fpsbindia.org CFPCM Exam 5 Sample Question Paper : Financial Planning Standards Board India
Name of the Organisation : Financial Planning Standards Board India – FPSB
Exam : Certified Financial Planner Certification CFPCM Examination
Document Type : Sample Question Paper
Website : https://india.fpsb.org/
Download Sample /Model Question Paper :
Sample Paper – I : https://www.pdfquestion.in/uploads/24236-SP-1.pdf
Sample Paper – II : https://www.pdfquestion.in/uploads/24236-SP-2.pdf
FPSB CFPCM Exam 5 Question Paper
The CFPCM Examination (also called Exam 5 based on Module VI-Advanced Financial Planning) is designed to assess the candidate’s ability to apply Financial Planning knowledge to real-life Financial Planning situations.
Related : Financial Planning Standards Board Risk Analysis And Insurance Planning Exam Question Paper : www.pdfquestion.in/24231.html
By passing the CFPCM Certification Examination, the candidate demonstrates to the public that he/she has the required level of competency to practice Financial Planning.
Instruction
** The following Sample Paper consists of 39 question items.
** The actual Question Paper would consist of 77 items of total 150 marks out of which Introduction to Financial Planning items would be 17 items of 30 marks, thus representing 20% of marks in each of Exam 5. This Sample Paper is representative of the revised and restructured Exam effective from 1st February, 2013 as regards distribution and pattern of question items in respective Sections and their defined difficulty level.
** For more details, refer to the Revised Syllabus and Topic List.
** Suggested solutions to 3-mark and 4-mark problems are as per Working Notes alongside.
Exam 5 Sample Questions
Roger, aged 29 years, is working with a multinational company since December 2010. He has approached you, a CFPCM practitioner, for preparing his Financial Plan. He is staying in his own house at Ahmedabad. His wife Angela, aged 31 years, is a fashion designer.
She has set up a boutique on rent and earned a net profit of Rs. 5.5 lakh in the previous financial year. They have a son, Mark of age 4 years, and a year old daughter, Stephanie. Roger is also supporting his parents to the extent of Rs. 20,000 per month. They stay at their ancestral house at Surat.
The family’s monthly house hold expenses are Rs. 40,000 p.m. (excluding insurance premium and EMIs). Roger normally gets 10% increase in his gross salary year-on-year in the beginning of every financial year, apart from bonus. The bonus for the previous financial year at Rs. 3.3 lakh (net of tax) is agreed to be credited to his account at the end of this month. He has taken a family floater policy for Health Insurance involving an annual premium of Rs. 16,268 and a total cover of Rs. 15 lakh.
Roger’s monthly salary (for FY2016-17):
Basic Salary : Rs. 60,000
DA (forming part of Salary) : 50% of Basic salary
House Rent allowance : Rs. 18,000
Transport Allowance : Rs. 5,000
Medical Reimbursement : Actual expenses up to Rs. 1,250 per month
Executive Allowance : Rs. 10,000
Goals:
1. Accumulate in a fund, higher education expenses of Mark and Stephanie. Expenses at their respective age of 18 years are Rs. 4 lakh p.a. (current cost) required for four years, cost escalation 8% p.a.
2. Marriage expenses of Rs. 10 lakh (current cost) for each child at around their respective age of 25 years, cost escalation 9% p.a.
3. Retirement corpus at Roger’s age of 58 years to sustain 70% of pre-retirement household expenses, inflation adjusted, till his lifetime and 70% of then expenses till Angela’s expected life.
4. A bigger house valued at Rs. 1 crore today, 5 years from now by disposing of the current house and foreclosing the loan, the expected appreciation of current house from now onwards is 5% p.a.
5. Build a separate fund for vacation expenses of Rs. 1.5 lakh p.a. (current cost) starting from next year and continuing up to Roger’s retirement, cost escalation 7%. A suitable lump sum is to be invested immediately with regular investments and an annual withdrawal strategy.
Questions:
1) Before beginning work on Roger’s Financial Plan, you have drafted a document outlining the “Scope of Engagement” and sought Roger to mutually define and determine the activities that may be necessary to pursue. Roger asked you about relevance of such a document. In the context of Financial Planning Profession, you explain about the “Letter of Engagement” as a _________.
[2 marks]
A. professional requirement under Code of Ethics of FPSB India
B. professional requirement under Practice Guidelines of FPSB India
C. necessary legal requirement as per Contract Act 1872
D. document for his personal record
2) You have finished analysis of Roger’s financial situation and risk profile. Which of the following is the next appropriate step in the financial planning?
[2 marks]
A. Specify financial goals which can be achieved within Roger’s financial situation based on the information collected
B. Fix the scope of engagement based on the available information already collected
C. Consider such assumptions of investment returns, inflation, tax rates, etc as to maximize the chances of achieving Roger’s goals
D. Identify other issues that may potentially impact Roger’s ability to achieve financial goals
3) Roger wants to estimate the amount of finance needed to buy the proposed new house after 5 years. This could be arrived at by utilizing the net amount from the sale proceeds of his existing house after 5 years. The outgoings from such proceeds would be the outstanding loan amount and a sum of Rs. 20 lakh towards meeting capital gains tax liability on existing house and the statutory charges, furnishing expenses of new house. You expect the average Repo rate of 6.5% to be maintained by RBI over the next 5 years.
