Sample Case Study (AP)

Case- 1 Jay Mehta

Mr. Jay Mehta (35) is into business of textile garments. His family includes his wife Shefali (30) & a son Aryan
(5). Till now he has invested all his business profits into business working capital & in purchasing the flat where
he lives. He is now seeking advice to invest his yearly savings of about Rs. 12 Lakh into various assets other
than business, which will enable him to meet his financial goals in life.

At present Jay’s annual living expenses are about Rs. 10 lakh including household expenses, nursery fee,
personal expenses & one vacation in India per year. They have consciously decided not to spend more than
their annual savings unless in case of emergency. Jay has now requested you to prepare a Financial Plan
for his family which will provide crystal clear direction for the future course of action towards achievement
of his financial goals. You have gathered the couple’s personal & financial data & after analyzing set their goals
into financial figures.

Financial Goals of Jay and his Family: -

1. To continue to save at least Rs. 12 Lakh per annum.

2. To create financial security for wife & son to enable them to earn Rs. 5 Lakh per annum without working
in case Jay meets any eventuality.
3. To provide for their son’s higher education from his age of 18 years to 23 years covering his Graduation
& Post Graduation levels.
4. To create old age income of Rs. 12 lakh per annum from his age of 65 years till the time he is alive.
5. To create a highly diversified investment portfolio with moderate risk.
6. To buy Mediclaim Policy for himself and his wife.
7. To pay off credit card outstanding of Rs 1 Lac
8. To buy a holiday bungalow in Khandala at his age of 65 years, approx. worth Rs. 2 Crores

CURRENT NET WORTH STATEMENT of Jay Mehta (PERSONAL)

a) ASSETS AMOUNT (In lakh Rs)

Residential Flat 75.00
PPF 1.00
Fixed Deposits 1.00
Car 5.00
Cash on hand 1.00
Floater Mutual Fund 3.60
TOTAL ASSETS 86.60

b) LIABILITIES

Credit Card Loan 1.00

TOTAL LIABILITIES 1.00

NETWORTH (a-b) 85.60

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After discussions with Jay & his wife and on the basis of financial information provided by him, you have
recommended the following investments keeping in view the benefits of diversified asset allocation:

CREDIT CARD OUTSTANDING:-

Before starting any investments you have strongly suggested Jay to clear his credit card outstanding as he is
paying roughly 30% p.a. interest on his outstanding balance.

FAMILY’S FINANCIAL SECURITY:-

In case Jay Mehta meets any eventuality, the living expenses for survivors are assumed at Rs. 5 lakh per
annum post inflation considering Shefali’s Life Expectancy of 75 years.

Hence at the moment you recommend Jay to go for 30 years term Life Insurance Policy with Sum
Assured of Rs 70 Lakh which will be enhanced further in future . This will also include accident death benefit,
premium waiver benefit in the case of permanent disability. For this the total premium comes to Rs. 35,000/- per
annum.

A comprehensive mediclaim insurance of Rs. 5 lakh for the whole family.

GOLD:-

Gold is considered to be one of the most liquid assets & the most popular mode of investment in India. Gold
prices reflect an annual growth rate of roughly 10% p.a. Thus you recommend Jay to allocate 5% of his annual
savings i.e. Rs. 60,000/- into this asset class as well.

After having implemented the above recommendations Jay’s asset allocation would be diversified sufficiently to
provide ample returns over the period.

ESTATE PLANNING: -

As part of estate planning strategy you have suggested Jay to prepare a Will & get it registered. He should also
issue a power of attorney in favor of his wife Shefali.
PROPOSED INVESTMENT PORTFOLIO

Asset Class Annual Investments (Rs.)

Equity Mutual Funds 2.70

ELSS 1.00
Stocks 2.00
Liquid Funds 3.00
Bonds 1.80
Bank FD 0.50
Gold 0.60
Mediclaim 0.05
Life Insurance 0.35

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Net Annual Investment 12.00

On the basis of above mentioned case study and the assumptions as below, answer the questions that follow.

Assumptions

1. All the costs are on the present cost of living.

2. Inflation is estimated to be at 4.5% p.a.
3. Risk free rate of returns is to be at 6% p.a.
4. Equity returns are estimated to be 15% p.a.
5. Returns on liquid funds estimated to be 5%.
6. Bank FD and Bond returns to be 7%.
7. Gold returns to be 10%.

