NISM 15 Research Analyst Mock Test 4: 600 MCQ Series (Full Detailed Version)
NISM Series XV: Mock Test 4 (Set 4 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!
Question 26
On-line businesses are dependent on internet penetration and changing habits of people on shopping - State True or False?
Options:
A. True
B. False
View Correct Answer & Detailed Explanation
Explanation: Each industry/sector has a specific set of factors which affect its profitability and prospects. For example - On-line businesses are dependent on internet penetration and changing habits of people on shopping
Question 27
The term "securities" has been defined in the Section 2(h) of Securities Contracts (Regulation) Act, 1956 and it include(s) _______.
Options:
A. Treasury Bills (Government Securities)
B. Bonds
C. Equity Shares
D. All of the above
View Correct Answer & Detailed Explanation
Explanation: As per SCRA, the term 'Securities' include:
* Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate
* Derivative
* Units or any other instrument issued by any collective investment scheme to the investors in such schemes units
* Security receipt
* Units or any other such instrument issued to the investors under any mutual fund scheme
* Any certificate or instrument
* Government securities
* Such other securities as may be declared by the Central Government to be securities and
* Rights or interest in securities
Question 28
_______ is an act of purchase or sale of an asset in the expectation of a gain from changes in the price of that asset over a short period of time.
Options:
A. Arbitrage
B. Speculation
C. Hedging
D. Investing
View Correct Answer & Detailed Explanation
Explanation: Trading or speculating is an act of purchase or sale of an asset in the expectation of a gain from changes in the price of that asset over a short period of time. Traders or speculators seek to benefit from acting on information which bring about changes in prices.
Question 29
In a business, Cash Inflows arise from _______ assets, _______ liabilities and _______ stockholders's equity.
Options:
A. increasing, increasing, increasing
B. increasing, decreasing, decreasing
C. decreasing, increasing, increasing
D. decreasing, increasing, decreasing
View Correct Answer & Detailed Explanation
Explanation: There are cash inflows and cash outflows in every business as money comes in and money goes out.
* Cash inflow will happen when an asset is sold - for eg. old factory machine is sold
* Cash inflow will happen when liabilities increase - for eg. taking a loan
* Cash inflow will happen when equity is increased - for eg. more equity shares are sold to investors in an IPO
(Investing cash flows - Cash flows on account of assets. Buying assets is negative cash flow and selling assets is positive cash flow. Financing cash flows - Cash flows on account of liabilities. Borrowing money or issuing/expanding equity is positive cash flow and redeeming debt and/or equity is negative cash flow)
Question 30
The EBIT % (Earnings before Interest and Tax) of a business is 50% with EBIT levels of Rs 200000. The Net Profit margin of this company is 20%. No. of shares outstanding are 20000. Calculate the Earning per share (EPS).
Options:
A. Rs 2
B. Rs 4
C. Rs 6.50
D. Rs 8
View Correct Answer & Detailed Explanation
Explanation: The EBIT is Rs 200000 and this is 50% of the business ie. 50% of sales.
So Sales = Rs 400000 (200000 / 50 x 100)
Net Profit margin is 20% ie 20% of Sales Rs 400000
20% of 400000 = 80000
EPS = Net Profit / No. of Shares
= 80000 / 20000 = 4
Question 31
How is the Free Cash Flows for EQUITY calculated ?
Options:
A. Interest payment on equity is subtracted from Free cash flows to the firm and net borrowings are deducted from it
B. Interest payment on debt is added to Free cash flows to the firm and net borrowings are deducted from it
C. Interest payment on debt is subtracted from Free cash flows to the firm and net borrowings added to it
D. Interest payment on equity is subtracted from Free cash flows to the firm and net borrowings added to it
View Correct Answer & Detailed Explanation
Explanation: Free Cash Flow for Equity = Free cash flows to the firm (FCFF) - Interest payment on debt + Net borrowings
(Note: There appears to be a minor typo in the mock test option text "interest payment on equity" vs the explanation formula "interest payment on debt", but the selected option is the one marked correct in the system.)
