NISM Series X-A: Investment Adviser (Level 1) Cert. 'Case Study 5'

1. Mr. Ramesh has some investments in small saving schemes and bank deposits which are currently giving him an average return of 8%. He is planning to diversify by buying some bonds and the main condition is that the bonds should give him a return of at least 8% which he is currently getting from his debt investments. One bond which is in his radar of investment is a 9% bond of ABC Ltd., which is available at Rs 106. The interest payable is for 5 years each year. Mr. Ramesh has also investment in Government Securities (GSec) of coupon 7.5% and maturity after 6 years. Answer the below questions based on this information.
What do you think of Mr. Ramesh’s plan of investing in ABC Ltd. bonds considering that he requires 8% yield? 

2. Mr. Ramesh has some investments in small saving schemes and bank deposits which are currently giving him an average return of 8%. He is planning to diversify by buying some bonds and the main condition is that the bonds should give him a return of at least 8% which he is currently getting from his debt investments. One bond which is in his radar of investment is a 9% bond of ABC Ltd., which is available at Rs 106. The interest payable is for 5 years each year. Mr. Ramesh has also investment in Government Securities (GSec) of coupon 7.5% and maturity after 6 years. Answer the below questions based on this information.
At what price should Mr. Ramesh invest in ABC bonds so as to meet is investment criteria ?

3. Mr. Ramesh has some investments in small saving schemes and bank deposits which are currently giving him an average return of 8%. He is planning to diversify by buying some bonds and the main condition is that the bonds should give him a return of at least 8% which he is currently getting from his debt investments. One bond which is in his radar of investment is a 9% bond of ABC Ltd., which is available at Rs 106. The interest payable is for 5 years each year. Mr. Ramesh has also investment in Government Securities (GSec) of coupon 7.5% and maturity after 6 years. Answer the below questions based on this information.
Inflation is rising in the economy and accordingly the Central Bank may take some appropriate action. Which bond, ABC Ltd or 7.5% GSec, is more likely to see impact on its prices ?

4. Mr. Ramesh has some investments in small saving schemes and bank deposits which are currently giving him an average return of 8%. He is planning to diversify by buying some bonds and the main condition is that the bonds should give him a return of at least 8% which he is currently getting from his debt investments. One bond which is in his radar of investment is a 9% bond of ABC Ltd., which is available at Rs 106. The interest payable is for 5 years each year. Mr. Ramesh has also investment in Government Securities (GSec) of coupon 7.5% and maturity after 6 years. Answer the below questions based on this information.
What will be the impact on the 7.5% GSec if the yield goes up by 0.75%?

5. Mr. Ramesh has some investments in small saving schemes and bank deposits which are currently giving him an average return of 8%. He is planning to diversify by buying some bonds and the main condition is that the bonds should give him a return of at least 8% which he is currently getting from his debt investments. One bond which is in his radar of investment is a 9% bond of ABC Ltd., which is available at Rs 106. The interest payable is for 5 years each year. Mr. Ramesh has also investment in Government Securities (GSec) of coupon 7.5% and maturity after 6 years. Answer the below questions based on this information.
What will the impact on the price of the bond of ABC Ltd. if its yield goes up to 11% ?

