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Challenge Status Stage I Examination (Jan-21, 2007)

Maximum Marks: 140


Test Duration: 2 Hours
1)

All of the following Rules relate to the Principle of Fairness except:


A
B
C

2)

A CFP certificant shall disclose sources of compensation to ongoing clients annually


A CFP certificant shall exercise reasonable and prudent professional judgment in providing
professional services.
In rendering professional services, a CFP certificant shall disclose to the client material information
relevant to the professional relationship, as well as information required by all laws applicable to the
relationship in a manner complying with such laws.
A Financial Planning practitioner shall make timely written disclosure of all material information relative to
the professional relationship including, but limited to, conflicts of interests and sources of compensation.
Jaikishen, a Certified Financial Planner, is preparing a letter to circulate among prospective clients and the
letter contains information on services provided by his firm. According to the Code of Ethics and Rules of
Professional Conduct, all of the following information should appear in the letter except ________.
1

A
B
C
D
3)

Details of firms portfolio size and composition


The fees and commission sources of the firm
Any significant financial relationships or connections with product providers
Identity of the firm providing the service and the nature of services offered
While presenting and reviewing a Financial Plan to the client, you would do all of the following except
______.
1

A
B
C
D
4)

Present the plan in writing to the client


Take the client through the plan
Share the assumptions on which the plan is made
Express your opinion as a matter of fact
Which of the following is not a correct interpretation of the Rules of Conduct pertaining to the Ethic of
Diligence for CFP Certificant?
1

A
B
C
D

5)

The Certificant shall enter into an engagement only after securing sufficient information to satisfy the
Certificant that the individuals needs and objectives warrant the relationship.
A significant recommendation may be given orally if it is not practicable to give it in writing.
A Certificant is considered to be more knowledgeable than the client and hence may not need to
explain the recommendation and basis in a manner that the client comprehends.
A Certificant shall confirm in writing to the client where a subsequent instruction given by the client alters
the financial strategy of a portfolio under the certificants supervision
The following statements relate to the responsibilities of the Financial Planner while implementing the
Financial Plan. Which of them appears to be the most appropriate?
1

A
B
C
D

6)

As soon as the client agrees to the recommendations while the financial plan is presented to the client, the
Financial Planner must proceed with the implementation activities.
The Financial Planner may share client information with other professionals/experts if it helps the client.
The FPSB India clearly prescribes all activities to be followed by Financial Planners during
implementation.
The activities that will form part of the implementation of the financial plan are to be decided
mutually between the Client and the Financial Planner.
Which of the following is a reasonable assumption to make about the understanding of a client, on the
Financial Planning process?
1

A
B
C
D

Client would have identified a desirable asset allocation.


He would have some knowledge of the assumptions on which Financial Plans are made.
He would understand the financial products being recommended.
He would be able to identify his financial goals.

7)
A
B
C
D
8)

The statement 'Members shall ensure their conduct does not bring discredit to the Financial Planning
profession', relates to the FPSB Code of Ethics of ________.
1
Compliance
Professionalism
Fairness
Integrity
Protector International is a financial services firm that specializes in investment advisory services. In its
brochure for Financial Planning services, it may state _______.
1

A
B
C
D

9)

Its competence in investment advisory services and the arrangements to offer advice in other
areas
It has the competence to take care of all Financial advisory requirements of the customer
It can offer superior investment returns on customer portfolios and talk of the arrangements to offer advice
in other areas
Its Financial Planning services are the best available in the market in light of its investment advisory
capabilities and arrangements to offer advice in other areas
An individual has decided to purchase life insurance and comes to you as his Financial Planner. You also
hold an Insurance Agency License in order to program a system of life insurance to meet the individuals
needs, which among the following would be the first step:
1

A
B
C
D
10)

Determining the rate of return that the individual would like to receive.
Analyzing the individuals needs and determining the amount of life insurance coverage needed.
Selecting an insurance company.
Selecting the type of policy that the individual wants to purchase.
Subrogation means substitution of insured by insurer for claim from third parties.

A
B
C
D
11)

No
Yes
In certain Cases
None of the above
A type of risk with high frequency but low severity is probably best handled by:

A
B
C
D
12)

13)

14)

Sharing of risk and sharing of losses


Spreading of risk and spreading of losses
Spreading of risk and sharing of losses
Sharing of risk and spreading of losses
LALGI is _________.