Question 32
What type of risk will be created if FIIs pull out their money from an economy?
Options:
A. Unsystematic risk
B. Systematic risk
C. Credit risk
D. Interest rate risk
View Correct Answer & Detailed Explanation
Explanation: Systematic risk refers to those risks whose impact is felt across investment categories. These risks are undiversifiable risks, because they cannot be eliminated through diversification. When Foreign Financial Institutions (FIIs) pull out their money from an economy/market, the entire spectrum of investments tend to fall. This is a Systematic risk which cannot be diversified. Systematic risk is caused due to factors that may affect the economy/markets as a whole, such as changes in government policy, external factors, wars or natural calamities. Inflation risk, exchange rate risk, interest rate risk and reinvestment risk are systematic risks.
Question 33
XYZ Company has a Sales revenue of Rs 5,00,000 which is inclusive of Indirect Taxes of Rs 20,000. The Direct taxes to the company are Rs 30,000. What are the Net sales of XYZ Company?
Options:
A. Rs 4,50,000
B. Rs 4,80,000
C. Rs 5,40,000
D. Rs 5,20,000
View Correct Answer & Detailed Explanation
Explanation: Direct Taxes (like Income Tax) are levied on profits, not sales. They do not affect Net Sales. Indirect Taxes (like GST) are included in the sales price and must be deducted to arrive at Net Sales.
Net Sales = Sales Revenue - Indirect Taxes
Net Sales = 500000 - 20000 = 4,80,000
Question 34
An industry will be very attractive to invest in, if it has _______.
Options:
A. Few substitutes
B. Weak suppliers' bargaining power
C. High barriers to entry
D. All of the above
View Correct Answer & Detailed Explanation
Explanation: An industry becomes attractive for investment when it offers high potential for profitability and limited threats. Each of the options contributes to that:
* Few substitutes – This reduces the threat of customers switching to alternative products, allowing firms to maintain pricing power and margins.
* Weak suppliers' bargaining power – When suppliers have little power, companies can negotiate better terms, keeping costs low and profitability high.
* High barriers to entry – These protect existing firms from new competitors entering the market, helping sustain market share and profits over time.
Question 35
In Technical Analysis, _______ provides important inputs on the underlying strength of the trend.
Options:
A. enterprise value
B. pivot points
C. volume of trading
D. market capitalisation
View Correct Answer & Detailed Explanation
Explanation: As per Technical Analysis, there are three essential elements in understanding price behaviour:
1. The history of past prices provides indications of the underlying trend and its direction.
2. The volume of trading that accompanies price movements provides important inputs on the underlying strength of the trend.
3. The time span over which price and volume are observed factors in the impact of long term factors that influence prices over a period of time.
Question 36
SEBI (Research Analyst) Regulations 8 states that - A research analyst who is body Corporate shall have a networth of not less than _______.
Options:
A. One lakh rupees
B. Ten lakh rupees
C. Twenty five lakh rupees
D. Fifty lakh rupees
View Correct Answer & Detailed Explanation
Explanation: Regulation 8: Capital adequacy -
(1) A research analyst who is individual or partnership firm shall have net tangible assets of value not less than one lakh rupees.
(2) A research analyst who is body corporate or limited liability partnership firm shall have a networth of not less than twenty five lakh rupees.
Question 37
The Pradhan Mantri Jan Dhan Yojana (2014) was started and is being run by which department?
Options:
A. Department of Financial Services
B. Department of Commerce
C. Department of Revenue
D. Department of Disinvestment
View Correct Answer & Detailed Explanation
Explanation: The Department of Financial Services (Ministry of Finance) covers Banks, Insurance and Financial Services provided by various government agencies and private corporations. It also covers pension reforms and Industrial Finance and Micro, Small and Medium Enterprise. It started the Pradhan Mantri Jan Dhan Yojana.
