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Mr. Y, aged 40, has the following goals ahead of him.
(1) Son’s post-graduate education: Due in Year 5. Current cost Rs. 15,00,000 p.a. to be incurred at the end of each year for 2 years. Likely inflation @15% p.a.
(2) Daughter’s marriage: Scheduled at the end of Year 7. Current cost Rs. 1,00,00,000. Inflation is assumed to be at 10% p.a.
Mr. Y has provided a corpus of Rs. 2,00,00,000 towards these two needs. The corpus is invested in a mix of debt and equity yielding 8% p.a. Ignore taxation.
Question 1: How much money will need to be set apart from the corpus at the end of Year 5, to finance the son’s post-graduate education? Assume the amount set apart will earn 6% interest.
Question 2: What is the likely outflow on account of daughter’s marriage in the year it is planned?
Question 3: How much will be left in the corpus after both goals are fulfilled (assume that he does not set apart money) in the 6% corpus mentioned in Q.1?
Question 4: How would you describe the investment policy Mr. Y is using for the corpus?