6. UMA age 33, works for a multinational looks after her own finances has a personal loan of Rs. 4 lakhs for 5 years with an EMI of Rs 9900 pm. She may receive a bonus shortly with which she plans to pay-off her personal loan. UMA wants to save for the education of her child. She wants to have a corpus ready in 7 years for this purpose and for this, she is planning to invest the bonus in XYZ Equity mutual fund. She had already invested Rs.40,000 in this XYZ fund three years back which is currently worth Rs.57720. The cost of child’s education is currently Rs.500000 and this is likely to go up by 10% every year. UMA has a short term goal of buying a car costing Rs 600000. The car dealer has given her two payment options – 1) Pay Rs. 600000 over 4 years with zero interest OR 2) Pay full amount as down payment now and get a 15% discount on this spot payment. UMA is also thinking of taking retirement in 20 years. But she wants to be sure that she receives regular income from her investments so that she can meet her essential expenses. For this she is scrutinizing a perpetual annuity that will pay her Rs 300000 every year from age 50 onwards at a yield of 6%. For this she is required to invest Rs. 11800 for 20 years in this annuity plan. UMA is also interested in spending her retirement life in a city apartment and is thinking if she can afford it ? The down payment for this apartment is Rs 1200000. For this, UMA plans to invest Rs. 22000 per month in a debt fund which will give her a return of 7% pa. She also believes that she will receive salary increments in the next few years which will allow her to save more and pay an EMI of Rs 55000 per month. She has decided to restrict the mortgage to 5 years. The cost of property currently is Rs 60 lakhs. The home loan rate is 7.5% and the inflation rate in the economy is 6.5%.
Can UMA use the bonus amount to invest in XYZ Mutual Fund for a period of 5 years instead of paying off personal loan? Assume same rate of growth in XYZ Mutual Fund. She will be better off in______,

7. UMA age 33, works for a multinational looks after her own finances has a personal loan of Rs. 4 lakhs for 5 years with an EMI of Rs 9900 pm. She may receive a bonus shortly with which she plans to pay-off her personal loan. UMA wants to save for the education of her child. She wants to have a corpus ready in 7 years for this purpose and for this, she is planning to invest the bonus in XYZ Equity mutual fund. She had already invested Rs.40,000 in this XYZ fund three years back which is currently worth Rs.57720. The cost of child’s education is currently Rs.500000 and this is likely to go up by 10% every year. UMA has a short term goal of buying a car costing Rs 600000. The car dealer has given her two payment options – 1) Pay Rs. 600000 over 4 years with zero interest OR 2) Pay full amount as down payment now and get a 15% discount on this spot payment. UMA is also thinking of taking retirement in 20 years. But she wants to be sure that she receives regular income from her investments so that she can meet her essential expenses. For this she is scrutinizing a perpetual annuity that will pay her Rs 300000 every year from age 50 onwards at a yield of 6%. For this she is required to invest Rs. 11800 for 20 years in this annuity plan. UMA is also interested in spending her retirement life in a city apartment and is thinking if she can afford it ? The down payment for this apartment is Rs 1200000. For this, UMA plans to invest Rs. 22000 per month in a debt fund which will give her a return of 7% pa. She also believes that she will receive salary increments in the next few years which will allow her to save more and pay an EMI of Rs 55000 per month. She has decided to restrict the mortgage to 5 years. The cost of property currently is Rs 60 lakhs. The home loan rate is 7.5% and the inflation rate in the economy is 6.5%.
What is the amount that UMA needs to invest each month to achieve her target corpus for educational expenses if the additional investments will be made in the existing XYZ equity fund and the past returns reflect the expected future returns ?

8. UMA age 33, works for a multinational looks after her own finances has a personal loan of Rs. 4 lakhs for 5 years with an EMI of Rs 9900 pm. She may receive a bonus shortly with which she plans to pay-off her personal loan. UMA wants to save for the education of her child. She wants to have a corpus ready in 7 years for this purpose and for this, she is planning to invest the bonus in XYZ Equity mutual fund. She had already invested Rs.40,000 in this XYZ fund three years back which is currently worth Rs.57720. The cost of child’s education is currently Rs.500000 and this is likely to go up by 10% every year. UMA has a short term goal of buying a car costing Rs 600000. The car dealer has given her two payment options – 1) Pay Rs. 600000 over 4 years with zero interest OR 2) Pay full amount as down payment now and get a 15% discount on this spot payment. UMA is also thinking of taking retirement in 20 years. But she wants to be sure that she receives regular income from her investments so that she can meet her essential expenses. For this she is scrutinizing a perpetual annuity that will pay her Rs 300000 every year from age 50 onwards at a yield of 6%. For this she is required to invest Rs. 11800 for 20 years in this annuity plan. UMA is also interested in spending her retirement life in a city apartment and is thinking if she can afford it ? The down payment for this apartment is Rs 1200000. For this, UMA plans to invest Rs. 22000 per month in a debt fund which will give her a return of 7% pa. She also believes that she will receive salary increments in the next few years which will allow her to save more and pay an EMI of Rs 55000 per month. She has decided to restrict the mortgage to 5 years. The cost of property currently is Rs 60 lakhs. The home loan rate is 7.5% and the inflation rate in the economy is 6.5%.
Should UMA consider the perpetual annuity as an investment option for her retirement ?