Question 38
An agent or a dealer who buys and sells shares in a registered stock exchange is known as _______.
Options:
A. Underwriter
B. Share transfer agent
C. Stockbroker
D. Lead merchant banker
View Correct Answer & Detailed Explanation
Explanation: Trading members or Stock Brokers are registered members of a Stock Exchange. They facilitate buy and sell transactions of investors on stock exchanges. All secondary market transactions on stock exchanges have to be essentially conducted through registered brokers of the stock exchange.
Question 39
The profit before tax of a company is Rs. 200000. The P/E ratio is 2.5 and the current market price of the company's shares is Rs. 200. The number of shares outstanding are 2000. Calculate the approximate tax rate for this company.
Options:
A. 20%
B. 30%
C. 35%
D. 40%
View Correct Answer & Detailed Explanation
Explanation: Price Earning (P/E) Ratio = Market Price of share / Earning Per Share EPS
2.5 = 200 / EPS
EPS = 200 / 2.5 = 80
EPS = Net Profit / No. of Shares
80 = Net Profit / 2000
So Net Profit = 2000 x 80 = 160000
The Profit before tax (Gross Profit) is Rs. 200000
The Net Profit (ie. Profit after tax) = Rs. 160000
So the tax paid is Rs 40000 on a profit of Rs. 200000
So the tax rate is 20% ( 40000 / 200000 x 100)
Question 40
A job of a Research Analyst involves doing which of the following ?
Options:
A. Collection of data and its analysis
B. Interacting with clients
C. Interacting with companies
D. All of the above
View Correct Answer & Detailed Explanation
Explanation: Research Analysts collect data/information from various sources, analyze the collected data/information and make their recommendations. Job of analysts also involves close interaction with companies and clients.
Question 41
Which of these is a key parameter while analyzing the Telecom Sector?
Options:
A. Weighted average cost of capital (WACC)
B. Internal Rate of Return (IRR)
C. Average Revenue Per User (ARPU)
D. Monetary Policy by the RBI
View Correct Answer & Detailed Explanation
Explanation: Each industry has its own specific drivers, a study of which gives the analyst an idea of the sector as well as the company under consideration. A key parameter while analyzing the Telecom Sector is Average Revenue Per User (ARPU). It is calculated by total revenue divided by number of subscribers and the higher it is, the better for the company.
Question 42
The sales of a company was Rs 400000 and the cost of goods sold were 20% of sales. Operating Expenses and Depreciation were Rs 96000. The interest expenses were Rs 40000. Calculate the Net Income if the company pays 40% of its pretax income as tax.
Options:
A. Rs. 89600
B. Rs. 149500
C. Rs. 241750
D. Rs. 110400
View Correct Answer & Detailed Explanation
Explanation:
Sales = Rs 400000
Less : Cost of Goods sold (20% of Sales) - Rs 80000
Less : Op Expenses and Depreciation - Rs 96000
Less : Interest Expenses - Rs 40000
Income before Tax = Rs 184000
Less : Tax at 40% on Rs 184000 - Rs 73600
Net Profit = Rs 110400
Question 43
Study of microeconomics involve _______.
Options:
A. Study of behavior of individuals in an economy
B. Study of firms and households
C. Study of general state of economy
D. Both 1 and 2
View Correct Answer & Detailed Explanation
Explanation: Microeconomics is the study of the behaviour of individuals and their decisions on what to buy and consume based on prevalent prices which in turn signals where the economy has to direct its productive activities. Accordingly, Microeconomics focuses on the drivers of decision making, as well as the ways in which individuals' decisions affect the overall supply and demand and supply of particular goods and services, in an economy, and in turn their prices. Macroeconomics is the study of "the big picture" in the economy. While microeconomics focuses on individual households and firms, macroeconomics deals with the economy as a whole.