A
B
C
D

(i) High (ii) High


(i) Low (ii) Low
(i) High (ii) Low
(i) Low (ii) High
Insurance is ________.

A
B
C
D

Transfer
Avoidance
Insurance
Self-insurance
As per risk retention strategy one should not retain the risk if
(i) Chances of peril occurring and
(ii) Severity of peril is _________.

A
B
C
D

Private insurance
Social insurance
Public benefit guarantee scheme
Actuarial technique of determining insurance premium

15)

For risk to be insurable which one of following is not correct?


A
B
C
D

16)

There must be a sufficiently large number of heterogeneous exposure units to make the losses
reasonably predictable.
The loss produced by the risk must be definite and measurable.
The loss must be fortuitous or accidental.
The loss must not be catastrophic.
A client explains that she only wants an insurance policy that will cover her family against financial risk
over the next five years, while she still has dependent children and a large mortgage. It is unlikely her
income will increase over this period. What type of insurance is she looking for?
1

A
B
C
D
17)

Whole of life assurance to be paid up after five years.


Single premium life insurance.
Pure endowment assurance.
Term insurance with a level premium.
The principal of subrogation means:

A
B
C
D
18)

An insurer undertakes to take legal action on behalf of its insured and to pay to the insured the net
proceeds of such legal action.
An insured may not take legal action in respect of matter which is the subject of a claim.
An insurer may bring an action against a third party in the name of the insured after satisfying a
claim.
An insurer which has satisfied a claim may recover from the insurer of a third party who admits liability.
Which of the following is type of pecuniary insurance?

A
B
C
D
19)

20)

Workmans compensation
Commercial vehicle insurance
Engineering insurance
Money policy
Tort is defined as:

A
B
C
D

Justice to all
Money damage for Legal wrongs
Compensation for breach of contract
None of the above
For defined benefit plans, which of the following changes in actuarial assumption would increase plan
costs to an employee?
1. Early retirement without a reduction in benefits.
2. Longer life expectancy predicted
3. An increase in inflation expectations regarding labor costs.
1

A
B
C
D
21)

1 only
1 & 2 only
2 & 3 only
1, 2 & 3
Savita has been working and is covered by the Provident Fund Act, 1952. She hopes that the savings in
the scheme would be adequate to fund her retirement. She would like to enhance her contribution and
make an additional monthly contribution of Rs. 5000. Can Savita take an advance from her PF account for
funding her medical expenses?
1

A
B
C
D

Yes. She can take an advance provided she can repay it within 5 years.
No, she cannot take an advance for medical expenses. These have to be covered by insurance.
Yes, she can take all of her voluntary contribution and upto three-fourths of her total contribution.
Yes, she can take an advance of half of the amount in her credit, or 6-months pay, which ever is
less.

22)

Sundar has been an employee of a public sector undertaking for the past 25 years and is retiring the next
year. He is eligible for gratuity as per the provisions of the Payment of Gratuity Act, 1972. In the event of
Sundars untimely death before retirement, what happens to the Gratuity payable to him?
1
A
B
C
D

23)

Gratuity is payable to his nominee, or his heirs as the case may be.
Gratuity is not payable if the employee dies before retirement from service.
Gratuity is payable only if the employee has 5 years of continuous service as defined by the Act.
Gratuity is paid at a lower rate.
Which of the following is FALSE about Gratuity as per Payment of Gratuity Act 1972?

A
B
C
D
24)

Gratuity is payable only in the case of retirement or superannuation, not in the case of resignation
or termination of service.
The amount of gratuity payable cannot exceed Rs. 350000.
The terms of gratuity can be better than what is stipulated in the Act.
Gratuity payable can be forfeited by the employer for specific offences committed during employment.
As an employee Rajesh has come to you with his questions on superannuation plans/ Annuity Plans to get
more educated with current scenario. What is the maximum benefit allowed under Employees Deposit
linked Insurance?
1

A
B
C
4
25)

