NISM 15 Research Analyst Mock Test 13: 600 MCQ Series (Full Detailed Version)
NISM Series XV: Mock Test 13 (Set 13 of 24)
Dhaval’s Personal Advice for Aspirants:
Practice and understand these 25 questions. If you can't understand the theory or the logic, just mug it up (memorize it) because these are very important and sure-shot questions that will appear in the exam!
Q 51. Generally, during expansion of economies the unemployment rate ________.
Options:
A. Falls | B. Rises | C. Remains constant
View Correct Answer & Detailed Explanation
Explanation:
Unemployment rate refers to the eligible and willing to work unemployed population of the country in percentage terms.
During a slowdown in economies, unemployment rate rises and during an expansion phase, the unemployment rate falls as more jobs are created as production goes up.
Q 52. One can see low consumer confidence during ________.
Options:
A. Recession | B. Slow Down | C. Recovery | D. Boom
View Correct Answer & Detailed Explanation
Explanation:
Recession Phase: As utilization rates are low, manufacturers cut down on their further expansion plans. They may begin layoffs.
This results in increase in unemployment, decrease in income levels and in turn decrease in consumption. Decreasing consumption causes losses and more unemployment. Consumer confidence declines.
Q 53. Which of these information would constitute as an insider information?
Options:
A. Number of employees working from home
B. The Managing Director mentioning about an acquisition proposal not yet disclosed to the public
C. Factory shifts announced to the public but not published in annual report
D. All of the above
View Correct Answer & Detailed Explanation
Explanation:
Insider information is a material non-public information that when published would immediately affect an investor's decision to buy or sell the security.
The Managing Director mentioning about an acquisition proposal not yet disclosed to the public is a classic example of insider information.
Q 54. A research analyst has assessed that the fair value of a share ABC Ltd., to be quite lower than its current market price. What would be the appropriate way to express this in a research report?
Options:
A. We recommend investor to not buy ABC Ltd. as it is overvalued
B. We assign an 'underweight' rating on ABC Ltd.
C. We strongly recommend that investors in ABC Ltd. should sell it
D. All of the above
View Correct Answer & Detailed Explanation
Explanation:
If the fair value is Rs 100 and current market price is Rs 140, the share is over priced. The analyst will recommend selling the share or not to buy these shares.
An 'Underweight' rating will be assigned. (Prevalent recommendations include: 'buy', 'overweight', 'hold', 'underweight' and 'sell').
Q 55. A company has 1,50,000 outstanding shares. Its Earnings Per Share (EPS) is Rs. 8, and the Book Value Per Share (BVPS) is Rs. 40. What is the Return on Equity (ROE) for the business?
Options:
A. 15% | B. 20% | C. 25% | D. 30%
View Correct Answer & Detailed Explanation
Explanation:
Short Method: ROE = EPS / BVPS = 8 / 40 = 0.2 x 100 = 20%.
Long Method:
Net Income = EPS x Shares = 8 x 150000 = Rs. 12,00,000.
Shareholders' Equity = BVPS x Shares = 40 x 150000 = Rs. 60,00,000.
ROE = (12,00,000 / 60,00,000) * 100 = 20%.
Q 56. Identify the approach which can be used to arrive at fair value of an asset?
Options:
A. Using the asset's face value
B. Calculating yearly cash outflows
C. Comparing it with similar assets in the market
D. Taking market value as fair value
View Correct Answer & Detailed Explanation
Explanation:
Comparative Market Approach (Market Approach): This involves looking at the prices of similar assets recently sold or currently traded in a liquid market.
Fair value is estimated by comparing the asset to "comparables" in the open market.
Q 57. Which of the following best defines the Consumer Price Index (CPI)?
Options:
A. It is a basket of commonly used goods and services priced using retail rates
B. It is a basket of commonly used goods and services priced using wholesale rates
C. Both of the above | D. None of the above
View Correct Answer & Detailed Explanation
Explanation:
The Consumer Price Index (CPI) reflects inflation at the consumer level using retail prices.