Question 44
The market price of a share is Rs. 432 and the PE ratio is 18. The dividend payout ratio is 60%. Calculate the dividend per share for this company.
Options:
A. Rs. 14.40
B. Rs. 9.60
C. Rs. 8.10
D. Rs. 16.30
View Correct Answer & Detailed Explanation
Explanation: Price Earning (PE) Ratio = Market Price / Earning Per Share (EPS)
18 = 432 / EPS
So EPS = 432 / 18 = 24
Dividend Payout Ratio = Dividend Per Share / EPS
60% = Dividend Per Share / 24
So Dividend Per Share = 24 X 60% = Rs. 14.40
Question 45
_______ allow the issuer to redeem the bonds prior to their original maturity date.
Options:
A. Callable Bonds
B. Puttable Bonds
C. Payment in Kind (PIK) Bonds
D. Zero coupon bonds
View Correct Answer & Detailed Explanation
Explanation: Callable Bonds give the right to issuers to call the bonds back. It allows the issuer to redeem the bonds prior to their original maturity date. When interest rates fall, the issuer would be in a position to raise the same amount of loan, at a lower interest rate. So it would call back the bonds, redeem the amount and raise the same amount of loan at a lower interest cost.
Question 46
Per Capita Income of a country is calculated as _______.
Options:
A. Total population X National Income
B. Total population / National Income
C. National Income X Total population
D. National Income / Total population
View Correct Answer & Detailed Explanation
Explanation: Per Capita Income is the average income earned by each individual in the economy and is calculated as : National Income / Total population
Question 47
The interest of Commodity Linked Debentures is based on the returns of the underlying _______.
Options:
A. Equity asset
B. Farm produce
C. Commodity asset
D. Debt securities
View Correct Answer & Detailed Explanation
Explanation: Commodity Linked Debentures (CLDs) are floating rate debt instruments whose interest is based on the returns of the underlying commodity asset. While the returns can be linked to any commodity, most of these papers globally are linked to precious metals – Gold and Silver.
Question 48
Which of these is / are Unsystematic Risks?
Options:
A. Business risk
B. Liquidity risks
C. Credit risk
D. All of the above
View Correct Answer & Detailed Explanation
Explanation: Unsystematic risk is the risk specific to individual securities or a small class of investments. Hence it can be diversified away by including other assets in the portfolio. Unsystematic risk is also known as diversifiable risk. Credit risk, business risk, and liquidity risks are unsystematic risks.
Question 49
Which of these corporate actions are only book entries and they do not have any economic impact on the share holders?
Options:
A. Stock Consolidation
B. Bonus Issue
C. Stock Split
D. All of the above
View Correct Answer & Detailed Explanation
Explanation: Bonus issue, Share Split and Share consolidation are only book entries without any economic benefit whatsoever to the shareholders. For eg. in Bonus issue, the shareholder get more free shares but the market price drops accordingly to adjust for the increase in shares. These are to influence the psychology of investors without any economic benefit to the shareholders.
Question 50
A company has declared 60% dividend. The face value of the share is Rs 5 and the dividend payout ratio is 50%. The current market price of the share is Rs. 180. Calculate the Earning Yield.
Options:
A. 5%
B. 4.5%
C. 3.3%
D. 2.75%
View Correct Answer & Detailed Explanation
Explanation:
The company has declared 60% dividend on Rs. 5 face value. So the dividend is Rs. 3 (60% of 5)
Dividend Payout ratio = Dividend Per Share / EPS
50% = 3 / EPS
EPS = 3 / 0.5
EPS (Earning Per Share) = 6
Earning Yield % = EPS / Stock Price x 100
= 6 / 180 x 100
= .033 x 100 = 3.3
Mock Test 4 of 24 Complete. Keep up the momentum!
Dhaval Visariya
AMFI Registered Distributor (ARN-327925) | Software Developer & Finance Enthusiast
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