company shops around and contracts another

insurer to assume a certain percentage of loss for a corresponding percentage of premiums. This is a case of

_____________. – Marks : 2
(a) Facultative reinsurance

(b)Treaty reinsurance

(c) Both of the above

(d)None of the above

4.

Reliable age proof must be given along with the proposal form of life insurance which could be a : (A) Certified

copy of birth certificate of Municipal Corporation (B) Marriage certificate issued by Marriage Registrar (C) Registerd

document of property ownership – Marks : 2

(a) (A)

(b)(B)

(c) Either (A) or (B)

(d)Either (A) or (C)

5.

Mr. Singh bought a Rs. 10 lakh term life Insurance Plan on 10 Aug 2006 by payment of Regular premium of

Rs.3,200 for 15 years. On July 15 2008 Mr. Singh committed suicide. What is the benefit amount payable to Mr.

Singh’s beneficiary, assuming the premiums were paid as agreed? – Marks : 2

(a) Rs. 3200

(b)NIL

(c) Rs.3,200 + interest

(d)Rs. 10,00,000

6.

(A) In level term insurance policies, the coverage remains constant throughout the term. (B) The premium payable

in level term insurance policies can remain same or increase with change in working conditions of Insured. – Marks

:2
(a) Both (A) & (B) are incorrect

(b)Both (A) & (B) are correct

(c) (B) is correct

(d)(A), is correct

7.

Any possible occurrence which may have a negative financial implication can be plotted on a graph with X axis

measuring the frequency (low-high) and Y axis measuring the financial impact (low-high). It would not be practical

to purchase insurance for events which would fall in the high frequency, high impact quadrant because _________.

– Marks : 2

(a) the best way to cover such a risk would be to alter the functioning of the business

(b)such a risk cover would be very expensive

(c) usually this is a business risk, which is rewarded by profit motive

(d)such occurrences are so few that no insurer would be offering a risk cover

8.

A type of risk with high frequency but low severity is probably best handled by: – Marks : 1

(a) Transfer.

(b)Coinsurance.

(c) Reinsurance.

(d)Self Insurance.

9.

Condition in an Insurance Contract is associated with_____________. – Marks : 1

(a) exclusions in the Insurance Contract.

(b)limitations on the Insurer’s promise to perform.


(c) repudiation of claims in the Insurance Contract.

(d)None of the above

10.

Rationale behind principal of indemnity is that ____________. – Marks : 1

(a) insured gets compensation to the extent he has insured, irrespective of amount of loss

(b)insured does not profit from insured’s loss

(c) insured profits from insured’s loss

(d)None of the above

11.

Which of the following benefits are available in an Endowment Policy? – Marks : 1

(a) A bulk of the premium is invested and a small portion is used to provide life cover.

(b)An Endowment Policy provides larger life cover than a Whole Life Policy, at lower premium due to its cash value.

(c) An Endowment Policy is similar to PPF in terms of returns but gives extra benefit of insurance cover.

(d)An Endowment Policy is usually less expensive than a Whole Life Policy due to the fixed nature of the term

12.

Whole life insurance contracts contain cash surrender values. These cash surrender values: – Marks : 1

(a) Represent estimates based on projected mortality savings.

(b)Are based on the past experience of the insurance company and cannot be guaranteed.

(c) Represent an excess of the premiums collected over pure insurance costs and earnings credited.

(d)Are available only if the insurer chooses to terminate the coverage under the policy.

13.

In case of a life insurance policy, if the gross annual premium amount does not exceed the sum assured by 20%,
then _______. (A) Death benefit is tax free. (B) Death benefit is taxable. (C) Maturity benefit is tax free. – Marks :

(a) (A), only is correct

(b)(B), only is correct

(c) (C), only is correct

(d)Both (A) & (C) are correct

14.

Which of the following statements is/are NOT true about a warranty in an insurance contract? (A) Declarations on

the proposal form can be warranties by reference. (B) Warranties help the insurer to ensure that the risk stays the

same during currency of the policy. (C) Warranties have to be followed literally. – Marks : 1

(a) (A), (B) & (C)

(b)(B)

(c) (A)

(d)None of the above

15.

Which of the following statements is/are correct? (A) Limits for transacting life insurance in rural sector are laid

down in number of lives insured. (B) Limits for transacting life insurance in social sector are laid down in number of

lives insured. – Marks : 1

(a) (A), is correct

(b)(B), is correct

(c) Both (A) & (B) are correct

(d)Both (A) & (B) are wrong

16.
Adverse selection refers to an Insurance Company________. – Marks : 1

(a) Insuring a person in the high risk category

(b)Insuring a person in the high risk category without loading his premium

(c) Insuring a person susceptible to genetic diseases but at a substantially higher premium

(d)Insuring a person whose risk profile is low, hence compelling the company to offer him a discount in premium.

Introduction to financial planning1.