[3 marks]
A. Rs. 65 lakh
B. Rs. 80 lakh
C. Rs. 75 lakh
D. Rs. 62 lakh
4) You give a quick look at the assets and liabilities of the couple, and before drawing a comprehensive picture of adequate insurance protection and a strategy to achieve the same, you suggest to take cover on an immediate basis, which is _______.
[2 marks]
A. They must take Mortgage Redemption Insurance or an equivalent term insurance to cover outstanding loans
B. They must take Accident Insurance
C. They must take Critical illness insurance
D. They must take Unit Linked Insurance Policies for their financial goals
5) You compute the value of additional life cover for Roger by considering current household expenses, required inflation adjusted to the extent of 80% until Angela’s age of 55 years and 60% of then expenses for the remaining period of her expected life by considering investment in debt MF schemes. This cover required to be taken as term insurance exclusive of the Child plan comes to ______.
[3 marks]
A. Rs. 120 lakh
B. Rs. 130 lakh
C. Rs. 220 lakh
D. Rs. 100 lakh
6) Roger’s ideal life cover has to be estimated which in case of any exigency will first repay the outstanding loans and the remaining would be invested along with the couple’s existing financial assets. Such combined corpus would be invested in a 7.5% p.a. return instrument to sustain the family’s living expenses and the specific financial goals of higher education of their children. The living expenses need to be taken as inflation-adjusted to the extent of 80% of their present household expenses for next 25 years and 60% for the subsequent 30 years. What should be this ideal cover?
[4 marks]
A. Rs. 140 lakh
B. Rs. 165 lakh
C. Rs. 180 lakh
D. Rs. 330 lakh
7) Roger and Angela wish their retirement corpus, as proposed, to also have a provision of gifting Rs. 50 lakh to each of their children and an additional Rs. 25 lakh towards charity to an Old Age Home at Roger’s age of 70 years. The sums are at absolute values then. They also wish to provide in the corpus an additional Rs. 10,000 per month (current costs) towards healthcare after Roger’s age of 70 years. You estimate the required corpus, considering the same shall be invested in investment yielding 6.5% p.a., to be _________.
[3 marks]
A. Rs. 3.53 crore
B. Rs. 3.20 crore
C. Rs. 3.78 crore
D. Rs. 3.67 crore
8) You sensitize Roger and Angela about the parameters considered post-retirement: investment return 6.5% p.a., inflation 5% p.a., and specified longevity while working out retirement corpus. You inform that even marginal fall in expected yield or rise in inflation post-retirement, and a slightly longer life span would adversely impact sustainability of corpus. You work out the revised corpus by considering 6% annual yield, 5.5% inflation, 5 years more in Roger’s longevity and 2 years more in Angela’s longevity. What additional funds need to be accumulated by Roger’s retirement age? Alternately, by what percentage the retirement expenses should be curtailed to retain this cushion?
[5 marks]
A. Rs. 57 lakh; 44% curtailment
B. Rs. 14 lakh; 33% curtailment
C. Rs. 129 lakh; 55% curtailment
D. Rs. 26 lakh; 36% curtailment
9) As the rates in bank fixed deposits would be headed lower in the near future, you advise Angela to invest the FD maturity proceeds in a Mutual Fund scheme investing in long dated Government Securities. Your investment rationale, theoretically, is:
[2 marks]
A. Invested for more than one year, the debt oriented Mutual Fund scheme would result in tax efficient return, though pre-tax return may match with bank FD.
B. With softening interest rates, the price of long dated Government Securities would also fall, thus better yield profile of such securities.
C. This is a play on long duration with expected moderate trend in interest rates, thus scheme return though capital appreciation is expected.
D. Higher actual income would be expected from the scheme with strengthening yield as the interest rates fall in the future.
10) Towards the marriage goal of the children, you suggest Roger to make maximum permissible subscriptions to his account towards the end of every financial year and extend the account twice beyond initial maturity for terms of 5 years each with similar subscriptions. The third term of 5 years is maintained without further contribution. Roger shall withdraw about 50% of accumulation for the marriage expenses of mark and the remaining for the marriage expenses of Stephanie. What are the expected individual withdrawals and shortfalls in meeting the marriage expenses?
[4 marks]
A. Mark Rs. 51.5 lakh, 16% shortfall; Stephanie Rs. 64.8 lakh, 18% shortfall
B. Mark Rs. 49.4 lakh, 19% shortfall; Stephanie Rs. 62.2 lakh, 21% shortfall
C. Mark Rs. 52.3 lakh, 14% shortfall; Stephanie Rs. 65.9 lakh, 17% shortfall
D. Mark Rs. 45 lakh, 26% shortfall; Stephanie Rs. 56.7 lakh, 28% shortfall