The Wholesale Price Index (WPI) measures the average change in prices of goods at the wholesale level.
Q 58. The terminal value can be found using the ________ when cash flows are expected to grow steadily forever after the high-growth phase ends.
Options:
A. Perpetuity growth method | B. Prevailing interest rates | C. Prevailing inflation rates | D. None of the above
View Correct Answer & Detailed Explanation
Explanation:
The Perpetuity growth method (Gordon Growth Model) calculates terminal value assuming cash flows grow at a constant, sustainable rate indefinitely after the initial projection period.
Q 59. Which of the following acts as an entry barrier for new businesses trying to enter a market?
Options:
A. Capital requirements | B. Skill requirements | C. Licensing requirements | D. All of the above
View Correct Answer & Detailed Explanation
Explanation:
Barriers to entry include:
1. Capital: High initial investment.
2. Skill: Specialized knowledge or expertise.
3. Licensing: Regulatory permissions and legal hurdles.
Q 60. Which of the following types of entities are required to follow SEBI regulations?
Options:
A. Only listed companies
B. Only public limited firms
C. All incorporated companies excluding cooperative societies and LLPs
D. Every incorporated entity including cooperative societies and LLPs
View Correct Answer & Detailed Explanation
Explanation:
SEBI regulations primarily apply to listed companies, as they must comply with disclosure norms, governance standards, and investor protection measures (LODR Regulations).
Q 61. Describe 'Employee Stock Option Plan' (ESOP).
Options:
A. Immediate purchase at discounted price
B. Shares issued in exchange for service
C. Company funded purchase from external market
D. Option to buy shares at pre-determined price after vesting period
View Correct Answer & Detailed Explanation
Explanation:
ESOPs motivate employees to work in the company's interest by giving them a stake in the business after a specific vesting period.
Q 62. ________ can have a negative impact on the banking industry.
Options:
A. An economic boom | B. Increase in interest rates | C. Increase in home sales | D. All of the above
View Correct Answer & Detailed Explanation
Explanation:
Rising rates can increase loan losses as borrowers face higher costs. It can lead to NPAs (Non-Performing Assets) if businesses or consumers cannot keep up with higher payments.
Q 63. Calculate the Earnings Per Share (EPS): Sale Rs. 200000; COGS 20%; Operating expense Rs. 75000; Interest Rs. 20000; Tax 30%; Shares 5000.
Options:
A. Rs. 12.75 | B. Rs. 9.10 | C. Rs. 7.90 | D. Rs. 12
View Correct Answer & Detailed Explanation
Explanation:
Sales = 200,000
- COGS (20%) = 40,000
- Operating Exp = 75,000
- Interest = 20,000
Pre-Tax Income = 65,000
- Tax (30% of 65k) = 19,500
Net Profit = 45,500
EPS = 45,500 / 5,000 = 9.10
Q 64. Which of these is the formula to calculate Earnings Yield?
Options:
A. Price + EPS | B. Price / EPS | C. EPS x Price | D. EPS / Price
View Correct Answer & Detailed Explanation
Explanation:
Earnings Yield is the reciprocal of the P/E ratio. It helps investors know how much is earned per share relative to the stock price.
Q 65. Identify the TRUE statement with respect to 'communication by a research analyst to a client' (Regulation 18).
Options:
A. No communication in presence of investment banking personnel about ongoing deals
B. Must have investment banking presence for ongoing deals
C. No communication allowed about ongoing deals at all
D. None of the above
View Correct Answer & Detailed Explanation
Explanation:
This prevents Conflicts of Interest and ensures the independence of the research department from the deal-making divisions of the firm.
Q 66. ________ trend is temporary but unpredictable.
