Archive / Investment Adviser (Level 2) / Miscellaneous Aspects of Retirement Planning

nism-series-xb-corpus-drawdown-year-6-second-education-payout[ INVESTMENT ADVISER (LEVEL 2) ]

At the start of Year 6, Mr. Y's corpus is Rs. 2,63,69,526. It earns 8% interest during Year 6 (Rs. 21,09,562), and at the end of Year 6 he pays the Year 2 education cost of Rs. 34,69,591. What is the closing balance of the corpus at the end of Year 6?

[ A ]Rs. 2,30,00,000

[ B ]Rs. 2,63,69,526

[ C ]Rs. 2,50,09,497[ CORRECT ]

[ D ]Rs. 2,70,10,256

Takeaway

After crediting 8% interest to the Year 5 closing balance and paying the Year 2 education cost of Rs. 34,69,591, the corpus closes Year 6 at Rs. 2,50,09,497, so option C is correct.

Derivation

Closing balance Year 6 = [opening (Rs. 2,63,69,525.75) + 8% interest (Rs. 21,09,562.06)] - outflow (Rs. 34,69,591.15) = Rs. 2,84,79,087.81 - Rs. 34,69,591.15 = Rs. 2,50,09,496.67, rounding to Rs. 2,50,09,497. This continues the same balance roll-forward logic tested in the Year 5 question, checking that candidates correctly chain the Year 5 closing figure into the Year 6 opening figure before applying that year's own interest credit and outflow, rather than recomputing from the original Rs. 2 Crore base.

Why the others fail

A — Rs. 2,30,00,000

Results from forgetting to credit the 8% interest on the Year 6 opening balance before subtracting the education outflow, understating the closing balance.

B — Rs. 2,63,69,526

This is the opening balance for Year 6 before that year's 8% interest is credited and the Year 2 education outflow is subtracted, not the closing figure.

D — Rs. 2,70,10,256

This is the gross balance at the end of Year 7, after crediting that year's interest, before subtracting the marriage expense — not the Year 6 closing figure.