INSTITUTE OF MANAGEMENT TECHNOLOGY

CENTRE FOR DISTANCE LEARNING

GHAZIABAD
End-Term Examinations – December 2009
Subject Code : IMT-110 Time Allowed : 3 Hours
Subject Name: Basics of Personal Financial Planning Max. Marks : 70

Notes: (a) Answer any FOUR questions from SECTION-A and CASE STUDY as given in SECTION-B.
Each Question (SECTION-A) carries 14 MARKS and (SECTION-B) Case Study carries 14 MARKS.
(b) For students enrolled before January 2008, the Question Paper would be treated for 50 marks instead of 70 marks.
(c) No doubts/clarifications shall be entertained. In case of doubts/clarifications, make reasonable assumptions and proceed.

SECTION-A MARKS : 56

Q1. Why should one aim at financial planning? Discuss the importance of gathering and assessing information
about a client in the preparation of a financial plan.

Q2. a) Explain the concept of Present value of money and Future value of money and their uses in the
insurance sector.

b) Neha wants to sell her house for Rs 11,50,000 which will be paid immediately. She also has an offer in
hand from a property dealer who says that he shall pay Rs 15,00,000 after a period of three years from
now. Assuming an interest rate of 10%, what in your opinion should be Neha’s decision?

Q3. a) How do you estimate optimal insurance protection for an individual?

b) Explain the human Life value concept bringing out the information set that is required for its
computation.

Q4. a) What are the sources of income that are exempt from tax? What is the difference between tax avoidance
and tax evasion?

b) Kamla, a 65 year old lady, has earned Rs 8, 25,000 in the year. She invests Rs 25000/- in Post office
National Savings Certificates and purchases a health policy for Rs 30000/- and an annuity policy for
herself for Rs 50,000/. She also donates Rs 10000/- to a charitable institution eligible for tax deduction
under 80 G during the year. Calculate the net tax payable.

Q5. Why is a written financial plan better preferable to an oral one? What are the major components of a
comprehensive plan?

Q6. Discuss the need for retirement planning. Why is it said that India has huge potential for an annuity market.

Q7. Write short notes on and three-

(i) Present value of money (ii) Tax planning Objectives (iii) Rule of 72
(iv) Balance Sheet (v) Net worth (vi) Annuity

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SECTION-B (Case Study) MARKS : 14

Sunil was extremely excited about a prospect whom he had convinced to invest Rs. 1,00,000/- in a life insurance
product which he had to offer. When Sunil met the customer to collect the cheque, Rajesh informed him “Sunil, I
need your policy, but I don't have the money to pay”. Sunil was shocked that Rajesh, with a lifestyle of two cars, a
good flat in Mumbai, children studying in a good school and an income of 15,00,000/- p.a. could not pay Rs.
1,00,000/- as annual premium. The average saving ratio in India being 25% of income, here he was in front of a
prosperous customer who was not able to spare 6.5% into an investment.

Not one to give up hope, Sunil came out of the meeting determined to find out a solution because he was convinced
that a solution offered to Rajesh would add substantial value to Rajesh's life. Two days later he called Rajesh and
requested for another meeting suggesting that he could create a cash flow, which might provide the funds necessary
for the solution and needed certain data. Rajesh, realizing that Sunil's commitment to him, as a prospect was a
“Never before experience”, quickly consented. They met together and drew an analysis and were able to save out
the required amount of 1 lac. Further, they together assessed Rajesh’s need for children education , buying own
house in a decent colony in Delhi, marriage of children etc…. and drew out a need analysis on his insurance
requirement.

Questions
Q.1 How do you think they could together create a cash flow for Rajesh? How would you do it if in their position?
Q.2 How is a financial plan drawn? Can you enlist the benefits of drawing a financial plan?
Q.3 What is the role of Life Insurance products in personal financial planning of an individual?
Q.4 What in your opinion would be the insurance requirement for Rajesh in the given circumstances?

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