Options:
A. Seasonal | B. Secular | C. Cyclical | D. None of the above
View Correct Answer & Detailed Explanation
Explanation:
Cyclical trends are temporary and reverse eventually, but their exact timing is often unpredictable compared to Seasonal trends (highly predictable) or Secular trends (long-term).
Q 67. ________ are cyclical businesses.
Options:
A. Primary Metals | B. Capital Goods | C. Both of the above | D. None of the above
View Correct Answer & Detailed Explanation
Explanation:
Primary metals and capital goods demand increases during economic booms and drops significantly during global recessions.
Q 68. Stock Price Rs. 50; Debt Rs. 500m; Cash Rs. 100m; Shares 70m. Calculate EV/EBITDA if EBITDA is Rs. 500m.
Options:
A. 7.8 x | B. 8.2 x | C. 9.1 x | D. 8.9 x
View Correct Answer & Detailed Explanation
Explanation:
Equity Value = 70m shares x 50 = 3500m.
EV = 3500 + 500 (Debt) - 100 (Cash) = 3900m.
Ratio = 3900 / 500 = 7.8.
Q 69. All other things remaining same, if a stock has a high PE ratio as compared to its peer group companies, it is considered as ________.
Options:
A. Cheap | B. Expensive | C. Highly volatile | D. Low Beta
View Correct Answer & Detailed Explanation
Explanation:
A higher PE ratio means the market is willing to pay more for every rupee of earnings. If it's higher than peers, it is "expensively priced."
Q 70. Identify the statement which is correct about investors?
Options:
A. Focus is on potential long-term asset value increase
B. Focus is on arbitrage opportunities
C. Trading and Investing are basically the same
D. All of the above
View Correct Answer & Detailed Explanation
Explanation:
Unlike traders who seek short-term profits from price volatility, investors seek long-term capital appreciation.
Q 71. When an investor takes a loan against securities, it is known as ________.
Options:
A. Reverse Mortgage | B. Hedging | C. Pledge of shares | D. Arbitration
View Correct Answer & Detailed Explanation
Explanation:
The investor is the pledgor and the lender is the pledgee. If the investor defaults, the lender can "invoke" the pledge to recover the loan.
Q 72. Equity Rs. 5,00,000; ROE 25%; Net Profit Margin 20%. Calculate the sales.
Options:
A. Rs 425000 | B. Rs 450000 | C. Rs 500000 | D. Rs 625000
View Correct Answer & Detailed Explanation
Explanation:
Net Profit = 25% of 5,00,000 = 1,25,000.
Profit Margin = Net Profit / Sales.
0.20 = 1,25,000 / Sales.
Sales = 1,25,000 / 0.2 = 6,25,000.
Q 73. Which of these can be termed as capitalization of reserves?
Options:
A. Interim dividend | B. Rights issue | C. Cash dividend | D. Issuance of bonus shares
View Correct Answer & Detailed Explanation
Explanation:
Bonus shares are created by moving money from the Reserves head to the Equity Capital head on the balance sheet.
Q 74. What is the role of a Sell-Side analyst?
Options:
A. Identify overvalued companies to sell | B. Negotiate best price for sellers | C. Employed by advisory/broking/IB firms | D. Advise on short-selling
View Correct Answer & Detailed Explanation
Explanation:
Sell-side analysts publish reports for public consumption (clients), while buy-side analysts work for institutional managers (MFs, Hedge Funds) for internal consumption.
Q 75. What does investing on the basis of Margin of Safety (MOS) mean?
Options:
A. Investing in over-priced securities | B. Investing in monopolies | C. Investing in underpriced securities | D. Investing in strong moats
View Correct Answer & Detailed Explanation
Explanation:
Margin of Safety is the difference between the Intrinsic Value and the Market Price. Buying at a significant discount provides a "buffer" against research errors or market shocks.
Mock Test 13 of 24 Complete. 325 questions done! Stay focused.
Dhaval Visariya
AMFI Registered Distributor (ARN-327925) | Software Developer & Finance Enthusiast
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