Samplequestionson IntroductiontoFinancialPlanning

PARTI(OBJECTIVE) Section1

Choosetherightanswerfromthealternativesgiven:

Marks125=25

1. Whenthegovernmentdecideseconomicpolicythroughthebudget,itis a) monetarypolicy b) fiscalpolicy c) incomespolicy d) exchangeratepolicy 2. ABondhasa6%couponrateandwillmaturein2years.ItsmarketpriceisRs. 900.Theyieldtomaturityofthisbondisclosestto a) 9.90% b) 10.40% c) 10.90% d) 11.40%

3. SixyearsagoABCLtdissued10yearsbondwithacouponrateof11%.IftheI investorsrequiredrateofreturn(IRR)onthesebondsis9%, thebondswillbe pricedat a) Belowpar b) Abovepar c) Aboveandbelowpar d) Atpar

4. AbankofficerinformsyouthatRs.2,013ispayableasanannualinstallmenton aneightyearloanofRs.10,000.Thebankadvertisesitsinterestrateas12%.Is theadvertisementcorrect? a) No b) Yes c) Cantfindfromtheinformation 5. TheSeniorcitizensSavingsBondschemeoffers%interest. a) 8.5 b) 9 c) 9.25 d) 8.75 6. ThemaximumamountthatcanbeinvestedinPublicProvidentFundisRs. a) 70000 b) 1,00,000 c) 1,40,000in2accounts

d) 2,10,000in3accounts

7. WhencanapersontakeloanfromPPF? a) 7thyear b) 3rdyear c) 6thyear d) 8thyear 8. YousaveRs6000amonthfor10years,howmuchthesesavingswillgrowinto after20yearsifrateofreturnoninvestmentsis12.5%p.a.? a) Rs.38.42lakh b) Rs.46.16lakh c) Rs.14.21lakh d) Rs.32.76lakh e) Rs.37.78lakh 9. Thefinancialplanningprocessinvolvesthefollowingsteps: A. Establishingtherelationship B. Identificationoffinancialproblems C. Reviewandrevisionoftheplan D. Datagatheringandgoalsettings. E. Preparationofwrittenalternativesandrecommendations. F. Implementationofagreedrecommendations. Selecttheonewhichrepresentsthecorrectorder: a) A,B,C,D,E,F b) A,D,B,E,F,C c) A,B,D,E,F,C d) A,D,B,F,E,C 10. Mr. Santhanam has received an amount of Rs 15, 00,000. He deposits it in an investmentwhichpays11%interest.IfhewithdrawsannuallyRs2,00,000for howlonghecandoso? a) 7.87years b) 7.50years c) 8.56years d) 16.70years e) Noneoftheabove 11. WhatisAssetAllocation? a) AssetAllocationisdivisionofassetsincashanddebtinvestments b) AssetAllocationistheallocationofdistributableassets c) AssetAllocationisinvestmentindifferentassetclasses d) AssetAllocationisallocationofmoneyindifferentsectors e) AssetAllocationisguidedbydistributionofassetstonextgeneration

12. Financialplanningactivitiesinvolve: a) Taxmanagement. b) Assetallocation. c) Equityselection. d) Keepingtrackofdividendsreceivedonsecurities Page 2 of 7 P.T.O

13. A 10 year 8.0% bond (Face Value Rs.1000, interest payable semiannually) maturing6yearsfromtodayisavailableatayieldtomaturityof6.0%.Itislikely tobepricedat_______________. a) Rs.1100 b) Rs.1149 c) Rs.1168 d) Rs.1498 14. Financialplannersandtheirclientsshouldfocuson a) Allocatingfundstoassetclasses(e.g.debt,equityetc.) b) Allocatingfundstoindividualsecurities c) Trackingstockswhichtheyfeelhavepotential d) Noneoftheabove 15. DamagetoRahulscarinaroadaccidentisRs.22000.Thecarlaterhitavehicle parked in the roadside causing damage worth Rs.25000. It also broke the neighbouring wall and caused damage worth Rs.18000. Rahul has taken statutory minimum cover while taking insurance for his car. How much claim willbeadmissiblebytheinsurancecompanyinthisinstance? a) Rs.22000 b) Rs.65000 c) Rs.43000 d) Rs.1800 16. Which out of the following is the right sentence to be used in the written financialplan? a) We believe that our recommendations will ensure that your financial objectiveswillbemet. b) We believe that the recommendations we have prepared for you have the potentialtomeetyourfinancialgoals. c) We believe that the recommendations we have developed for you have the potentialtoenhancetheopportunityforyoutoachieveyourfinancialgoals. d) Anyofthesecanbeusedinwrittenplan