Q1 What should be the life insurance cover of Jay such that in case he meets any eventuality today, his
family should receive the minimum amount of living expenses for the remaining life of Shefali? Assume
life insurance proceeds of Jay are invested by Shefali in risk free instruments. (5)

A Rs. 1,64,75,213/-
B Rs. 2,24,26,000/-
C Rs. 1,67,12,456/-
D Rs. 81,91,591/-

Q2 If Jay invests as per the advised portfolio what will be the average annual returns of the portfolio at the
end of 10th year (consider investments of the first year only for this purpose)?
(5)

A 12.12%
B 11.36%
C 10.99%
D 10.85%

Q3 The Mehta’s want to start saving for their son Aryan’s higher education. He will spend six years at
college beginning at age 18. The present cost structure of higher education in US is:

Year 1 Rs. 15 lakh

Year 2 Rs. 17 lakh
Year 3 Rs. 19 lakh
Year 4 Rs. 21 lakh
Year 5 Rs. 23 lakh
Year 6 Rs. 25 lakh

The cost of education is increasing by 6% every year. If Jay starts investing in an equity Mutual Fund
how much he need to deposit at the end of each year to pay for Aryan’s higher educational
requirements? Assume that educational expenses are withdrawn at the beginning of each year and that

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 the last deposit will be made at the beginning of the last year of Aryan’s college education.
(5)

A Rs. 4,37,553/-
B Rs. 4,74,700/-
C Rs. 5,03,186/-
D Rs. 5,45,906/-

Q4 Jay wants to invest in two mutual funds A and B which have given the following historical returns:

Fund A Fund B
Year 1 7% 4%
Year 2 12% 11%
Year 3 -1% 21%

As a practicing Certified Financial Planner, which fund will you recommend to Jay on the basis of risk?
(4)

A Fund A
B Fund B
C They are equally risky
D Need more information

Q5 Assume you advice Jay to invest Rs. 70,000/- into Fund A and Rs. 30,000/- in Nifty. Changes in Nifty
account for or explain 25% of the returns for Fund A. If Fund A has a standard deviation of 20% and Nifty
has a standard deviation of 11.5%, what is the standard deviation of the combined Rs. 1,00,000/-
portfolio as advised by you? (5)

A 15.0%
B 15.2%
C 16.0%
D 17.5%

Q6 Jay wants to know how you would go about in the process of Estate Planning. What is the sequential
process you would advise Jay regarding his Estate.

1. Establish priorities for estate objectives.

2. Prepare a written plan.
3. Define problem areas including liquidity, taxes, etc.
4. Gather client information and establish objectives. (3)

A 1, 2, 3, 4.
B 2, 1, 3, 4
C 4, 3, 1, 2.
D 3, 2, 1, 4

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Q7 Jay received the following amounts in the FY 2006-07:

1. Gift of Rs. 63,000/- from a friend.

2. Gift of Rs. 24,000/- from his neighbour.

What is the total taxable amount from the above receipts for Jay? (4)

A Rs. 63,000/-, as the whole amount received from friend exceeded Rs. 50,000/-.
B Rs. 13,000/-, as the amount received from friend in excess of Rs. 50,000/-
C Rs. 37,000/-, as the whole amount in excess of Rs. 50,000/- is taxable.
D The whole amount of Rs. 87,000/- as the aggregate value of gifts received from one person or
more than one person exceeds Rs. 50,000/-.

Q8 Generally Jay pays salary to his employees by crossed cheque. Salary of December 2006 is, however,
paid to three employees A, B and C by bearer cheque (payment being Rs. 6,000, Rs. 20,000 and Rs.
20,500, respectively). The amount of disallowable expense is _________? (4)

A Rs. 100/-
B Rs. 4,100/-
C Rs. 9,300/-
D Rs. 20,500/-

Q9 Jay has entered into a covered American call option with a strike price of Rs. 75/- and a premium of Rs.
5/- and this is at-the-money. He wants you to find the break even point of this covered call option.
(4)

A Rs. 70/-
B Rs. 75/-
C Rs. 80/-
D Rs. 85/-

Q 10 Jay is considering the following investment projects:

Cash Flows (Rs)
Projects C0 C1 C2 C3
1 -10,000/- +10,000/- NIL NIL
2 -10,000/- +7,500/- +7,500/- NIL
3 -10,000/- +2,000/- +4,000/- +12,000/-
4 -10,000/- +10,000/- +3,000/- +3,000/-

Assuming the projects are independent and mutually exclusive advise Jay which project he should opt
for on the basis of IRR and NPV respectively at 10% rate of discount.
(5)

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 A 3 and 2
B 3 and 4
C 4 and 3
D 4 and 2

Q 11 Which of the following is/are correct regarding budgeting in case it is to be done for Jay?

1. The budget should be adjusted yearly to reflect actual expenditures.

2. Inflation should not be considered when budgeting.
3. If clients are close to retirement age, budgeting is not useful.
4. Budgeting requires planning for the unexpected. (3)

A) Only 2.
B) 2 and 4.
C) Only 4.
D) 1, 2 and 4.

