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Riphah International University

Faculty of Management Sciences
Riphah School of Leadership
Final Term Examinations, Fall 2020

Subject: Finance for HealthCare Organization Teacher Name: Dr Iram Naz

Marks:40 Time Allowed:

Instructions:
1. Attempt All Questions
2. It’s better to fail then fall.

FAY (Financial Advice for You) was formed as a not-for-profit and non-governmental organization by
Qamar Qureshi, a retired civil servant. In his words, common people who have scarce resources and save
money through extreme hardships often lose all their saving primarily because of non-availability of
good financial advice. Investment banks and other financial institutions are not interested in having
such common persons as their clients; nor can these people afford to pay their exorbitant fees. Retired
from civil service with no personal financial worries, Qamar Qureshi has devoted his remaining life to
the cause of helping the less fortunate and less informed members of the society. His organization,
Financial Advice for You or FAY, offers free financial advice to anyone who knocks at its doors. However,
if a better off person with considerable means approaches them for financial advice, they charge a
nominal fee in order to defray some of their administrative costs.

Qamar Qureshi operates from a small office located on the fringes of Islamabad where he feels he is
closer to his intended beneficiaries. Initially, people were skeptic of the motives of FAY and very few
persons called on its office. However, by the end of the first year of its operations, FAY had provided
useful advice to more than 240 grateful persons. Financial advice was provided by Qamar Qureshi
himself as well as several volunteers carefully selected by him. These were generally young graduates
from management schools who had no personal financial troubles and were keen (like Qamar Qureshi)
to help the less informed members of the society. At any given time, at least three volunteers were
present in the office to attend to any client who dropped by.

It is one of the important rules of FAY that they play no part in arranging loans or other forms of
financing for any person. They offer only financial advice to their clients. They may provide them the
names and addresses of relevant financial institutions, but categorically refuse to participate in the
actual fund raising exercise.

Although FAY’s relationship was open to several possibilities, typically a client would have two sessions
with a counselor (or advisor). In the first session, the client would provide all the necessary information
and discuss the particular financial problem he or she was experiencing. The counselor would record all
this information and write up a “case” either alone or with the help of other volunteer(s). The case would
end with a set of specific financial advice in accordance with the rules of FAY. A second meeting was then
held with the client in which the recommendations were explained to him. Generally, Qamar Qureshi
preferred to be personally present at these second sessions. In most cases, this was the end of FAY’s
association with a particular client, but occasionally some clients would come back for further
clarification or advice.

CLIENT 1: Haji Haroon

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Haji Haroon, a former colleague of Qamar Qureshi, has three grandchildren who will be entering college
in about ten years’ time. He has just retired from the government service and has received a decent sum
of money which he wishes to invest in a deposit with one objective: he wants to give Rs 100,000 per year
to each of his grandchildren for their college education. He estimates that the first of his grandchildren
will enter college in ten years, the next grandchild will enter college after 12 years, and the third will
follow in two more years. Each of them will spend four years in college.

Haji Haroon wants to know the amount of money that he should invest with some financial institution
today that would give Rs 100,000 at the beginning of each year, for four years, to each of his
grandchildren.

Qamar Qureshi has established that the best rate of return that can be found for this kind of investment
is 12% per annum, credited annually. Income tax on interest income is to be ignored.

CLIENT 2: Jameel Jaffery

Jameel Jaffery is working as a chemical analyst in an industrial company with a decent salary and year-
end bonuses. He is fifty years old and expects to retire at the age of 60 years. He believes that he and his
wife will live to be eighty. He wishes to know the amount of money that he should save each year during
his remaining working life (i.e. 10 years) that would guarantee him an annual return of Rs 200,000 for
the 20 years following the period of investment. There is one more requirement. Jameel has a
granddaughter whom he wishes to give (or leave) a sum of Rs 1,000,000 when he attains the age of 80
years.

Assuming that Jameel Jaffery will:

 deposit the first installment of his planned annual investment today, and each subsequent
installment will be deposited exactly one year after the previous deposit,
 withdraw a sum of Rs 200,000 exactly one year after the deposit of the last of the ten installments
and thereafter every year for the following 19 years,
 the best rate of return available on an investment of this nature is 13% p.a., payable annually in
arrears,
 there is no tax on investment income,

What amount should be invested by him every year in the next 10 years to achieve his objectives?

CLIENT 3: Mr and Mrs Kamran Khakwani

Kamran and Kashmala Khakwani are a young professional couple holding decent well paid jobs with
multinational companies. They were married last year and are planning to start a family five years from
now. Their immediate concern is to save enough money, over the next five years, to be able to meet the
35% down payment requirement imposed by most housing finance companies for granting a loan for the
purchase of a house.

They approached FAY with the following specifics:

 We want to buy a house in five years time.

 We are able to save a decent sum of money in each quarter. The first such deposit can be made right
away.
 After five years of regular quarterly savings, we wish to have a sum of cash that would serve two
purposes.

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  The first purpose would be to constitute 35% deposit for purchase of a flat which we think will
cost Rs 10 million.
 The second purpose is to make a deposit of sufficient amount that would provide us with an
annual income of Rs 72,000 to meet the up-keep costs of our flat for the next ten years. Up-keep
costs include maintenance and repairs, but not utility bills, interest or loan repayments.

Mr and Mrs Kamran Khakwani want to know: how much should they invest each quarter, starting today,
for the next five years, for the above stated objectives, if their funds can be invested at 12% APR, payable
half yearly. Income tax on interest income is to be ignored.

Required:
Prepare a suitable note for each client, which includes the following:

 Your understanding of the specific needs and circumstances of the client, and (20)
 Your recommendations for him/her/them.(20)

Good Luck

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