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

nism-series-xb-year-6-education-cost-15-percent-inflation[ INVESTMENT ADVISER (LEVEL 2) ]

In Case 2, son's post-graduate education base cost is Rs. 15,00,000 p.a. with 15% inflation. What is the exact escalated cost payable at the end of Year 6?

[ A ]Rs. 28,50,000

[ B ]Rs. 30,17,036

[ C ]Rs. 34,69,591[ CORRECT ]

[ D ]Rs. 39,90,030

Takeaway

Compounding the Rs. 15,00,000 base education cost at 15% inflation over 6 years gives an escalated Year 6 cost of Rs. 34,69,591, so option C is correct.

Derivation

Year 6 cost = Rs. 15,00,000 x (1.15)^6 = Rs. 15,00,000 x 2.313060765625 = Rs. 34,69,591.15, rounding to Rs. 34,69,591. This is the direct 6-year counterpart to the 5-year Year-5 education cost calculation elsewhere in this case study, testing whether candidates apply one additional year of 15% compounding correctly rather than reusing the Year 5 figure or jumping ahead to the following year's projection by mistake.

Why the others fail

A — Rs. 28,50,000

This uses simple linear inflation (15L x (1 + 6 x 0.15)) rather than compound growth, understating the true escalated cost for Year 6.

B — Rs. 30,17,036

This is the Year 5 education cost of Rs. 30,17,036, one year short of the escalated Year 6 figure being asked for here.

D — Rs. 39,90,030

This is the projected cost for Year 7 (15L x 1.15^7), one year beyond the requested Year 6 figure in this compounding schedule.