Problem Type 11:

Situation:

Your client has in his portfolio 500 shares of an unlisted company. 100 shares were originally acquired
market value of the company's share was Rs. 80 each as on 1st April, 1981. On 20th November, 1998
value was Rs. 140 each as on 20th November, 1998. The remaining 300 shares were purchased on 30
recently got an offer to sell the shares of the company at Rs. 500 each. You compute the capital ga
accepted at the given price. The same is ______.
Cost Inflation Index (CII) for 1981-82
Cost Inflation Index (CII) for 1998-99
Cost Inflation Index (CII) for 2009-10
Cost Inflation Index (CII) for 2013-14
Solution:
Capital gains on 300 shares purchased on 30th May 2009
Sales Consideration
Indexed Cost of acquisition
Long term capital gains
Capital gains on bonus shares alloted on 20th November 1998
Sales Consideration
Cost of acquisition
Long term capital gains
Capital gains on original shares purchased on 1st May 1979
Sales Consideration
Indexed Cost of acquisition
Long term capital gains
Total Capital Gains

Problem Type 12:

Situation and Goal:

You observe that your client has a life insurance cover of only Rs. 20 lakh. He tells you that living expe
be insured along with his essential goal of medical/higher education of his son and daughter. The deti
The rate of return which is expected for the funds to be invested
Inflation for living expenses
Current household expenses
Age of son
Medical education of son to begin after a year and required for
Current Cost of medical education
cost escalation of medical education
Age of daughter
HIgher education of daughter to begin after three years and required for
Cost of higher education for daughter
cost escalation of higher education for daughter
Strategy to achieve Goal:

You suggest the client that the aggregate insurance cover should suffice to meet higher education ex
adjusted living (household) expenses to the extent of 80% of their current expenses for im
succeeding 20 years. You compute the amount of insurance cover needed, which comes to
Solution:
Current household expenses
Rate of return to invest claim
Inflation
Inflation adjusted rate of return
PV today of 80% of present expenses for 10 years
PV (after 10 yrs) of 50% of present exp. for the succeeding 20 years
PV today of 50% of present expenses for the succeeding 20 years
PV of son's medical education
PV of daughter's higher education
Total expenses and costs required today
Existing insurance cover
Additional Term cover required

Problem Type 13:

Situation:
Current age of the client (as on 1st April 2013)
Retirement age of the client
PPF account balance of client as on 31-March-2013 (maturity 1-Apr-2018)
PPF a/c balance of the spouse as on 31-March-2013 (maturity 1-Apr-2018)
Expected interest rate on PPF
Goal:

As part of the retirement strategy , you advise client tp invest a sum of Rs. 40,000 and Rs. 20,000 imm
respectively and increase this investment by 20% every year in the beginning of the financial year in
contributions are rounded up to the nearest thousand. You also advise to extend their respective acco
normal maturity by contributing maximum permissible amounts in both the accounts. Find the com
retires.
Solution:
PPF balance as on 31.03.2013 - Mahesh
PPF balance as on 31.03.2013 - Neelam
Due maturity date
Total instalments till due maturity (April'13, 14, 15, 16, 17)
Client's account:
Contribution in April 2013
Balance as on 31.03.2014
Contribution in April 2014
Balance as on 31.03.2015
Contribution in April 2015
Balance as on 31.03.2016
Contribution in April 2016
Balance as on 31.03.2017

Contribution in April 2017

Balance as on 31.03.2018
Spouse's account:
Contribution in April 2013
Balance as on 31.03.2014
Contribution in April 2014
Balance as on 31.03.2015
Contribution in April 2015
Balance as on 31.03.2016
Contribution in April 2016
Balance as on 31.03.2017
Contribution in April 2017
Balance as on 31.03.2018
Total accumulations till normal maturity (1-Apr-2018) Client's age 50
Number of contributions in two extended terms of 5 years each
Rs. 1 lakh maximum to be invested in both the accounts amounting to
Maturity of both accounts on retirement

Problem Type 14:

Situation:
Mr. A wants to accumulate funds for te marriage of his children, a son and a daughter:
Present Age of Daughter
Age when Daughter gets married
Provision for Daughter's marriage expenses at current costs
Present age of Son
Age when Son gets married
Provision for Son's marriage expenses at current costs
Cost of escalation of marriage expenses
Existing funds to be utilized
Goal & Strategy:

You suggest Mr. A to achieve the goal for accumulation of funds for marriage expenses by starting a s
immediately along with the lump sum of existing funds available in an aggressive fund for 4 years and
Daughter's marriage. What is the approximate monthly investment amount required?
Solution:
Rate assumed in aggressive fund
Rate assumed in safe investments
Cost at the time of Daughter's marriage 7 years from now
PV of Daughter's marriage expenses in Safe investment 3 years prior
Cost at the time of Son's marriage 10 years from now
PV of Son's marriage expenses in Safe investment 6 years prior
Total funds required for both marriages switched to Safe investments