Average Balance in the provident fund account during the past 12 months or during the period of
membership whichever is less.
25000+40% of the amount in excess of Rs. 25000.
25000+25% of the amount in excess of Rs. 25000.
Rs. 60000.
Akash is a self employed, moderate risk taking person. He is 10 years away from retirement. Before he
decides to invest he has come to you to educate himself regarding investment risk, return and
diversification. Akash wants to know which among the following investment avenues normally has highest
number of compounding periods in a year.
1

A
B
C
D
26)

PPF
Time Deposit
NSC
RBI Bonds
Bond prices are sensitive to both the coupon rate of the bond and the maturity term of the bond. Bond
prices are less sensitive to changes in interest rates when the bonds have_______.
1

A
B
C
D

small coupons and long maturity


small coupons and short maturity
large coupons and long maturity
large coupons and short maturity

27) All stock market indexes are most accurately characterized by which of the following statements about the
degree to which they co-vary together?
1
A
B
C
D
28)

They are uncorrelated.


They are perfectly positively correlated.
They are highly positively correlated.
They are negatively correlated.
Any lead manager for an IPO of a company requires_______.

A
B
C
D

SEBI Category-2 Certificate with 2% fee of issue amount


SEBI Category-1 Certificate
SEBI Category-2 Certificate
SEBI Category-3 Certificate with 2.5% fee of issue amount

1)
2)

An equity shareholder has the following right_______.


He can legally demand information from the company and gain access to its books.
He can vote for the common shareholders dividend.

29)

3)

He can vote for the preference shareholders dividend.

A
B
C
D

1
2
3
1, 2 & 3

1)
2)
3)
4)

A Preference Shareholder enjoys priority over common stockholders in respect of_______.


Dividends cannot be paid to common stockholders unless he receives the stated dividend.
In the event of liquidation, he is paid before the common shareholders.
He can elect the Chairman of the Board of Directors.
He can vote for dividend to be paid to the equity shareholders.

A
B
C
D

Both (3) & (4) are true, but (1) & (2) are false.
(1), (2), (3) & (4) are true.
Both (1) and (2) are true, but (3) and (4) are false.
None of the above

30)

31)

In the derivatives market, hedgers, speculators and arbitrageurs trade. Hedger is a trader _______.
A
B
D
C

32)

1
who enters derivatives market in order to reduce a pre-existing risk
who enters derivatives market in anticipation of a need in the near future
whose net wealth change, at the time the derivative contract expires, is expected to be zero (Perfect
hedge assumed)
All of the above
Which of the statements given below is not correct with regard to futures transactions?

A
B
C
D
33)

Cash flow management.


Leveraging exposure.
Benefit from premium payments.
Portfolio substitution.
X owns a house property. It is used by him throughout the previous year 2005-06 for his (and his family
members) residence. Municipal value of the property is Rs. 166000, whereas fair rent is Rs. 176000 and
standard rent is Rs. 150000. The following expenses are incurred by X, repairs Rs. 20000, municipal tax
Rs. 16000, insurance: Rs. 2000: interest on capital borrowed to construct the property: Rs. 136000 interest
on capital borrowed by mortgaging the property for daughter's marriage: Rs. 20000 (in either case capital
is borrowed before April 1, 1999). Income of X from business is Rs. 710000. Find out the net income
chargeable to tax of X for the AY 2006-07.
1

A
B
C
4
34)

Rs. 642000
Rs. 524000
Rs. 544000
Rs. 680000
For investors, while computing capital gains on sale of securities (shares and units), is the STT paid
allowed as a deduction?
1

A
B
C
D
35)

Yes
No
Not specified
Cant say
Perquisites, on which tax is paid or payable by the employee, are not included as Fringe Benefits u/s 115WB.
1

A
B
C

This statement is true.


This statement is false because perquisites payable to eligible employees are defined as fringe benefit
under the Finance Act.
Cant say.

D
36)

Can the NRI extend his old PPF account for 5 years after its maturity?
A
B
C
D

37)

Yes
No
Cant say
None of the above
In an unfortunate incident, Mr. Charan's plant catches fire and the machinery gets destroyed. Luckily, Mr.
Charan had insured the factory against fire. The WDV of the machinery was Rs. 268000 and the
replacement cost Rs. 5 lakh. The Insurance Company has paid compensation of Rs. 3 lakh. What is the
taxable amount?
1

A
B
C
D
38)

Rs. 32000 as normal income.