A firm needs to borrow funds on a short term basis without reducing its current ratio below 1.25. The firms’ current

assets and current liabilities are Rs.1,600 and Rs.1,000 respectively. What amount can the fund borrow? – Marks :

(a) Rs. 1,400

(b) Rs. 1,200

(c) Rs. 1,500

(d) Rs. 1,000

2.

Ajay has a net worth of Rs. 2,00,000 at the beginning of the Financial Year 2006-2007. The following transactions

occurred during the Financial Year 2006-2007 with respect to his account. 1. Paid off credit card liability worth Rs.

10,000 using savings account 2. Transferred Rs. 4,000 from savings account to PPF account 3.Purchased Rs. 2,000

of furniture with credit. What is the net worth of Ajay after these transactions? – Marks : 4

(a) Rs. 1,90,000.

(b)Rs. 1,84,000.

(c) Rs. 1,98,000.

(d)Rs. 2,00,000

3.
” Member should act with care and skill in providing Financial Planning Services”. This Forms part of ________ in

the code of Ethics – Marks : 2

(a) Fairness

(b)Diligence

(c) Integrity

(d)Competence

4.

Divya, a CFP certificant, recently took Ajay as a client. After receiving an excessive number of questions from Ajay

regarding his plan, Divya became desperate and changed her business phone number to an unlisted number. She

notified Ajay that he could not have her new phone number, and that he must communicate with her via e-mail or

fax. Which principle, if any, embodies Rules that require Divya to provide Ajay with her new number? – Marks : 2

(a) Integrity.

(b)Fairness.

(c) Objectivity.

(d)Professionalism.

5.

Quick asset ratio is used to : – Marks : 1

(a) Determine the Investment Capacity of the Firm

(b)Determine firm’s liquidity to cover unexpected payment

(c) Determine the current assets of the firm

(d)Determine the current liabilties of the firm

6.

Possession of the property is transferred to the Mortgagee in _______________. – Marks : 2


(a) usufructuary mortgage

(b)English mortgage

(c) mortgage by conditional sale

(d)simple mortgage

7.

While making an investment in a Debt fund for your client you make the following remarks: (A) Rate of return by

the instrument in the past is 8.5% and is expected to continue in future. (B) The investment would have low risk.

In view of the CFP code of Ethics, which of the above statement is voilative?-Marks : 2

(a) (A), Only

(b)(B), Only

(c) Both (A) and (B)

(d)None of the above

8.

(A) In India, only the lessor is allowed to charge depreciation on the assets and claim tax deductions. (B) In India,

only the lessee is allowed to charge depreciation on the assets and claim tax deductions. – Marks : 1

(a) Statement (A) is correct.

(b)Statement (B) is correct.

(c) Both are correct.

(d)None of the above is correct

9.

Which of the following is a reasonable assumption to make about the understanding of a client on the Financial

Planning process? – Marks : 1

(a) Client would have identified a desirable asset allocation.


(b)Client would have some knowledge of the assumptions on which Financial Plans are made

(c) Client would be able to identify his/her financial goals.

(d)Client would understand the financial products being recommended.

10.

While presenting and reviewing a Financial Plan to the client, you would do all of the following except ______. –

Marks : 1

(a) presenting the plan in writing to the client

(b)expressing your opinion as a matter of fact

(c) taking the client through the plan

(d)sharing the assumptions on which the plan is made

11.

A client should be helped to set his/her financial goals in _________. – Marks : 1

(a) current money terms

(b)future money terms

(c) both current & future money terms

(d)None of the above

12.

A Financial Planner identifies and distinguishes between the needs and wants of the client. Priority should be given

to __________. – Marks : 1

(a) Equal priority should be given

(b)No need to give any priority

(c) Needs
(d)Wants

13.

Suresh, a Certified Financial Planner, is preparing a letter to circulate among prospective clients and the letter

contains information on services provided by his firm. According to the Code of Ethics and Rules of Professional

Conduct, all of the following information should appear in the letter except ________. -Marks: 1

(a) details of firm’s portfolio size and composition

(b)the fees and commission sources of the firm

(c) any significant financial relationships or connections with product providers

(d)identity of the firm providing the service and the nature of services offered

14.

Deficit financing provision in the Budget will lead to the following/s: (A) Increase in money supply and rise in prices

of goods and services in market(B) Fall in national income and Increase in GDP. – Marks : 1

(a) (A), only

(b)Both (A) & (B)

(c) (b) only

(d)None of the above

A client has the need to provide for the cost of his child’s college education. He envisages that four annual

payments of Rs. 20,000, in current money terms, would be needed beginning 15 years from now. Assuming level

of inflation at 5% per annum and that the fund earns 8% per annum returns throughout, calculate the present

value to be placed on this liability when carrying out a needs analysis for this client. (Round of your answer to the

nearest ’000′) – Marks : 4

(a) Rs. 50000

(b)Rs. 49000

(c) Rs. 24,000

(d)Rs. 23,000

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