Fillintheblanks 17. WhichistheThirdstepinFinancialPlanningProcess?__________________. 18. ZerocouponBonds_______________payinterestduringthetenureofthebond. 19. PresentrateofinterestonEPFis_________________Act. 20. DerivativeContractsexpireonthe_________________themonth. 21. _________________(MutualFundSchemes)canbeusedasinvestmentforemergency funding.

Statewhetherfollowingstatementsaretrueorfalse. 22. IfHPRonastockforaperiodof2yearsis44%,CAGRwillbeequalto20% 23. Life Insurance Coverage Ratio= Net Worth+ Insurance policy amount/ Annual salarywhichisforthefamily.

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24. InAnnuityinPerpetuity,OnewithdrawsInterestandprinciple bothwithevery installment. 25. For a nominal interest rate of8% payable monthly,theeffectiverate would be 8.29. Section2 Marks310=30 Choosethemostappropriateanswerandgivereasonsthereof. 26. DuringaparticularfinancialyearDr.Mahindersportfolioearnedher18.5%.He wants to know the actual return of his portfolio, after tax and inflation, if inflationratefortheyearis5%andhistaxslabis30%.(Indicatenearestfigure). a) 9.5% b) 12.95% c) 7.95% d) 7.57% 27. Ms. Radhika finds that her Planner, a CFPCM Certificant, has commingled her moneywithhisownmoney.Howeverhemaintainsgoodrecordsandknowshow much money belongs to whom. Which of the following Principles of Ethics has theCFPCMCertificantviolated? a) Integrity b) Objectivity c) Professionalism d) Fairness 28. Dr. Monica wants to withdraw money from her PPF account which she had opened in the year 200102. She wants to know when she can make her first withdrawalfromthisaccount. a) After31032008 b) After31032007 c) After31032006 d) After31032016 29. NAVofoneunitofamutualfundisRs14.Theentryloadis2.25%.TheExitload is1%.Whatwillbethecosttotheinvestor? a) Rs14.32 b) Rs14.17 c) Rs14.00 d) Rs13.86 e) Rs.10.89 30. ApracticingCFPmemberdoesnotshowrespectforotherprofessionals.Which codeofethicsheisnotfollowing? a) CodeofethicsofIntegrity b) Codeofethicsofprofessionalism c) Codeofethicsofconfidentiality Page 4 of 7 P.T.O