Rs. 200000 as capital loss.
Rs. 32000 as capital gains.
Nil.
Your client Mr. Saxena expressed his intention to write his Will in his own handwriting. Such a Will which is
wholly in the handwriting of the testator is known as:
1

A
B
C
D
39)

Manuscript Will
A handwritten Will is not allowed as establishing the authenticity of a handwritten document is difficult in
the court of law.
Nuncupative Will
Holograph Will
Md. Asraf, a pious Muslim calculates that his legacy would be about Rs. 21000 after his death. He
estimates his funeral cost would be around Rs. 1000 and his debt amounts to Rs. 2000 leaving a balance
of Rs. 18000. What is the maximum amount he is allowed to bequeath?
1

A
B
C
4
40)

Rs. 6000
Rs. 18000, being the entire amount of legacy
NIL
None of the above
As per The Hindu Succession Act, 1956, the following person is not considered as a Class-I heir of a
person, who dies intestate:
1

A
B
C
D

Mother
Father
Son/ Daughter
Widow
Santosh sold five Nifty call option strike price 3500, lot size 100 at 45 on 26th Aug 2005. If the brokerage is
0.03%, what is the STT charged to Santosh?
2

41)

A
B
C
D

Rs. 175
Rs. 232.75
Rs. 297.50
None of the above

A
B
C
D

Mr. A owes Rs.50000 to you and the interest is 12% pa compounded monthly. What would you prefer?
2
Take Rs. 60000 after 1 year
Take Rs. 25000 now and Rs. 32000 at the end of the year.
Take Rs. 40000 now and Rs.15,200 at the end of the year.
Take Rs. 50000 now

42)

43)

None of the above.

Any possible occurrence which may have a negative financial implication can be plotted on a graph with X
axis measuring the frequency (low-high) and Y axis measuring the financial impact (low-high). It would not

be practical to purchase insurance for events which would fall in the high frequency, high impact quadrant
because _________.
2
A
B
C
D
44)

such a risk cover would be very expensive


the best way to cover such a risk would be to alter the functioning of the business
usually this is a business risk, which is rewarded by profit motive
such occurrences are so few that no insurer would be offering a risk cover
You buy a growth-oriented non-dividend paying share for Rs. 200 and 4 years later you sell it for Rs. 350.
The compound annual growth rate is _____.
2

A
B
C
D
45)

10.3%
18.8%
75%
15%
Sharad Sharma was supervising the construction of his building when a jeep of the building contractor
accidentally ran over his toes, immobilizing him for 6 weeks. What are the claims that arise from this
situation?
2

A
B
C
D

46)

Sharma can claim disability insurance; if the contractor establishes that Sharma was negligent, he is not
liable to pay any third party damage claims raised by Sharma.
Contractor will pay damages to Sharma from the insurance claim on property; Sharma will get his claims
from an accident insurance he had bought.
Sharma can claim under personal accident insurance; the contractor can claim third party liability
insurance if he has taken one; Sharma can sue the contractor for damages.
Sharma can claim a disability insurance if he has bought one; The contractor can claim insurance for
paying the third party liability that arises from Sharmas claim; Sharma can claim insurance for third party
negligence causing losses to him.
Mani is 25 years old and recently taken up his first job at a salary of Rs. 180000 p.a. only. He plans to
retire at the age of 60 years. He is single but has been dating Sonali for the past two years. He plans to
marry her within the next five years. Mani presently stays with his parents, who are financially
independent. What is the amount of Life Insurance cover you will prescribe to Mani as his Financial
Planner?
2

A
B
C
D
47)

Rs. 180000*10 = 18 Lakh


Rs. 180000*6 = 10.8 Lakh
He does not need any life insurance cover currently
Rs. 180000*(60-25) = 63 Lakh
Medi-claim policy in India doesnt provide for the following benefits:

A
B
C
D

Domiciliary treatment.
Domiciliary hospitalisation expenses.
Reimbursement of Hospitalisation expenses.
None of the above

A
B
C
D

Mr. Singh bought a Rs. 250000 whole life, double indemnity life insurance policy on August 1 of last year
(premiums were Rs. 200 per month). On Jun 30 of this year, Mr. Singh committed suicide. What is the
amount of benefit payable to Mr. Singhs beneficiary, assuming the premiums were paid as agreed?
2
Rs. 2200 + interest
NIL
Rs. 2200
Rs. 250000

48)

49) Manish estimates his opportunity cost on investments to be 12% compounded annually. Which one of the
following is the best investment opportunity for Manish?
2
A

To receive Rs. 5000 at the beginning of each six-month period for nine years compounded
semiannually.

