NISM 15 Research Analyst Mock Test 17: 600 MCQ Series (Full Detailed Version)
NISM Series XV: Mock Test 17
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 1. When an investor looks for information to prove that he/she is right, its known as __________.
Options:
- Confirmation bias
- Loss-aversion bias
- Gambler's fallacy
- Herd mentality
View Correct Answer & Detailed Explanation
Explanation: Confirmation bias, also called my side bias, is the tendency to search for, interpret, or prioritize information in a way that confirms one's beliefs or hypotheses. It is a type of cognitive bias and a systematic error of inductive reasoning. For example, when a trader buys a stock for a reason and that reason doesn't work out so the trader makes up another one for owning the position. Similarly, first we make decision in mind and then find for the information to justify that intuitive decision.
Q 2. What is the meaning of "Final Goods"?
Options:
- Final Goods are the goods which are used in further production processing
- Final Goods are the goods which are consumed by economic participants
- Final Goods are basically raw materials
- None of the above
View Correct Answer & Detailed Explanation
Explanation: National income of an economy can be measured through three methods: (i) Product Method (ii) Income Method, and (iii) Expenditure Method. In the Product Method, National income is measured as an aggregated flow of goods and services in the economy from the different sectors: agriculture, industry and services. Economists calculate money value of all final goods and services produced in the economy during a specified period. Final goods refer to only those goods which are consumed by economy participants and not the ones used in further production processes (intermediate goods).
Q 3. What can be easily calculated if a company's Total Assets and Total Liabilities are known?
Options:
- Depreciation on assets
- Inventory as on Balance sheet day
- Total Equity
- Return on assets
View Correct Answer & Detailed Explanation
Explanation: The total equity of a business is derived by subtracting its liabilities from its assets. Equity is the residual value of a company after all its assets are liquidated and all liabilities to its creditors paid. The formula for equity is: Total Equity = Total Assets - Total Liabilities.
Q 4. Identify which of these is defined by IRDAI for regulating the insurance sector?
Options:
- Capital requirements for insurance companies
- Modalities for investment of funds by insurance companies
- Rules and regulations for distribution of insurance products
- All of the above
View Correct Answer & Detailed Explanation
Explanation: Insurance Regulatory and Development Authority of India (IRDAI) regulates the insurance sector in India in accordance with the terms of the IRDA Act, 1999. It regulates the distribution of insurance products by laying down the qualification and training requirements of intermediaries and the payment of commission to distributors. IRDAI supervises the functioning of the Tariff Advisory Committee that determines the rates for general insurance products. It also lays down the modalities for investment of funds by insurance companies.
Q 5. Identify which is the correct interpretation for this statement - 'The weekly VaR (1 percent) of a Portfolio is Rs. 10 lakhs'
Options:
- There is 99% chance that the loss in the portfolio in one week will not exceed Rs. 10 lakhs
- There is 1% chance that the variance in the value of portfolio will be less than rupees 10 lakh
- There is 1% chance that the weekly loss in the portfolio will exceed Rs. 1 lakh
- There is 99% chance that the variance in the value of portfolio would be Rs. 10 lakhs
View Correct Answer & Detailed Explanation
Explanation: VaR is a commonly used probability based risk metric which stands for 'Value at Risk'. It measures the maximum loss one may suffer, given a particular level of confidence. For the above instance if VaR (1%) of a portfolio is Rs. 10 Lakhs, it indicates that there is 99% ( = 100% - 1% ) chance the loss in the portfolio would not exceed Rs. 10 lakhs. In other words, there is 1% probability that loss would exceed Rs. 10 Lakhs. The loss here can be defined in either Percentage or Absolute terms.
Q 6. Find the market price of a company's share from the following data: Total Assets: Rs. 50,00,000 Earning Per Share (EPS): Rs. 2 Net Income: Rs. 4,00,000 Return on equity: 20% Price to Book Value: 5
Options:
- Rs. 50 | - Rs. 9 | - Rs. 35 | - Rs. 75
View Correct Answer & Detailed Explanation
Explanation: To find the above answer, we need to find the Book Value per Share. Let's find the number of shares first. Earnings Per share = Net Income/No of Shares outstanding. 2 = 4,00,000/No of shares outstanding. No of Shares Outstanding = 400000/2 = 2,00,000. Now let's find the book value per share, before which we'll have to find book value of total equity. Return on Equity = Net Income/Book Value of Equity. 20% = 400000/Book Value of Equity. Book Value of Equity = 400000/.20 = 20,00,000. Now, Book value per share = Book Value of Equity/No of Shares Outstanding. Book Value per share = 2000000/200000 = 10. Now let's finally find the market price per share. Market price per share = Book Value per share x Price to Book Value. Market Price per share = 10 x 5 = 50.
Q 7. Identify the transaction which will be considered as Capital account transaction?
