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

nism-series-xb-marriage-goal-cost-inflation-10-percent[ INVESTMENT ADVISER (LEVEL 2) ]

In Case 2, Mr. Y's daughter's marriage is scheduled at the end of Year 7. Current cost is Rs. 1,00,00,000 (Rs. 1 Crore) and expected inflation is 10% p.a. What is the expected cash outflow for the marriage at the end of Year 7?

[ A ]Rs. 1,77,15,610

[ B ]Rs. 1,94,87,171[ CORRECT ]

[ C ]Rs. 2,05,10,865

[ D ]Rs. 2,14,35,888

Takeaway

Compounding the Rs. 1 Crore marriage cost at 10% inflation over 7 years gives an expected outflow of Rs. 1,94,87,171 at the end of Year 7, so option B is correct.

Derivation

Future cost = PV x (1 + r)^n = Rs. 1,00,00,000 x (1.10)^7. The compounding factor (1.10)^7 equals 1.9487171, giving Rs. 1,94,87,171. This question isolates a single compounding step (correct rate, correct 7-year tenure) to test basic FV mechanics before the later questions layer on corpus drawdown timing; the distractors are built by shifting either the horizon (6 years) or the rate (11%, 12%) by one increment, a common examiner tactic to catch careless reading of the stem.

Why the others fail

A — Rs. 1,77,15,610

Calculated over a 6-year horizon (1 Crore x 1.10^6) instead of the stated 7 years to the marriage date, one year short of the correct compounding period.

C — Rs. 2,05,10,865

Calculated using an 11% inflation compounding rate instead of the stated 10%, overstating the future marriage cost.

D — Rs. 2,14,35,888

Calculated using a 12% compounding rate instead of the stated 10% inflation figure, significantly overstating the required future outflow.