B
C
D
50)

To receive Rs. 40000 at the end of four years and Rs. 120000 eight years later (at the end of the 12th
year).
To receive Rs 50000 today.
To receive Rs. 250000 at the end of 14 years.
Mr. Kalpesh decides to accumulate Rs. 50 lakh when he retires. He is 30 years old at present and wants
to retire at the age of 55 years. Assume Interest Rate = 9%, Inflation = 5%. Compounding to be done on
annuity certain basis. If Mr. Kalpesh could save only Rs.45, 000 p.a. for first ten years, how much does he
need to save for next 15 years to meet his retirement nest egg?
2

A
B
C
D
51)

Rs. 147008 p.a


Rs. 98450 p.a
Rs. 79250 p.a
Rs. 85477 p.a
Mr. Gaurav is working with APE Ltd. since October 1, 1992. He is entitled for the basic salary of Rs.6000
per month and Dearness Allowance is 40% of Basic Salary for retirement benefits. He retired from his job
on January 1, 2006 (3 months before the end of F.Y 2006) and shifted to his village. He is entitled to the
following benefits at the time of retirement.
Gratuity = Rs. 98000.
Pension from January 1, 2005 = Rs. 2000 per month.
Payment from recognized PF = Rs. 300000.
Encashment of earned leave for 150 days = Rs. 36000.
He was entitled to 40 days leave for every completed year of service.
He got 50% of his pension commuted in lump sum w.e.f March 1, 2006 and received Rs. 120000 as
commuted pension.
Gaurav contributes Rs. 900 per month to RPF to which his employer contributes an equal amount.
With these details you are required to help him with the following questions related to Assessment year
2006-07. What is the amount of leave encashment he is eligible for exemption?
2

A
B
C
D
52)

Nil
10 months average salary
Actual Encashed salary
None of the above
Mr. Gaurav is working for the finance ministry since October 1, 1991. He is entitled for the basic salary of
Rs.6000 per month and Dearness Allowance is 40% of Basic Salary for retirement benefits. He retired
from his job on January 1, 2005 (3 months before the end of F.Y 2005) and shifted to his village. He is
entitled to the following benefits at the time of retirement.
Gratuity = Rs.98000.
Pension from January 1, 2005 = Rs. 2000 per month. Payment from recognized PF = Rs. 300000.
Encashment of earned leave for 150 days = Rs. 36000.
He was entitled to 40 days leave for every completed year of service.
He got 50% of his pension commuted in lump sum w.e.f March 1, 2005, and received Rs. 120000 as
commuted pension.
Gaurav contributes Rs. 900 per month to RPF to which his employer contributes an equal amount.
What is the amount of commuted pension that will be exempted?
2

A
B
C
D
53)

NIL
Rs. 40000
Rs. 80000
Rs. 120000
Mr. Hitesh Shah has a portfolio with 23 different equities. The portfolio increased by 20% and has a beta of
1.50. Utilizing the Capital Asset Pricing Model, compute by what percent the market changed (round to
nearest 0.5%) (Assume risk free rate of 5%)?
2

A
B
C
D

14%
15%
16.5%
17%

54)

The August call option exercise price of HLL is Rs. 350. The current share price is Rs. 360. The premium
is Rs. 15. The intrinsic value of the call, ignoring transaction costs, is Rs. _______.
2
A
B
C
D

55)

Nil
5
10
15
A treasury bill of face value of Rs. 1lakh is selling at Rs. 97,500 today. It is slated to mature in 60 days.
The annual yield is _______.
2

A
B
C
D
56)

