Vinod Gupta SP-19

8/6/2019 Vinod Gupta SP-19

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Vinod Gupta SP-19

Case Study


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Question No. 3


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Question No. 3

Vinod has an Existing Unit Linked Pension Plan

It has 15 Years Premium Paying Term

Vesting Age is 55 Years The premium payable is Rs 36000 pa

The current balance in the plan is Rs 200000

The returns during accumulation period= 10%pa On the date of vesting he has the option to

purchase an annuity plan from the same

company. This is an annuity due certain.

It would pay an annuity of Rs 11500 pm for 15years


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Question No 3

Mr Vinod is interested to change over to an

annuity with return of purchase price plan.

If the annuity remains Rs 11500 pm for 15 years

with return of purchase price, what should be the

premium to be paid for this annuity starting from1st Dec 2009 ?

Assume the insurance company is providing thesame returns as provided by earlier plan.


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Solution 3

Step 1

Find the Purchase Price of the 1st Annuity

Set = Begin N = 15

I = 10% PV = 0

PMT = - 36000

FV = ?

FV = 1258190 This amount is used for purchasingthe annuity


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Solution 3

Step 2

Find the inherent interest rate offered by the

annuity plan Set = Begin

N = 15 x 12 = 180

PV = -1258190

FV = 0

PMT = 11500

I = ?

I = 0.61414 % per month


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Solution 3 We will use the same interest rate for the

proposed Return of Purchase Price Annuityalso.

We only know that the annuity required is Rs11500. Per month . But we do not know thepurchase price to paid. for the return of

purchase price annuity

So we have to assume a notional figure

We will assume that Rs 100 is the purchaseprice of the annuity and the same is returnedback after 15 years.


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Solution 3 Step 3

Find the annuity for a purchase price of Rs Rs 100 for15 years with return of purchase price

Set = Begin N = 15 x 12 = 180

I = 0.61414%

PV = -100

FV = 100.

PMT = ?

PMT = 0.610394972 Annuity for Rs 100 Purchase Price


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Solution 3

Step 4

Find the Purchase Price for an annuity of

Rs 11500

100 = 0.610394972

? = 11500 = (11500 x 100) / 0.610394972

= 1884026 Purchase Price to be paid


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Solution 3 Step 5

Find the investment required to create the corpus

Age of Vinod = 44

Vesting Age = 55

So Number of Years available = 11

Set = Begin

N = 11

I = 10%

PV = -200000

FV = 1884026

PMT = ?

PMT = 64432 New Premium


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Question No 1


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Question1 Investment = 2500000

Franchise Rights = 5 Years

Franchise to be Taken overafter 5 years afterdepreciating at a rate of 15% straight line basis.

Expected Profits

Year 1 = 350000 Year 2 = 474000

Year 3 = 517000

Year 4 = 635000

Year 5 = 710000

What is the IRR of the Project ?


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Solution 1

Time 0 = -2500000

Time 1 = 350000

Time 2 = 474000 Time 3 = 517000

Time 4 = 635000

Time 5 = ?

Time 5 = 710000 + ( 2500000 x .25 )

Time 5 = 710000 + 625000 = 1335000 IRR = ?

IRR = 8.20%


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Question 3


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Question 3

Upfront Payment = Rs 20000 on 01.01.2010

This is 10% of the total cost

Balance amount to be paid in 36 EMIs ofRs 7500 pm starting 1st Feb 2010

What is the Effective Rate on the Loan ?


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Solution 3

Find the Rate on the Loan

Set = End

N = 36

PV = 1800000

PMT = -7500 FV = 0

I = ?

I = 2.38% pm

Eff Rate = (1.0238)^12 ) 1 = 32.61%


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Question 9

Vinod Gupta SP-19

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