Monthly investments in Aggressive funds for 5 years from today

Problem Type 15:

Situation: Taxation of Gold Exchange Traded Fund (Gold ETF) units
Number of units
Cost of acquisition (17-Oct-2006)
Sale Price (1-April, 2013)
CII Index for the year 2006-07
CII Index for the year 2013-14
If all the units are sold at te sale price prevailing on 1st April, 2013, what would be the po
Solution:
Sale considertion of Gold ETF units
Cost of acquisition (17-Oct-2006)
Indexed cost of Gold ETFs
Long-term Capital Gains with indexation benefit
Long Term Capital Gain Tax (@20.6%)
Long Term Capital Gain Tax w/o indexation benefit
Long Term capital gains considered
Post-tax consideration price of sold units
Rate of Return (CAGR)

Alternatively,
10/17/2006
4/1/2013
XIRR

hares were originally acquired on 1st May, 1979 for Rs. 50 each. The fair
981. On 20th November, 1998 100 bonus shares were allotted. The fair market
0 shares were purchased on 30th May, 2009 for Rs. 350 each. Your client has
You compute the capital gains in this transaction, in case the offer is
100
351
632
939

150,000 Rs.
156,005 Rs.
-6,005 Rs.
50,000 Rs.
0 Rs.
50,000 Rs.
50,000 Rs.
75,120 Rs.
-25,120 Rs.
18,875 Rs.

h. He tells you that living expenses for the future 30 years for his family must
his son and daughter. The detials are given below:
7% p.a.
5.50% p.a.
600,000 p.a.
17 years
5 years
500,000 Rs. p.a.
8% p.a.
15 years
3 years
300,000 Rs. p.a.
10% p.a.

It is to be observed that the fair

cost to be considered for all sec
applied from this date onwards

e to meet higher education expenses when due, along with inflationeir current expenses for immediate next 10 years and 50% for the
er needed, which comes to _____.
600,000
7%
5.50%
1.4218%
4,508,243
8,992,210
4,571,184
2,570,973
1,005,516
12,655,915
2,000,000
10,655,915

45
60
500,000
300,000
8.70%

Rs. p.a.
p.a.
p.a.
p.m.
Rs. (PV):1
Rs.
Rs. (PV):2
Rs. (PV):3
Rs. (PV):4
Rs. (PV): (1+2+3+4)
Rs.
Rs.

years
years
Rs.
Rs.

p.a.

Payable:31 March: on monthly minimum balances (between 1s

Rs. 40,000 and Rs. 20,000 immediately in his and spouse's account
inning of the financial year in all furure years till normal maturity. The
o extend their respective accounts for two terms of 5 years each beyond the
the accounts. Find the combined corpus of accounts when the client

425,000 Rs.
315,000 Rs.
01.04.2018
5 years
40,000
586,980
48,000
690,223
58,000
813,319
70,000
960,167

Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.

84,000 Rs.
1,135,010 Rs.
20,000
347,840
24,000
404,190
29,000
470,878
35,000
549,889
42,000
643,383

Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.

1,778,393 Rs.
10 years
200,000 Rs.

Rs. 1 lakh is the maximum subscription allowed in

relevant year of study, i.e. up to April, 2014.

7,351,676 Rs.

nd a daughter:
18 yrs
25 yrs
2,000,000 Rs.
16 yrs
26 yrs
1,500,000 Rs.
7.50% p.a.
925,000 Rs.

riage expenses by starting a systematic regular monthly investment

aggressive fund for 4 years and shift to safe investments 3 years prior to
nt amount required?
11% p.a.
7% p.a.
3,318,098
2,708,557
3,091,547
2,060,029
4,768,585

Rs.
Rs.
Rs.
Rs.
Rs.

Daughter's marriage is after 7 y

investments 3 years prior. So to
fund along with lump sum toda
Daughter's marriage continue t
Son's marriage.

(56,232)

500 units
995 Rs. per unit
2,415 Rs. per unit
519
939

013, what would be the post-tax gains in the transaction?

1,207,500
497,500
900,101
307,399
63,324
73,130

Rs.
Rs.
Rs.
Rs.
Rs.
Rs.

63,324 Rs.
1,144,176 Rs.
13.77% p.a.
166
0.454795
(497,500)
1,144,176
13.76%

days above 6 years

additional year

750,000
294,900
533,547
44,589
46,875
46,875
705,411
13.27%

is to be observed that the fair market price prevailing on 1st April, 1981 is the
ost to be considered for all securities bought prior to this date. The CII is
pplied from this date onwards (as 100 base), hence the rule.

minimum balances (between 1st and 5th of every month) through the year

imum subscription allowed in PPF account in the

y, i.e. up to April, 2014.

aughter's marriage is after 7 years and funds are to be switched to Safe

vestments 3 years prior. So total time for monthly investments in Aggressive
und along with lump sum today is 4 years. The expenses after utilization for
aughter's marriage continue to remain in Safe investments until required for
on's marriage.