13.3%
14.27%
15.59%
16.43%
Zarina invested Rs. 45000 in stocks at the beginning of the year. She received bonus shares worth Rs.
4000 at the year end. The value of the portfolio at the end of the year was Rs. 47000. Calculate the returns
of the portfolio during the year?
2

1
2
3
4
57)

8%
- 4.45%
5.5%
- 7.2%
Paresh owns a let out house property the net annual value of which is Rs. 200000. The standard
deduction under Sec. 24 that is available to Paresh in respect of the above income would work out to
_______.
2

A
B
C
D
58)

Rs. 20000
Nil
Rs. 40000
Rs. 60000
Within two years of purchase of his flat, Vaibhav entered into an agreement to sell the same to Mihir for
Rs. 8 lakh. Vaibhav had bought the flat for Rs. 5.5 lakh. Mihir pays Vaibhav earnest money of Rs. 50000 in
respect of the transaction with the balance money payable within a month. However, for some unavoidable
reason, Mihir could not make the rest of the payment and in terms of the agreement between the two; the
earnest money paid was forfeited by Vaibhav. Subsequently, within a month Vaibhav sold the flat to
another buyer for Rs. 9 lakh. Compute Vaibhavs taxable income under capital gains.
2

A
B
C
D
59)

Short-term capital gains of Rs. 4.5 lakh


Short-term capital gains of Rs. 4 lakh
Short-term capital gains of Rs. 5 lakh
Long-term capital gains of Rs. 4 lakh
In an unfortunate incident, Mr. Charans plant catches fire and the machinery gets destroyed. Luckily, Mr.
Charan had insured the factory against fire. The WDV of the machinery was Rs. 2.68 lakh and the
replacement cost Rs. 5 lakh. The Insurance Company has paid compensation of Rs. 3 lakh. What is the
taxable amount?
2

A
B
C
D
60)

Rs. 32000 as normal income.


Rs. 32000 as capital gains.
Rs. 2 lakh as capital loss.
Nil.
B Ltd. purchases raw material on credit from A, who holds 20 percent equity share capital in B Ltd. (the
amount of bill being Rs. 36000, market price being Rs. 19000). It is paid in cash on Jul 26, 2006. As per
section 40A (2) & 40A (3), how will it be treated?
2

Out of the payment of Rs. 36000, Rs. 17000 (being the excess payment to a person holding a substantial
interest) shall be allowed under section 40A (2). The remaining amount (i.e., Rs. 19000) does not exceed
Rs. 20000. Nothing shall be disallowed under section 40A (3) even if the payment is made in cash.

B
C

61)

Out of the payment of Rs. 36000, Rs. 17000 (being the excess payment to a person holding a substantial
interest) shall be disallowed under section 40A(3). The remaining amount (i.e., Rs. 19000) does not
exceed Rs. 20000. Nothing shall be disallowed under section 40A(2) even if the payment is made in cash.
Out of the payment of Rs. 36000, Rs. 17000 (being the excess payment to a person holding a
substantial interest) shall be disallowed under section 40A(2). The remaining amount (i.e., Rs.
19000) does not exceed Rs. 20000. Nothing shall be disallowed under section 40A(3) even if the
payment is made in cash.
Out of the payment of Rs. 36000, Rs. 17000 (being the excess payment to a person holding a substantial
interest) shall be allowed under section 40A(3). The remaining amount (i.e. Rs. 19000) does not exceed
Rs. 20000. Nothing shall be disallowed under section 40A(2) even if the payment is made in cash.
Ajay and Bela Mahera have two children ages 5 and 7. The Meheras want to start saving for their
childrens education. Each child will spend 6 years at college and will begin at age 18. College currently
costs Rs. 20000 per year and is expected to increase at 6% per year. Assuming the Maheras can earn an
annual compound return of 12% and inflation is 4%, how much must the Meheras deposit at the end of
each year to pay for their childrens educational requirements until the youngest is out of school? Assume
that educational expenses are withdrawn at the beginning of each year and that the last deposit will be
made at the beginning of the last year of the younger childs college education.
4