9. UMA age 33, works for a multinational looks after her own finances has a personal loan of Rs. 4 lakhs for 5 years with an EMI of Rs 9900 pm. She may receive a bonus shortly with which she plans to pay-off her personal loan. UMA wants to save for the education of her child. She wants to have a corpus ready in 7 years for this purpose and for this, she is planning to invest the bonus in XYZ Equity mutual fund. She had already invested Rs.40,000 in this XYZ fund three years back which is currently worth Rs.57720. The cost of child’s education is currently Rs.500000 and this is likely to go up by 10% every year. UMA has a short term goal of buying a car costing Rs 600000. The car dealer has given her two payment options – 1) Pay Rs. 600000 over 4 years with zero interest OR 2) Pay full amount as down payment now and get a 15% discount on this spot payment. UMA is also thinking of taking retirement in 20 years. But she wants to be sure that she receives regular income from her investments so that she can meet her essential expenses. For this she is scrutinizing a perpetual annuity that will pay her Rs 300000 every year from age 50 onwards at a yield of 6%. For this she is required to invest Rs. 11800 for 20 years in this annuity plan. UMA is also interested in spending her retirement life in a city apartment and is thinking if she can afford it ? The down payment for this apartment is Rs 1200000. For this, UMA plans to invest Rs. 22000 per month in a debt fund which will give her a return of 7% pa. She also believes that she will receive salary increments in the next few years which will allow her to save more and pay an EMI of Rs 55000 per month. She has decided to restrict the mortgage to 5 years. The cost of property currently is Rs 60 lakhs. The home loan rate is 7.5% and the inflation rate in the economy is 6.5%.
How much UMA need for the education of her child when it is due?

10. UMA age 33, works for a multinational looks after her own finances has a personal loan of Rs. 4 lakhs for 5 years with an EMI of Rs 9900 pm. She may receive a bonus shortly with which she plans to pay-off her personal loan. UMA wants to save for the education of her child. She wants to have a corpus ready in 7 years for this purpose and for this, she is planning to invest the bonus in XYZ Equity mutual fund. She had already invested Rs.40,000 in this XYZ fund three years back which is currently worth Rs.57720. The cost of child’s education is currently Rs.500000 and this is likely to go up by 10% every year. UMA has a short term goal of buying a car costing Rs 600000. The car dealer has given her two payment options – 1) Pay Rs. 600000 over 4 years with zero interest OR 2) Pay full amount as down payment now and get a 15% discount on this spot payment. UMA is also thinking of taking retirement in 20 years. But she wants to be sure that she receives regular income from her investments so that she can meet her essential expenses. For this she is scrutinizing a perpetual annuity that will pay her Rs 300000 every year from age 50 onwards at a yield of 6%. For this she is required to invest Rs. 11800 for 20 years in this annuity plan. UMA is also interested in spending her retirement life in a city apartment and is thinking if she can afford it ? The down payment for this apartment is Rs 1200000. For this, UMA plans to invest Rs. 22000 per month in a debt fund which will give her a return of 7% pa. She also believes that she will receive salary increments in the next few years which will allow her to save more and pay an EMI of Rs 55000 per month. She has decided to restrict the mortgage to 5 years. The cost of property currently is Rs 60 lakhs. The home loan rate is 7.5% and the inflation rate in the economy is 6.5%.
The car dealer has given her two payment options – 1) Pay Rs. 600000 over 4 years with zero interest OR 2) Pay full amount as down payment now and get a 15% discount on this spot payment. Which among these two options UMA should opt? Risk free rate as 6%.