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

nism-series-xb-seven-year-compound-inflation-factor-marriage-goal[ INVESTMENT ADVISER (LEVEL 2) ]

In Case 2, Mr. Y's daughter's marriage cost is Rs. 1,00,00,000 (Rs. 1 Crore) today and is scheduled in 7 years at 10% inflation. What is the exact 7-year compound inflation compounding factor?

[ A ]1.700000

[ B ]1.948717[ CORRECT ]

[ C ]1.850930

[ D ]2.011357

Takeaway

The exact 7-year compound inflation factor at 10% p.a. for the marriage goal is 1.948717, so option B is correct.

Derivation

Compounding factor = (1 + 0.10)^7 = 1.9487171. This is the same factor used to compound the Rs. 1 Crore marriage cost to Rs. 1,94,87,171 in the related marriage-cost question, but isolated here to test whether a candidate can compute and recognise the raw compounding multiplier itself — distinct from the rate/tenure pairs used for the 5-year 15% education factor or the 8-year 8% general corpus factor also present in this case study, which the wrong options are drawn from.

Why the others fail

A — 1.700000

This is a simple linear-addition factor (1 + 7 x 0.10), which ignores compound growth entirely and understates the true multi-year multiplier.

C — 1.850930

This is the compounding factor for 8% over 8 years (1.08^8), belonging to a different rate/tenure pairing used elsewhere in the case study.

D — 2.011357

This is the compounding factor for 15% over 5 years (1.15^5), belonging to the education-cost calculation rather than the marriage-goal calculation.