Case Study:020 DEC RAVINDRA
Solution: 020 DEC-09 RAVINDRA
Note: Case Studies were published by FPSB India. Copy of same is provided here to assist the CFP aspirants.
Case Study: Dec 2009
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Case Study: November 2009
Case Study: 019 Nov-09 Vinod Gupta
Solution: 019 Nov-09 Vinod Gupta
Note: Case Studies were published by FPSB India. Copy of same is provided here to assist the CFP aspirants.
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Case Study: October 2009
Case Study: 018 Oct-09 KARTIK
Solution: 018 OCT-09 KARTIK
Note: Case Studies were published by FPSB India. Copy of same is provided here to assist the CFP aspirants.
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Case Study: September 2009
Case Study: 017 SEP-09 AVINASH
Solution: 017 SEP-09 AVINASH
Note: Case Studies were published by FPSB India. Copy of same is provided here to assist the CFP aspirants.
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Case Study: July 2009
Case Study: 016 JULY-09 DEVNARAYAN
Solution: 016 JULY-09 DEVNARAYAN
Note: Case Studies were published by FPSB India. Copy of same is provided here to assist the CFP aspirants.
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How to solve Advance Financial Planning Problems-1
Basic Rules for Advance Financial Planning
Nominal Rate: Basic rate which is without any adjustment or compounding
Effective Rate: Compounded rate
Investment rates: Annual Effective rate. E.g. equity shares, mutual funds, gold ETF etc.
Savings rate: Annual Nominal rate. E.g. bank FD
Loan rate: Annual Nominal rate
Rule 1: When investment is made every year, use Annual Effective rate as i/y
Rule 2: When investment is made M/Q/S, use M/Q/S nominal rate.
Note: The rates of return quoted on investment are the maximum return which can be achieved. So if we consider those rates as nominal our effective return will be more than the rate quoted, which is not possible.
Rule 3: When withdrawals are subject to inflation use fisher’s real rate equation.
Real rate = [(1+r)/(1+i)] – 1
Where: r = rate of return, I = rate of inflation
For M/Q/S withdrawal we need M/Q/S nominal real rate.
Components of Loan Amortization Schedule
Step 1: calculation of EMI
Process:
PV = loan amount
N = no. of period
i/y = applicable loan rate M/Q/S/A
pmt = EMI (always use end mode of calculation)
Step 2: Repayment Schedule (assume 1,00,000 loan, rate 12% and period is 10 years)
|
Month |
Opening Balance |
Interest |
EMI |
Capital |
| 1 | 100000 | =100000*0.01=1000 | 1435 | =1435-1000=435 |
| 2 | =100000-435=99565 | =99565*0.01=995.65 | 1435 | =1435-995.65=439.35 |
Loan and Taxation: Interest on housing loan is eligible for deduction u/s 24 and principal component is eligible for deduction u/s 80C up to maximum of Rs.1,00,000.
Pre-construction interest is to be amortized equally over period of 5 years after the construction gets over.
Public Provident Fund Account:
| Interest | 8% |
| Compounding | Yearly |
| Minimum Investment | 500 |
| Maximum Investment | 70,000 |
| Tenure | 15 year tenure, extend in a block of 5 years |
| Tax Benefit | 80C |
| Loan | After 3 years – 25% of the 2nd preceding year |
| Premature withdrawal |
|
| Who can invest? | Individuals |
Maturity of PPF is 15 full financial years i.e. account continues for 15 years after the year in which the account is opened. If the account is opened on 1st January 2000, then doesn’t mature on 31st December 2015 but it matures on 1st April 2015.
Deposit in the account should be made within first 5 days of the month to get the interest of that particular month. There can be maximum 12 monthly deposits in this account per year. Interest on monthly investment is calculated on simple basis during the year and gets compounded at the end of the year.
Example: deposit of 1000 every month in an account which is opened on 1st January 2000.
For the financial year 1999-2000 the accumulated value will be:
|
Deposit |
Months for which interest to be calculated |
Interest |
|
1000 |
3 |
20.00 |
|
1000 |
2 |
13.33 |
|
1000 |
1 |
6.67 |
|
Total |
40 |
Hence accumulated value on 31st March,2000 is 3000+40 = 3040.