Q 12 You as a CFPCM certificant believe that there may be some illegal money laundering going on at the firm
where you work. You have tried to investigate, but have been unable to ascertain if your assumptions are
correct and have not yet notified anyone within your firm of your suspicions. You would make timely
disclosure of the available evidence to any of the following except:
(3)

A Your direct supervisor.

B A partner in the firm.
C The FPSB, India.
D A co-owner of the firm.

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Case Study – 2 Dr.Anil Kumar

Back ground

Dr Anil Kumar, is working in a Govt. Hosp. in Delhi, and is currently aged 57 years. He shall be retiring on
31/03/2010. Dr. Anil gets total emoluments of Rs.50,000/- per month pre - tax. His basic being Rs.25,000/- per
month and DA Rs.15,000/- per month. His income will increase 10% pa. So far he has put in 32 years of
service. His wife Dr. Suman, aged 52 years, is a practicing Gynecologist, has her own clinic and operates her
cases in a private hospital. Dr. Suman earns Rs.55,000/- per month post - tax. She is confident her post tax
income will rise every year by 5%. Dr. Suman expects to practice till her age of 60 years. They stay in their own
house in Delhi which is worth Rs.80,00,000/-. Their monthly living expenditure is Rs.35,000/-.

Children.

The couple has three children, one son and two daughters. Eldest daughter, Tina, is a doctor, married to a CA
and well settled in Mumbai. Second daughter, Pooja, is studying in Final year MBBS at Manipal. Their son,
Praveen, is studying in First year MBBS, in Chennai. They expect to spend Rs.3,50,000/- yearly for Pooja’s
studies for next 2 years, i.e. till she finishes her internship, and Rs. 2,50,000/- yearly for next 5 years for
Praveen's studies. Pooja is likely to get married 3 1/2 years hence, and expected expenditure in marriage is
likely to be Rs.30,00,000/- in today’s value.

Dr. Anil's Retirement Benefits ;- Gratuity- Rs.5,00,000/-, Provident Fund- Rs.20,00,000/-, Leave encashment-
Rs.4,00,000/-, Pension- Rs.15,000/- per month w.e.f. 01/04/2010 which is inflation linked. This pension is after
40% commutation allowed. After 15 years post retirement, full pension will be restored.

The Assets of the Couple :- Cash in hand- Rs.55,000/-, Bank Balance S/B a/c, Dr. Anil- Rs.45,000/-, Dr.
Suman- Rs.50,000/- , Money market mutual funds- Rs.2,00,000/- on Dr. Anil's name and Rs.3,00,000/- on Dr.
Suman's name. Magnum Balanced Fund (65% in Equity) - Rs.50,000/-, HDFC Prudence Fund (75% in Equity)
Rs.50,000/-, Magnum Contra Fund (100% in Equity) - Rs.1,00,000/-, Magnum Tax Gain Fund- Rs.2,50,000/-.
PPF a/c Rs.5,00,000/- This a/c was opened on 15/03/2000 in name of Dr. Suman. Dr. Anil also has 100 shares
of Infosys (value as on 31/03/2007 is Rs. 2,00,000/- ) and 150 shares of Reliance Industries (value as on
31/03/2007 is Rs. 2,02,500/- )

Dr. Suman has a Plot on her name purchased in Feb 1995 for Rs.4,50,000/-.Value of their personal effects i.e.
cars, house hold goods, electric gadgets etc. is Rs.5,50,000/-.

Car loan pending as on 01/04/2007 on Dr. Anil's name is Rs.5,00,000/-. Assume Inflation Rate is 6.3% and
Long term rate of Return is 9%.

Q.13. What is the Commuted pension that Dr. Anil will get at the time of retirement considering he has
commuted 15 years of pension?
(5)
a) Rs.18,00,000/-
b) Rs.22,50,000/-
c) Rs.38,57,140/-
d) None of the above.

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Q.14. Dr. Anil wants to finish his car loan on 31/03/2010/-. Rate of interest is 10% pa. He wants to pay EMI at
the end of each month. Calculate the monthly EMI he should pay in order to finish his car loan as
desired.
(3)
a) Rs.65172/-
b) Rs.51672/-
c) Rs.16000/-
d) Rs.16134/-

Q.15. Dr. Anil wants to cater for 25 years of life post retirement and does not want to compromise his present
standard of living in that period. What would be the corpus required by him at the time of Retirement if
future earnings from pension are taken into consideration?
(4)
a) Rs.61,02,237/-
b) Rs.60,13,137/-
c) Rs.93,97,750/-
d) Rs.93,77,900/-

Q.16. What appropriate insurances, you as CFP, would recommend to the family? List from topmost priority.
(4)
a) Life insurance for Dr. Anil, b) Health insurance, c) Disability and accident insurance, d) Professional
liability insurance for Dr. Suman, e) Property Insurance.

a) a, b, c, d, e.
b) b, c, d, e, a
c) d, a. c, b, e.
d) b, c, d, a, e.