A
B
C
D

Rs. 15230
Rs. 14,989
Rs. 12,386
None of the above

A
B
C
D

Anu and Ravi, a couple in Madras, have the following commitments on a monthly basis:
General household expenses of Rs 15000, mortgage payments of Rs 10000, children tuition expenses of
Rs 2000 and entertainment expenses Rs 3000. Their monthly income on a post-tax basis is Rs 60000.
They have cash and bank deposits of Rs 150000 and other equity shares of value Rs 750000 apart from a
house that is valued at Rs 25 lakh. Based on the above data, calculate the family's Basic Liquidity Ratio?
4
2.5
2
5
11.33

62)

63)

Any possible occurrence which may have a negative financial implication can be plotted on a graph with X
axis measuring the frequency (low-high) and Y axis measuring the financial impact (low-high). You can
view the classification in four quadrants.
Quadrant I - Low frequency, Low Impact
Quadrant II - Low frequency, High Impact
Quadrant III - High frequency, High Impact
Quadrant IV - High frequency, Low Impact
It would not be practical to purchase insurance for events falling in ______________.
4
A
B
C
D

64)

Quadrant III
Quadrant I, III & IV
Quadrant I, II & IV
Quadrant I & IV
Manju purchased an annuity for Rs. 26000 in the current year. Under the contract, Manju will receive Rs.
300 each month for the rest of her life. According to actuarial estimates, Manju will live to receive 100
payments and will receive a 3% return on her investment.
4

A
B
C
D

If Manju lives to collect more than 100 payments, all amounts received after the 100th payment
must be included in her gross income.
If Manju collects Rs. 3000 in the current year, this Rs. 3000 is treated as a recovery of capital and thus is
not taxable.
If Manju dies after collecting a total of 50 payments, she has an economic loss that is not deductible.
If Manju lives to collect more than 100 payments, she must amend her prior years returns to increase her
taxable portion of each payment received in the past.

10

65)

Derive the 'Policy Cost Per Thousand' with following data;


Policy cost per thousand conversion = 0.001
Interest rate selected equivalent to the after-tax rate of return = 15%
Dividend or Bonus = Rs. 13000
Death benefits = Rs. 20 lakh
Annual Premium = Rs. 23000
Cash surrender value at the end of current policy year = Rs. 6 lakh
Cash surrender value at the end of the previous policy year = Rs. 5.7 lakh
A
B
C
D

66)

59
49.25
28.9
31.15
A client has the need to provide for his child's college education costs. He envisages that four annual
payments of Rs 20000, in current money terms, would be needed beginning 15 years from now. Assuming
level of inflation rated at 5% per annum and that the fund earns 8% per annum returns throughout;
calculate the present value to be placed on this liability when carrying out a needs analysis for this client.
(Round of your answer to the nearest '000')
4

A
B
C
D
67)

Rs. 24000
Rs. 49000
Rs. 50000
None of the above
Mr. Nirav, an affluent broker, wants to retire at 45. He wants to maintain his present living standard. He
spends Rs. 3.25 lakh a year. He is expected to live upto 85. Inflation is to be assumed at 4% and expected
returns are 7% p.a. How can he achieve this? He is at present 30 years old. What is the nest egg required
at age 45 and what amount shall he save every year to meet his plan? His present investments are Rs. 10
lakh.
4

1
2
3
4
68)

Nest egg and savings required will be Rs. 13785155 and Rs. 438780 respectively.
Nest egg and savings required will be Rs. 14773065 and Rs. 740530 respectively.
Nest egg and savings required will be Rs. 12773065 and Rs. 438300 respectively.
Nest egg and savings required will be Rs. 25100065 and Rs. 541093 respectively.
Mr. Ramesh retired from PTC Ltd after completing service of 29 years and 9 months. His salary at the time
of retirement was Rs. 10500 per month while the average salary drawn for the preceding 10 months
worked out to Rs. 9800 per month. The actual amount of gratuity received by him at the time of retirement
was Rs. 3.25 lakh. Calculate the amount of gratuity exempt from tax assuming that he is covered by the
provisions of Payment of Gratuity Act, 1972?
4

A
B
C
D
69)

Rs. 294000
Rs. 181730
Rs. 315000
None of the above.
Ms. Reshma is 35 years old and plans to retire at 50. Her life expectancy is 60 years. Ms. Zarina her
Financial Planner, estimates that her client will require Rs.65000 in the first month after retirement.
Inflation rate is 3% p.a. and the rate of return is 5% p.a. What will be the savings per year required in order
to meet this?
4

A
B
C
D
70)

Rs. 328300
Rs. 345897
Rs. 315894
Rs. 320458
ABC Ltd.'s stock has a current dividend of Rs. 1.75 that is growing at 8%. If the stock is currently selling
for Rs. 100 and your required rate of return is 10%, will you buy the stock at today's price?
4

A
B
C

Yes, because the stock is a good buy based on a risk-return relationship.