Options:
- Amount received by an Indian exporter
- Interest which is earned on investment in foreign entities
- Remittances by NRIs abroad
- None of the above
View Correct Answer & Detailed Explanation
Explanation: Capital account transactions refer to transactions that affect the assets and liabilities of a country in relation to foreign entities. These transactions involve investments, loans, and asset transfers rather than income or trade-related flows. Amount received by an Indian exporter is a Current Account Transaction - This is related to trade in goods and services, which falls under the current account of the Balance of Payments (BoP). Interest earned on investment in foreign entities is a Current Account Transaction - Interest income is classified as primary income in the current account, not the capital account. Remittances by NRIs abroad is a Current Account Transaction - Personal remittances by Non-Resident Indians (NRIs) are transfer payments, which are recorded under the current account. Thus, none of the above are Capital account transactions.
Q 8. Which research entities should appoint a Compliance Officer?
Options:
- All types of research entities other than independent analysts should appoint a compliance officer
- All types of research entities which are body corporate or limited liability partnership firm should appoint a compliance office
- All types of research analysts including independent analysts should appoint a compliance officer to monitor the compliance process
View Correct Answer & Detailed Explanation
Explanation: As per Regulation 26 of SEBI (Research Analyst) Regulations, 2014: Research analyst or research entity which is a body corporate or limited liability partnership firm shall appoint a compliance officer who shall be responsible for monitoring the compliance of the provisions of the Act, these regulations and circulars issued by the Board.
Q 9. What is the minimum time gap between relisting and delisting of a company in case of voluntary delisting?
Options:
- 3 years | - 5 years | - 7.5 years | - 10 years
View Correct Answer & Detailed Explanation
Explanation: As per SEBI (Delisting of Equity Shares) Regulation of 2009, a company can apply for relisting (i) five years after delisting in the case of voluntary delisting and (ii) ten years after delisting in the case of compulsory delisting.
Q 10. Identify the risk which is associated to a falling interest rate scenario which will lead to a decline in cash flow from an investment when it's principal and interest payments are reinvested at lower interest rates.
Options:
- Credit Risk | - Interest Rate Risk | - Re-Investment Risk | - Political Risk
View Correct Answer & Detailed Explanation
Explanation: Re-investment risk arises from the probability that income flows received from an investment may not be able to earn the same interest as the original interest rate. The risk is that intermediate cash flows may be reinvested at a lower return as compared to the original investment. The rate at which the re-investment of these periodic cash flows is made will affect the total returns from the investment. The reinvestment rates can be high or low, depending on the levels of interest rate at the time when the coupon income is received.
Q 11. The views mentioned in a research report should be consistent with the __________.
Options:
- views of individual research analyst publishing the report
- views of the research entity chief person
- views of the research entity
- views of the compliance team
View Correct Answer & Detailed Explanation
Explanation: As per SEBI (Research Analyst) Regulation 18: Limitations on publication of research report, public appearance and conduct of business, etc. - 'Research analyst or research entity shall not issue a research report that is not consistent with the views of the individuals employed as research analyst regarding a subject company'.
Q 12. What is the meaning of Pricing Power?
Options:
- It means that the manufacturing costs of the company are low
- It means the suppliers have high bargaining powers
- It means that the customers have a high purchasing power
- It means that the company has the ability to increase the prices of its products without affecting the demand
View Correct Answer & Detailed Explanation
Explanation: Pricing power refers to a company's ability to independently determine and charge the price of its products. Companies with strong pricing power would be able to pass on any escalation in input cost to its customers. They can also increase their prices when demand is strong and thus grow their margins.
Q 13. As per the SEBI standards of corporate governance, independent directors should constitute at least __________ of the board if the chairman is an executive director.
Options:
- 25% | - 50% | - 65% | - 70%
View Correct Answer & Detailed Explanation
Explanation: SEBI regulation stipulates that independent directors should constitute at least 50% of the board if the chairman is an executive director. In all other cases, it requires 1/3rd of the board to be comprised of independent directors.
Q 14. A Depository Participant (DP) is an agent of __________.
Options:
- Clearing Corporation | - Depository | - SEBI | - Stock Exchange
View Correct Answer & Detailed Explanation
Explanation: Depositories are institutions that hold securities of investors in electronic form. Investors open an account with the depository through a registered Depository Participant. A Depository Participant (DP) is an agent of the depository through which it interfaces with the investors and provides depository services.
Q 15. In __________ phase of the cycle, we are most likely to witness low consumer confidence.
Options:
- Slow down | - Recovery | - Expansion / Boom | - Recession
View Correct Answer & Detailed Explanation
Explanation: In the Recession phase of economic cycle the utilization rates are low and so the manufacturers cut down on their further expansion plans. This results in increase in unemployment, decrease in income levels and in turn decrease in consumption. Decreasing consumption causes losses and more unemployment resulting in low consumer confidence.
Q 16. The EV/EBIT ratio in an industry is 10.0X. A company from the in industry reported an EBIT of Rs 500 crores. The company has a net debt of Rs 800 crores. What is the value of the company's equity?
