NISM Series X-A: Investment Adviser (Level 1) Cert. 'Case Study 7'

1. IPO of ABC LTd is Priced at Rs 75. Book value of its shares is Rs 24. Current EPS is Rs 7 and this is likely to increase by 10% every year. He wants to invest in this IPO using a leverage of 2 times at a cost of 2.5%.
Calculate Forward PE

2. IPO of ABC LTd is Priced at Rs 75. Book value of its shares is Rs 24. Current EPS is Rs 7 and this is likely to increase by 10% every year. He wants to invest in this IPO using a leverage of 2 times at a cost of 2.5%.
If the allotment ratio is 4 shares for 10 shares, what will be the cost per share?

3. IPO of ABC LTd is Priced at Rs 75. Book value of its shares is Rs 24. Current EPS is Rs 7 and this is likely to increase by 10% every year. He wants to invest in this IPO using a leverage of 2 times at a cost of 2.5%.
If the listing price is Rs 77.5, what should be the allotment ratio for a NO PROFIT-NO LOSS Scenario

4. X wants to make the right choices on making financial commitments to make the best use of her income and savings. She (X) pays an EMI of Rs.23,000 on an outstanding home loan of Rs.10 lakhs with 5 years to go. She has an offer to switch to a new housing loan company that is offering a rate of 7.25%. X has a conveyance allowance of Rs.7500 per month and she is looking to buy a vehicle that fits into that budget. She has seen a vehicle that costs Rs.4 lakhs and found financing for 80% of the cost at an interest rate of 12%.The term will be 5 years. One of the insurance policies held by X is maturing and she has to decide between taking the sum assured of Rs.10 lakhs as cash or a monthly payment of Rs.10,000 over 10 years. Take inflation at 6%.
Should X consider the home loan switch to the new provider?

5. X wants to make the right choices on making financial commitments to make the best use of her income and savings. She (X) pays an EMI of Rs.23,000 on an outstanding home loan of Rs.10 lakhs with 5 years to go. She has an offer to switch to a new housing loan company that is offering a rate of 7.25%. X has a conveyance allowance of Rs.7500 per month and she is looking to buy a vehicle that fits into that budget. She has seen a vehicle that costs Rs.4 lakhs and found financing for 80% of the cost at an interest rate of 12%.The term will be 5 years. One of the insurance policies held by X is maturing and she has to decide between taking the sum assured of Rs.10 lakhs as cash or a monthly payment of Rs.10,000 over 10 years. Take inflation at 6%.
Can she afford the car she has evaluated?

6. X wants to make the right choices on making financial commitments to make the best use of her income and savings. She (X) pays an EMI of Rs.23,000 on an outstanding home loan of Rs.10 lakhs with 5 years to go. She has an offer to switch to a new housing loan company that is offering a rate of 7.25%. X has a conveyance allowance of Rs.7500 per month and she is looking to buy a vehicle that fits into that budget. She has seen a vehicle that costs Rs.4 lakhs and found financing for 80% of the cost at an interest rate of 12%.The term will be 5 years. One of the insurance policies held by X is maturing and she has to decide between taking the sum assured of Rs.10 lakhs as cash or a monthly payment of Rs.10,000 over 10 years. Take inflation at 6%.
Should X take the Rs.10 lakhs as cash or opt for the periodic payment?

7. X is in his early 30’s and considering a shift to self-employment. he is confident of doing well but realizes there may be disruption to income in the initial stages. He wants to evaluate his finances before he takes the call to branch out on his own. He also wants to help his father create a corpus for managing their health needs. They need a guaranteed payout of Rs.7500 each month to meet their expense on medicines.
Monthly Income
Salary 1,40,000

Monthly Expenses
Loan repayment 65,000
Living expenses 50,000
1,15,000

Assets
Cash in bank = 1,20,000
fixed deposit maturing in 18 months = 75,000
Open ended Equity mutual fund = 2,00,000
self-occupied property and loan outstanding = 75,00,000, Liabilities = 5500000
PF Balance 8,00,000
86,95,000
X expects income to be uncertain. Are his finances in a position to support this?

8. X is in his early 30’s and considering a shift to self-employment. he is confident of doing well but realizes there may be disruption to income in the initial stages. He wants to evaluate his finances before he takes the call to branch out on his own. He also wants to help his father create a corpus for managing their health needs. They need a guaranteed payout of Rs.7500 each month to meet their expense on medicines.

Monthly Income
Salary 1,40,000

Monthly Expenses
Loan repayment 65,000
Living expenses 50,000
1,15,000

Assets
Cash in bank = 1,20,000
fixed deposit maturing in 18 months = 75,000
Open ended Equity mutual fund = 2,00,000
self-occupied property and loan outstanding = 75,00,000, Liabilities = 5500000
PF Balance 8,00,000
86,95,000

X is confident that he has done well with his finances. He has bought a house on loan and has investments in mutual funds. What is the evaluation you would do of his financial performance so far?

9. X is in his early 30’s and considering a shift to self-employment. he is confident of doing well but realizes there may be disruption to income in the initial stages. He wants to evaluate his finances before he takes the call to branch out on his own. He also wants to help his father create a corpus for managing their health needs. They need a guaranteed payout of Rs.7500 each month to meet their expense on medicines.

Monthly Income
Salary 1,40,000

Monthly Expenses
Loan repayment 65,000
Living expenses 50,000
1,15,000

Assets
Cash in bank = 1,20,000
fixed deposit maturing in 18 months = 75,000
Open ended Equity mutual fund = 2,00,000
self-occupied property and loan outstanding = 75,00,000, Liabilities = 5500000
PF Balance 8,00,000
86,95,000

What is the corpus that is required to generate the income of Rs.7500 per month for his parents if the yield being offered is 6%?

10. D is in her mid-40s and been managing her finances on her own. She has always found it difficult to meet her goals even though she saves and invests. Her primary investments are in equity mutual funds. She is now getting ready to fund her son’s college education in a year. This is a snapshot of her finances.
Income
Salary 2,20,000

Expenses
loan repayment 90,000
Essential living 65,000
Discretionary expenses 30,000
1,85,000
Travel expenses incurred every 2 years 2,00,000

8,333.33
Assets                     Liabilities
Cash in bank                          80,000
Equity mutual funds                                                              50,00,000                         20,00,000
Bank fixed deposits maturing in 18 months                     15,00,000                            5,00,000
Liquid funds                                                                             3,00,000
Gold                                                                                          10,00,000                            4,00,000
Provident Fund                                                                       18,00,000
self-occupied property and loan outstanding                 70,00,000                          37,50,000
Car and loan outstanding                                                      2,50,000                           2,00,000
Personal loan                                                                                                                        5,00,000
1,69,30,000                       73,50,000
D is considering taking loans where necessary, if her corpus falls short of the goals that she has to meet in the next 5 years. What will be your advice to her?