No, because the stock is overvalued based on the dividend growth model.
No, because the stock is a bad investment based on a risk-return relationship.

11

D
71)

Yes, because the stock is undervalued based on the dividend growth model.
A portfolio consists of 3 securities 1, 2 & 3. The proportion of those securities are w1=0.3, w2=0.5 &
w3=0.2. The Standard Deviation of those securities are SD1 = 6%, SD2 = 9% and SD3= 10%. The
correlation coefficient among these securities are r12 = 0.4, r13 = 0.6 and r23 = 0.7. Calculate the
Standard Deviation of the portfolio returns?
4

A
B
C
D

7.13%
6.58%
8.25%
7%

A
B
C
D

The Portfolio consists of two securities, X and Y in the ratio of 70:30. Given that i) Standard Deviation of X is 10%
ii) Standard Deviation of Y is also 10% and covariance between them is 16%, what is the portfolio risk?
4
13.77%
8.04%
Nil
25%

72)

73)

X Ltd. engaged in the business of manufacturing software furnishes the following data.
1 - Gifts to employees Rs. 10.25 lakh
2 - Rent-free accommodation given to employees Rs. 45 lakh
3 - Expenses on participation in Trade Fair Rs. 8.75 lakh
4 - Expenses on health and sports club for employees Rs. 5 lakh
Note: Exclude surcharge and education cess for all calculations.
Fringe Benefit Tax payable for 1, 2, 3 & 4 to employees are:
A
B
C
D

74)

Nil, Rs. 13.5 lakh, Rs.13125 & Nil respectively


Rs. 307500, Rs. 6.75 lakh, Rs. 131250 & Rs. 150000 respectively
Rs. 61500, Rs. 270000, Rs. 52500 & Rs. 30000 respectively
Rs. 153750, Nil, Nil & Rs. 75000 respectively
X purchases on May 10, 2005, 1000 equity shares of Rs. 10 each in A Ltd. @ Rs. 55.55. On October 20,
2005, he transfers 800 equity shares @ Rs. 37 per share and remaining 200 shares are transferred on
December 20, 2005 @ Rs. 20 per share. A Ltd. Declares 50 percent dividend (record date: August 3,
2005). During the previous year 2005-06, he has generated long term capital gain of Rs. 76000 on sale of
gold. His LTCG For AY 2006-07 is ____________.
4

A
B
C
D
75)

Rs. 58050
Rs. 59050
Rs. 73890
Rs. 72890
X (34 years) gifts Rs. 10 Lakh to Mrs. X (29 years). She deposits the same in a bank (on 1st Apr 2005) @
8 percent per annum. Y is minor child of X and Mrs. X. Y has a bank deposit of Rs. 70000 (rate of interest
8.25 percent) on 1st Apr 2005, which was gifted to him by his grandfather. Other income of X and Mrs. X is
follows - X: Rs. 2.9 lakh (salary: Rs. 2 lakh, bank interest: Rs. 90000), Mrs. X: Rs. 1.6 lakh (interest as
company deposits). Out of bank interest, Mrs. X deposits Rs. 1000 in Public Provident Fund. X's
contributions to the recognized provident fund is Rs. 40000.Calculate tax liability of Mr & Mrs X for AY
2006-07.
4

A
B
C
D

Tax Liability of Mr. X is Rs. 50734 & Mrs. is Rs. 3366


Tax Liability of Mr. X is Rs. 50284 & Mrs. is Rs. 3300
Tax Liability of Mr. X is Rs. 51290 & Mrs. X is Rs. 3366
Tax Liability of Mr. X is Rs. 51749 & Mrs. X is Rs. 3366

12