(1) As an investment advisor, you have been approached by a client called Vikas for your...

 

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(1) As an investment advisor, you have been approached by a client called Vikas for your advice on investment plan. He is currently 40 years old and has Rs.600,000 in the bank. He plans to work for 20 years more and retire at the age of 60. His present salary is Rs.500,000 per year. He expects his salary to increase at the rate of 12 percent per year until his retirement. Vikas has decided to invest his bank balance and future savings in a balanced mutual fund scheme that he believes will provide a return of 9 percent per year. You agree with his assessment. Vikas seeks your help in answering several questions given below. In answering these questions, ignore the tax factor. (5+5+5=15 marks) (i) Once he retires at the age of 60, he would like to withdraw Rs.800,000 per year for his consumption needs from his investments for the following 15 years (He expects to live upto the age of 75 years). Each annual withdrawal will be made at the beginning of the year. How much should be the value of his investments when Vikas turns 60, to meet this retirement need? (ii) How much should Vikas save each year for the next 20 years to be able to withdraw Rs.800,000 per year from the beginning of the 21st year? Assume that the savings will occur at the end of each year. (iii) Suppose Vikas wants to donate Rs.500,000 per year in the last 5 years of his life to a charitable cause. Each donation would be made at the beginning of the year. Further, he wants to bequeath Rs.1,000,000 to his son at the end of his life. How much should he have in his investment account when he reaches the age of 60 to meet this need for donation and bequeathing? (1) As an investment advisor, you have been approached by a client called Vikas for your advice on investment plan. He is currently 40 years old and has Rs.600,000 in the bank. He plans to work for 20 years more and retire at the age of 60. His present salary is Rs.500,000 per year. He expects his salary to increase at the rate of 12 percent per year until his retirement. Vikas has decided to invest his bank balance and future savings in a balanced mutual fund scheme that he believes will provide a return of 9 percent per year. You agree with his assessment. Vikas seeks your help in answering several questions given below. In answering these questions, ignore the tax factor. (5+5+5=15 marks) (i) Once he retires at the age of 60, he would like to withdraw Rs.800,000 per year for his consumption needs from his investments for the following 15 years (He expects to live upto the age of 75 years). Each annual withdrawal will be made at the beginning of the year. How much should be the value of his investments when Vikas turns 60, to meet this retirement need? (ii) How much should Vikas save each year for the next 20 years to be able to withdraw Rs.800,000 per year from the beginning of the 21st year? Assume that the savings will occur at the end of each year. (iii) Suppose Vikas wants to donate Rs.500,000 per year in the last 5 years of his life to a charitable cause. Each donation would be made at the beginning of the year. Further, he wants to bequeath Rs.1,000,000 to his son at the end of his life. How much should he have in his investment account when he reaches the age of 60 to meet this need for donation and bequeathing?