Loan would be available from this account form 1st April,2003 which will be 25% of the balance of the year ended on 31st March 2002.
Loan eligibility is only for 2 years after that withdrawal option commences. In the same case it commences from 1st April,2005 and eligible amount will be 50% of the closing balance of the year ended on 31st March 2002.
This account can be extended in the block of 5 years. Number of extensions is not limited.
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Sample Case Studies Exam 5 – Advanced Financial Planning
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Exam 5, CFP – Updated Sample Case Studies for FY 2013-14
Following case studies will be applicable from 1st Feb, 2013. Source: www.fpsbindia.org
Case A: http://www.fpsb.co.in/Upload/CFPSampleQPaper/Case-A.pdf
Case B: http://www.fpsb.co.in/Upload/CFPSampleQPaper/Case-B.pdf
Case C: http://www.fpsb.co.in/Upload/CFPSampleQPaper/Case-C.pdf
Case D: http://www.fpsb.co.in/Upload/CFPSampleQPaper/Case-D.pdf
Case E: http://www.fpsb.co.in/Upload/CFPSampleQPaper/Case-E.pdf
Case F: http://www.fpsb.co.in/Upload/CFPSampleQPaper/Case-F.pdf
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Advanced Financial Planning Case Studies for CFP
Following are the case studies which are reasonably tough but good to solve. Please note that FPSB India is the sole owner of the case studies.
Every paper has two cases:
Click to Download
- 010JAN Vijay Case
- 011FEB-09 SOPORI CASE
- 012MAR-09 ARKA ROY CASE
- 013APR-09 ANAMIKA
- 014MAY-09 SAUMYA
- 015 JUNE-09 RAHUL
Solution:
- 010JAN Vijay Ans
- 011FEB-09 SOPORI ANS
- 012MAR-09 ARKA ROY ANS
- 013APR-09 ANAMIKA
- 014MAY-09 SAUMYA
- 015 JUNE-09 RAHUL
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Latest Exam-5 Sample Questions and Answers for CFP
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Questions for Advance Financial Planning
Following are the images given by Ritika:
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Practice Questions for Advance Financial Planning – CFP
Dear All,
Check the following links as forwarded by the users of this site, which will be useful to get through AFP exam.
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Questions for Advanced Financial Planning – CFP
Problem Type 1:
| Situation: | ||
| Current household expenses of a couple | 50,000 | Rs. p.m. |
| Current age of Earning member | 35 | years |
| Current age of dependent spouse | 32 | years |
| Retirement age of Earning member | 58 | years |
| Life expectancy of Earning member | 75 | years |
| Life Expectancy of dependent spouse | 80 | years |
| Accumulation from existing investments | 12,000,000 | Rs. |
Goal
They would require regular monthly inflation-linked stream of income equivalent to their current household expenses till the life of Earning member and thereafter 60% of that income till the spouse survives. The corpus is supposed to be invested at 7% p.a. What additional monthly amount to be invested with immediate effect in an investment yielding 11% p.a. to attain the desired corpus? (given inflation throughout is 5.5% p.a.)
Problem Type 2:
| Today’s date is 1st April, 2013: | ||
| Current age of First Child | 4 | years |
| Current age of Second Child | 1 | year |
Goal
Education expenses are required for each child at their respective age of 18 (Rs. 4 lakh at current cost) and for four subsequent years (Rs. 3 lakh p.a. at current cost). Expenses escalate at 5.5% p.a. All withdrawals are made in the beginning of the financial year. What monthly amount is to be invested at 11% p.a. with immediate effect up to one year prior to the required expenses for the First Child to achive this goal?
Problem Type 3:
Situation:
A personal loan of Rs. 3 lakh is availed on credit card at 14% p.a. interest for tenure of 2 years. The credit card company charged processing fees of 1% of the loan amount. The interest on monthly reducing balance basis was charged in the credit card. What is the annual effective rate of interest paid in this transaction?
