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

nism-series-xb-future-value-initial-retirement-corpus-mr-z[ INVESTMENT ADVISER (LEVEL 2) ]

Mr. Z, aged 52, has an existing retirement corpus of Rs. 12,00,000 invested entirely in debt yielding an average of 8% p.a. He plans to retire at age 60 (an 8-year horizon). What will be the future value of this initial Rs. 12 Lakhs corpus at the time of his retirement (rounded to the nearest rupee)?

[ A ]Rs. 22,21,116[ CORRECT ]

[ B ]Rs. 19,68,000

[ C ]Rs. 24,50,000

[ D ]Rs. 18,45,210

Takeaway

The future value of Mr. Z's Rs. 12,00,000 initial corpus after 8 years at 8% p.a. compounded annually is Rs. 22,21,116, so option A is correct.

Derivation

Using FV = PV x (1 + r)^n: FV = Rs. 12,00,000 x (1.08)^8. The compounding factor (1.08)^8 works out to 1.85093, giving FV = Rs. 12,00,000 x 1.85093 = Rs. 22,21,116. This question tests whether candidates apply true annual compounding over a full multi-year horizon rather than defaulting to simple interest or mis-reading the 8-year gap between age 52 and age 60 as a shorter or longer period — both are the errors the wrong options are built around.

Why the others fail

B — Rs. 19,68,000

Calculated using simple interest: 12,00,000 x (1 + 0.08 x 8) = Rs. 19,68,000, which ignores the power of annual compounding over 8 years.

C — Rs. 24,50,000

Calculated assuming a higher 9-10% compounding rate instead of the stated 8% yield; applying the correct 8% factor over 8 years gives a lower figure than this option shows.

D — Rs. 18,45,210

Reflects a shortened compounding horizon or an arithmetic slip in computing the FV factor; the full 8-year, 8% compounding must be applied to reach the correct figure.