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Archive / Investment Adviser (Level 2) / Miscellaneous Aspects of Retirement Planning
nism-series-xb-stepped-contribution-schedule-year-2-year-3[ INVESTMENT ADVISER (LEVEL 2) ]

In Harish's retirement accumulation schedule, his annual contribution starts at Rs. 1,20,000 at age 40 and grows by 10% each year. What is his contribution in Year 2 (age 41) and Year 3 (age 42)?

[ A ]Age 41: Rs. 1,20,000; Age 42: Rs. 1,20,000
[ B ]Age 41: Rs. 1,32,000; Age 42: Rs. 1,45,200[ CORRECT ]
[ C ]Age 41: Rs. 1,50,000; Age 42: Rs. 2,00,000
[ D ]Age 41: Rs. 1,25,000; Age 42: Rs. 1,30,000
Takeaway

Harish's contributions, starting at Rs. 1,20,000 and stepping up 10% each year, reach Rs. 1,32,000 at age 41 and Rs. 1,45,200 at age 42, so option B is correct.

Derivation
Age 41 contribution = Rs. 1,20,000 x 1.10 = Rs. 1,32,000. Age 42 contribution = Rs. 1,32,000 x 1.10 = Rs. 1,45,200, applying the 10% step-up compounded on the prior year's contribution rather than on the original base each time. This tests whether candidates understand that the step-up is itself compounding — each year's increase of 10% is applied to the immediately preceding year's contribution, not to a fixed Rs. 1,20,000 base every year, which is the specific mechanic distinguishing this from simple linear increments.
Why the others fail
A — Age 41: Rs. 1,20,000; Age 42: Rs. 1,20,000
This reflects flat, unchanged contributions of Rs. 1,20,000 in both years, ignoring the stated 10% annual step-up entirely.
C — Age 41: Rs. 1,50,000; Age 42: Rs. 2,00,000
These are arbitrary round numbers that do not correspond to applying a 10% compound step-up to the Rs. 1,20,000 base contribution.
D — Age 41: Rs. 1,25,000; Age 42: Rs. 1,30,000
These figures represent simple linear increments of Rs. 5,000 and Rs. 10,000 respectively, rather than the stated 10% compound annual growth in contributions.