d) Noneoftheabove 31. Calculate the Future Value of a growing annuity for 30 years of Rs.29000 p.a. increasingat5%p.a.andtherateofinterestbeing9%p.a. a) Rs.438047 b) Rs.6485661 c) Rs.6500000 d) Noneoftheabove 32. AjayiskeentoinvestinanyofthefoursecuritiesA,B, CorDwhosebetasare 0.70,1.00,1.15and0.30respectively.Theriskfreerateofreturnbeing8%and expected rate of return on market being 14%, which security would you recommendtoAjay? a) SecurityC,asexpectedreturnishighest. b) SecurityD,asexpectedreturnisleast. c) EitherSecurityAorSecurityBastheirreturnismoderate. d) MoredataastothetimehorizonisrequiredbeforepassingadvisetoAjay. 33. Mr.Raohasbeensavingforthepast5years.Heisaged30yearsnowandputsin Rs.25000everyyearinaPPFaccountearning8%p.a.Hewillretireatage60.He expects to live another 20 years. What will be the accumulated sum he would haveonretirement?Andwhatisthesumhecanuseupperyearatthebeginning of the year provided he leaves no estate and earns 6% p.a. return after retirement? a) Rs.5243768,457175 b) Rs.4307920,450701 c) Rs.5178900,460000 d) Rs.4307920,354325 34. Preference shareholders receive priority over common stockholders with respecttowhichofthefollowing? a) Dividends cannot be paid to common stockholders unless the preference stockholdersreceivetheirstateddividend. b) In the event of bankruptcy and liquidation, thepreference shareholdersare paidbeforethecommonshareholders. c) PreferenceshareholdersgettoelectthechairmanofthecorporationsBoard ofDirectors. d) Both(a)and(b)aretrue,but(c)isfalse. e) Alloftheabovearetrue 35. Rakesh is keen to buy a deferred annuity policy for his retirement period in whichhereceivesafixedannuityofRs.3Lakhp.a.startingfromhisretirement. WhatmaximumonetimepaymentshouldRakeshpaytodayforthispolicyifthe applicable discount rate is 8% p.a. for the whole term? (Assume all annuity installments are required in annuity due mode). Rakesh is 40 years old, will retireatage55andlifeexpectancyis70years. a) Rs.8,74,251 b) Rs.7,73,271 c) Rs.6,47,522 d) Rs.8,09,491 Page 5 of 7 P.T.O

Section3 Marks53=15 Attemptallthequestions.Eachquestioncarries5marks 36. Mr.RamanhasfollowingAssetsandLiabilities CashatBankRs.45000,MMMFRs.67000,DiversifiedMutualFundRs.4 lakh,SectorFundsRs.2,00,000.OutstandingHomeLoanRs.20,00,000 CalculateSolvencyRatio: a) 0.456 b) 0.356 c) 0.675 d) Noneoftheabove 37. Mrs.Seemarecentlyfoundoutthathecanreducehismortgageinterestratefrom 12%to8%.Thevalueofhomesinhisneighborhoodhasbeenincreasingatthe rateof7.5%p.a.IfheweretorefinancehishousewithRs.5,000inclosingcosts in addition to the mortgage balance of Rs. 2,35,000, over a period of time to coincide with their chosen retirement age in 25 years, what would be the monthlypaymentforprincipalandinterest(closingcostsaregoingtobeadded tothemortgage)? a) Rs.1,840.09 b) Rs.1,895.60 c) Rs.1,801.76 d) Rs.1,813.77 e) Rs.1,852.36 38. You are staying in a rented accommodation and the flat is on a lease rental for oneyear.Yourlandlordgivesyoutwooptions: i. YoupayRs.12000p.m.atthebeginningofeverymonthfor12months ii. You do not pay anything for first 4 months and then pay Rs.16000 p.m. for remaining 8 months at the beginning of every month. How much increase/decreasewillbethereinyourNetWorthifyouoptfor2ndoption? Youcaninvestyourmoneyatareturnof8%p.a. a) IncreaseinNetWorthofRs.17078 b) DecreaseinNetWorthofRs.17078 c) DecreaseinNetWorthofRs.138869 d) Noneoftheabove PARTII(SUBJECTIVE) Section4 Marks35=15 Page 6 of 7 P.T.O

Attemptany5questions.Allquestionscarry3marks 39. WriteanoteonCodeofethicsofIntegrity 40. WriteanoteonvarioustypesofannuitiesavailableinIndianMarket 41. Whythereisneedtoreviewandrevisetheplan? 42. BenefitsofinvestinginMutualFunds 43. Advantagesofbuyinglifeinsurancepolicies 44. ImportanceofAssetAllocationwhilemakingfinancialplans Section5 Marks53=15 Attemptany3questions.Allquestionscarry5marks 45. Writeadetailednoteonvariousassetclassesanditssignificanceintheportfolio constructionofaclient. 46. WriteanoteonsixstepprocessofFinancialPlanning. 47. WriteadetailednoteonNeedforFinancialPlanninginIndia 48. Critically analyze Equity investing (through Mutual Fund) and Equity Investing throughULIP

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