Problem Type 4:
| Employee’s Gross salary per annum | 1,000,000 | Rs. |
| Estimated tax during the year | 210,000 | Rs. |
| Family’s monthly expenses | 25,000 | (including expenses incurred on household from official account) |
| Insurance premium (annual) | 20,000 | Rs. |
| Existing insurance cover | 6,000,000 | Rs. |
| Investment yield available on investing funds till retirement | 10% | P.a |
| Number of remaining years to retirement | 28 | Year |
Goal:
The anticipated increase in the Employee’s post-tax salary is 5% year on year. The employee consumes 25% of regular household expenses on self. What should be the amount of additional insurance required to replace the Employee’s income contribution to his family for his remaining years employment?
Problem Type 5:
| Retirement age of the individual | 60 years |
| Life expectancy of the individual | 80 years |
A deferred annuity pension plan offers optional one-third commutation on the date of vesting and life certain level annuity. The level annuity from uncommuted amount is Rs. 60,000 per month. The vesting sum of Rs. 1.5 crore is estimated on retirement of the individual.
Goal:
If the individual opts to commute one-third of the expected vested amount and settles for life annuity from the remaining amount, at what rate of return the commuted amount shall be invested to yield a total income of Rs. 90,000 per month till he survives?
Problem Type 6:
| Situation: | ||
| Current age of Mr. A | 28 | years |
| Current age of the spouse of Mr. A | 26 | years |
| Retirement age of Mr. A | 60 | years |
| Current house hold expenses | 25,000 | Rs. Per month |
| Life expectancy of each of Mr. A and spouse | 80 | years |
| Post-retire expenses needed till Spouse’s survival as % of pre-retire. exp. | 75% | |
| Current investment available to be utilized towards retirement corpus | 300,000 | Rs. |
Mr. A desires to have additional cushion of Rs. 1 crore as terminal value from the date of last survivor towards bequest. The retirement solution can be managed at yield of 12% p.a. in the initial 10 years, moderated to return 9% p.a. in the next 10 years. In the remaining years to retirement and continuing into retirement the funds could be managed to yield 7% p.a. Inflation is considerd 5.5% p.a. in the pre-retirement period and is expected to moderate at 4% p.a. in the post-retirement period. Estimate the viability of achieving this goal by investing Rs. 62,000 p.a. in the current available investment, starting immediately, which would be incremented by 5% in the beginning of every year. You analyze that _______.
Problem Type 7:
| Situation: Bond valuation and return | ||
| Face value of the Bond | 1,000 | Rs. |
| Coupon Rate (coupon payable at the end of every year on 31-December) | 9% | p.a. |
| Date of maturity | 31-Dec-17 | |
| Current market price (as on 1-Apr-2013) | 1,078 | Rs. |
What would be the effective return if an investment is made in the bond today and held till maturity?
Problem Type 8:
| Situation: | ||
| Client’s current age | 28 | years |
| Age from which annual holidays to begin (continuing lifelong) | 45 | years |
| Funds required at current costs | 50,000 | Rs. P.a. |
| Cost escalation for holiday expenses | 7% | p.a. |
| Age of retirement | 58 | years |
| Life expectancy | 75 | years |
| Holiday expenses to be contained post-retirement (at current costs) to | 30,000 | Rs. P.a. |
Goal:
The client would start investing immediately a certain amount on a quarterly basis in investments yielding 11% p.a. up to the period of drawing expenses for holiday for the first time. Once the corpus is built-up, the funds for holidays for 5-year block periods would be switched to safe investments yielding 8% p.a. from which yearly expenses would be drawn. What is the amount of quarterly investment?
Problem Type 9:
| Situation: | ||
| Current household expenses of a couple | 50,000 | Rs. p.m. |
| Current age of the client | 33 | years |
| Current age of dependent spouse | 30 | years |
| Retirement age of the client | 58 | years |
| Life expectancy of the client | 78 | years |
| Life Expectancy of dependent spouse | 80 | years |
Goal:
The client wants to know the corpus required at his retirement which would be sufficient to sustain inflation-linked monthly expenses equivalent to their pre-retirement household expenses till the expected life of his spouse. The retirement corpus so accumulated shall be invested at 7% p.a. return while teh ruling inflation would be 5.5% p.a.. You estimate the corpus to be _________.