Options:
- Rs. 1300 crores | - Rs. 5800 crores | - Rs. 4200 crores | - Rs. 2700 crores
View Correct Answer & Detailed Explanation
Explanation: Enterprise Value (EV) = Value of Equity + Value of Debt. The EV/EBIT = 10. So the EV is EBIT X 10 = 500 crores X 10 = Rs 5000 crores. EV = Value of Equity + Value of Debt. So Value of Equity = EV - Value of Debt = 5000 cr - 800 cr = Rs 4200 crores.
Q 17. Which of these financial instruments do not have a default risk?
Options:
- Investment Grade Corporate Bonds | - Equity Shares | - Foreign Currency Bonds | - High Yield Corporate Bonds
View Correct Answer & Detailed Explanation
Explanation: Credit Risk or default risk refers to the possibility that a particular bond issuer will not be able to make expected interest rate payments and/or principal repayment. Debt instruments are subject to default risk as they have pre-committed pay outs. Equity shares do not have any default risk as the issuer is not required to repay the amount.
Q 18. According to Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015, a Connected Person includes __________.
Options:
- An officer of the company | - An employee of the company | - A person who has professional or business relationship with the company | - All of the above
View Correct Answer & Detailed Explanation
Explanation: A connected person is defined by the act as anyone who has been associated with the company in the six months prior to the connected act and include any person who has been in frequent communication with the officers of the company in pursuit of contractual, fiduciary or employment relationship or as an officer, employee or director of the company or holds any position that provides access to such unpublished price sensitive information.
Q 19. In BCG matrix, business segments in a fast growing market, but having low market share are known as __________.
Options:
- Question marks | - Cash Cows | - Stars | - Dogs
View Correct Answer & Detailed Explanation
Explanation: Question Marks - Business segments in a fast growing market, but having low market share. The right strategies and investments can help the market share of the business grow, but they also run the risk of consuming cash in the process of increasing market share and in the end turning out to be not enough cash generating.
Q 20. Which of these will be considered as an Entry Barrier in an Industry?
Options:
- Strong Brands and strong distribution network | - Lots of licensing required in the business | - Huge investments | - All of the above
View Correct Answer & Detailed Explanation
Explanation: Entry barriers in an industry can be understood from following simple industry characteristics. They would be high if: 1. There are lots of licensing required in the business 2. Patents and copyrights prevent new entrants 3. Huge investments in specialized assets pose a challenge 4. Strong Brands, strong distribution network, specialized execution capabilities exist.
Q 21. The __________ section of a research report is likely to have the analyst's opinion.
Options:
- Company Overview | - Financial Forecast | - Shareholding pattern | - All of the above
View Correct Answer & Detailed Explanation
Explanation: 1. Company Overview: Factual (history, products). 2. Financial Forecast: Analyst projects revenues, profits, valuations - strongly based on the analyst's opinion/judgment. 3. Shareholding pattern: Purely factual (who holds how much).
Q 22. The share price of a company is Rs. 35 and currently it has 10 million shares trading. The company has assets worth Rs. 120 million and liabilities worth Rs. 40 million. Calculate the Price to Book Ratio.
Options:
- 5.63x | - 4.37x | - 5.99x | - 3.84x
View Correct Answer & Detailed Explanation
Explanation: Market Cap = No. of shares x Market price of shares = 10 million x 35 = 350 million. Net worth = Assets - Liabilities = 120 million - 40 million = 80 million. Price to book value ratio = Market capitalization/ Net worth = 350 million / 80 million = 4.37x.
Q 23. What is the portion of earnings paid to the shareholders by companies called?
Options:
- Special Incentive | - Stock Dividend | - Cash Dividend | - Bonus Issue
View Correct Answer & Detailed Explanation
Explanation: Dividends can be both cash and stock dividend. When a company announces a dividend, cash dividends are given to shareholders in cash (ie. bank transfer). Stock dividend or Bonus shares are additional shares are given to the shareholders in proportion of their holdings by capitalization of revenue reserves.
Q 24. Delisting of shares means the permanent removal of the shares of a company from being listed on a stock exchange - State whether True or False?
Options:
- True | - False
View Correct Answer & Detailed Explanation
Explanation: Delisting of shares refers to the permanent removal of the shares of a company from being listed on a stock exchange. Delisting may be compulsory or voluntary. In a compulsory delisting, the shares are delisted on account of non compliance to regulations. In a voluntary delisting, the company chooses to go private.
Q 25. From the four funds mentioned below, which of these has the highest uncertainty in terms of returns?
Options:
- Public Provident Funds | - Mutual Funds | - Venture Capital Funds | - Pension Funds
View Correct Answer & Detailed Explanation
Explanation: A venture capital fund refers to a pooled investment vehicle like mutual fund but with mandate to invest money in enterprises that are in the early stage of development but with the potential of long-term growth. Since these funds invest in new and upcoming companies, the chances of failure can be high, but if the company succeeds, the returns can also be very high. Therefore there is very high uncertainty of returns.
End of Part 425/600!
Dhaval Visariya
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