Q.17. What is the monthly saving required for Dr. Anil’s Financial Goal of Pooja's marriage. Assume 50% of
the required amount shall be taken from Dr. Anil's retirement benefits.
(4)
a) Rs.38,000/-(approx)
b) Rs.40,000/-(approx)
c) Rs.50,000/-(approx)
d) Rs.35,000/-(approx)

Q.18. Calculate the Income tax Dr. Anil will pay on his Salary for financial year 2006-2007. He intends to
deposit Rs.5,000/- pm in his provident fund, pays fee of Rs.30,000/- per annum for his son's education,
buy's Mutual Fund (ELSS) HDFC Tax Saver for Rs.40,000/-.He also takes a mediclaim policy for his
family and pays a premium of Rs.15,000/-.
(5)
a) Rs.98,940/-

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 b) Rs.88,230/-
c) Rs.97,410/-
d) Rs.65,200/-

Q.19. Consider cash flow of Dr.Anil and Dr. Suman from 01/04/2010, to 31/07/2010. Data to be considered is
– 1). Dr. Anil's Pension, 2). Dr. Suman's professional income, 3). Dr. Anil’s Provident Fund and Gratuity
received in Apr’ 2010 and other retirement funds received in May 2010. 4). Marriage of Dr. Pooja in May
2010, money spent Rs.40,00,000/-, out of this Rs.20,00,000/- spent from Dr. Anil's pre - retirement
savings 5). In June Dr. Anil and Dr. Suman go for a holiday to UK and USA and spend Rs.4,00,000/- in
addition to their normal living expenses. During June there is no Income for Dr. Suman. What will be the
cash balance at the end of July 2010 ? Ignore all other pre- retirement savings/ balances except
Rs.20,00,000/- saved for Dr. Pooja's marriage.
(5)
a) Rs.23,55,960/-
b) Rs.23,81,970/-
c) Rs.23,82,850/-
d) Rs.24,10,960/-

Q.20. What is the Net worth of Dr.Anil and Dr. Suman?

(4)
a) Rs.1,10,02,500/-
b) Rs.1,05,02,500/-
c) Rs.25,02,500/-
d) Rs.1,04,27,500/-

Q.21. What is the basic liquidity ratio of the couple?

(4)
a) 18.57
b) 4.28
c)12.67
d) 17.4

Q.22. Dr. Anil's average purchase rate of Infosys share is Rs. 1,000/- per share. At present it is Rs.2,000/- per
share. He wants to protect his gains. What would you advise him as the best Option? Assume Rate of
2010 Call is Rs 50, 2010 Put is Rs.55, 1980 Call is at Rs.60 and 1980 Put is at Rs.63. Assume that ten
days are left for expiry of the Option.
(5)
a) Buy a 2010 Call Option
b) Buy a 1980 Call Option
c) Sell a 2010 Call option.
d) Buy a 2010 Put Option.

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Q.23. Dr. Suman sells her Plot on 31st Dec’ 2006 for Rs.10,00,000/- and pays a brokerage of 2%. What will
be the Capital Gain / Loss and tax on the capital gains? Cost Inflation Index for various years is as
follows- 1994-95 259, 1995-96 281, 2005-06 497, 2006-07 519.
(4)
a) Long Term Capital Gain Rs.5,50,000/- and Tax Rs.1,10,000/-
b) Long Term Capital Gain Rs 86,950/-, Tax Rs 8,695/-
c) Long Term Capital Gain Rs.1,06,950/-, Tax Rs 10,695/-
d) Long Term Capital Gain Rs.78,262/-, Tax Rs 15,652/-

Q.24. Dr.Anil’s brother is an NRI working in US. He has been hearing about the phenomenal returns being
generated by the Indian Stock markets. He has approached you to direct his investment in some good
equity scheme of any of the top five Funds. What would you suggest to him?
(3)
a) He can choose any of the existing diversified equity schemes and invest in bulk amount.
b) He should make a portfolio of different funds depending upon his financial goals and investment
tenure.
c) Being NRI he cannot invest in Mutual Funds .
d) He should wait for some time before investment as the markets may come down still further.

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 Keys for Challenge Status exams
Note: No negative marks for wrong answers

STAGE - 2

S No: Correct Marks

1 C 5
2 B 5
3 D 5
4 A 4
5 C 5
6 C 3
7 D 4
8 B 4
9 A 4
10 C 5
11 C 3
12 C 3
13 A 5
14 D 3
15 B 4
16 B 4
17 A 4
18 A 5
19 C 5
20 B 4
21 A 4
22 C 5
23 D 4
24 B 3

Total 100

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