Problem Type 10:
| Situation: | ||
| Current household expenses of a couple | 50,000 | Rs. p.m. |
| Current age of the client | 33 | years |
| Current age of dependent spouse | 30 | years |
| Retirement age of the client | 58 | years |
| Life expectancy of the client | 78 | years |
| Life Expectany of dependent spouse | 80 | years |
| Estimated retirement corpus the couple is confident to accumulate | 30,000,000 | Rs. |
Goal:
The client wants to now the rate of return which would see the accumuleted corpus last till the spouse’s lifetime, if inflation-linked monthly expenses are drawn at 20% curtailmenet at the time of retirement. The inflation is considered at 5.5% p.a.
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New Practice Questions of Advanced Financial Planning, CFP
In Exam 5 the questions which scares everyone the most are either of educational goal or travel goal. Publishing some more questions for better preparation.
Question No.16 (Very important structure to get through in Exam 5)
Tax efficient strategy to accumulate funds and derisk with switches periodically
Strategy:
Funds are withdrawn closer to goal from Debt fund, while funds are switched from a Feeder Fund, generally Equity Fund systematically with tax efficiency in mind.
Goal:
As a tax efficient strategy to meet entire education expenses, a Debt Fund and an Equity Fund is started today with initial investment of Rs. 5,00,000 each. Different SIPs are also started immediately, in Debt Fund for 4 years and in Equity Fund for 10 years. Debt Fund is used to meet entire Basic Education expenses. The Debt Fund is also used to meet the yearly expenses of secondary education and higher education from lump sum amounts switched at certain intervals from the Equity Fund in the following manner: First; at age 8 to meet secondary education expenses from age 11 to 13; Second, at age 11 to meet the secondary education expenses from age 14 to 16; Third, at age 14 to meet the higher education expenses. The expenses due in a year are withdrawn in the beginning. What should be the amounts of monthly SIPs in Debt Fund and Equity Fund today?
Question No.17 (This concept was there in exam a year before, now reintroduced)
Accumulation for goal by investing in Inflation Indexed Bonds
Concept:
Conventional Bonds: The maturity value is the face value. The coupons are in the range 7% – 9% generally by a small margin over the expected inflation of the period of bonds.
Inflation Indexed Bonds: The maturity value is indexed to inflation. The coupons are small 1.4% – 1.5%, but are paid every year on the indexed face value.
In order to meet the goal of higher education of his son after 15 years, a person chooses to invest in two series of Inflation Indexed Bonds, each having a 10-year maturity period. One series is to be invested immediately and the other after 5 years. A sum of Rs. 10 lakh is invested in the first series, while the invested sum is increased to Rs. 15 lakh in the second series. The real coupon is 1.5% while average inflation over the entire period is estimated to be 5% p.a. The coupons to be received and the maturity proceeds of individual bond series are invested in risk free instruments at 6% p.a. till required for higher education. What would be the extent of accumulation for the higher education goal?
Question No.18
Accumulation through SIP and derisking by switching periodically for gradual utililization for goal
| Situation: | ||
| Holiday expenses coating today | 1,00,000 | Rs. p.a. |
| Cost escalation of holiday expenses | 7% | p.a. |
| Holiday expenses required annually after | 20 | years |
| Number of years for which holiday expenses required | 25 | years |
Strategy:
The goal being aspirational initially high risk is assumed by investing a fixed amount monthly in an aggressive asset allocation yielding 12% p.a. for 15 years. Beginning at the end of 16 years 30% of accumulated funds are switched to a defensive asset allocation yielding 8% p.a. every alternate year until full switch after 20 years. The holiday expenses are annually drawn from this defensive asset allocation.
What amount is required to be invested every month in the aggressive asset allocation starting immediately?
Download excel file for solution.
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How to Prepare Advanced Financial Planning Part-1, Exam-5, CFP
It is very important that we understand the curriculum well before we start preparing for any exam. Hence I have recorded a video to help you all with the same. In the coming videos we shall understand how do we exactly prepare for the exam.
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Loan Amortization Part – 2, CFP
Earlier video had a calculation error. Thanks Bharat for the help.
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Understanding Interest Rates, Part-1, CFP
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Understanding Interest Rates, Part-2, CFP
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Understanding Cash flow Function, Part -1, CFP
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Understanding Cash flow Function, Part -2, CFP
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