NISM 15 Research Analyst Mock Test 5: 600 MCQ Series (Full Detailed Version)
NISM Series XV: Mock Test 5 (Set 5 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 51
What is the reason that even though the prices of a product shoots up, still there is no fall in the demand?
Options:
A. The customers are very brand loyal
B. The customers are addicted to the product
C. Pricing power of the business
D. All of the above
View Correct Answer & Detailed Explanation
Explanation: Pricing power is generally a function of industry dynamics, elasticity of demand and branding and customer loyalty/addiction. Presence of strong brands and/or virtual monopoly play an important factor in the pricing power. Tobacco based businesses are an example of such businesses wherein, constant rise in taxes by the Govt. are passed on by the companies to their end consumers and even then there is no impact on volumes as consumers are generally brand loyal / addict.
Question 52
A Research Analyst gives his views and recommendations on a company based on _______.
Options:
A. Personal Understanding of the business
B. Personal Understanding of the industry
C. Communication with management
D. All of the above
View Correct Answer & Detailed Explanation
Explanation: Source of information for a Research Analyst : Communication with management, Personal Understanding of the business and industry.
Question 53
The Debt to Equity Ratio of a company is 2 : 1. The total size of its Balance Sheet is Rs. 51,00,000. Calculate the Debt of the company.
Options:
A. Rs. 4100000
B. Rs. 3800000
C. Rs. 3400000
D. Rs. 2900000
View Correct Answer & Detailed Explanation
Explanation:
Size of a Balance Sheet includes Equity + Debt.
Therefore Rs. 51,00,000 includes Debts & Equity in the ratio 2 : 1 (Total of 2+1 = 3)
So 5100000 / 3 x 2 = Rs. 3400000 is the Debt component
5100000 / 3 x 1 = Rs. 1700000 is the Equity component.
OR
Debt to Equity Ratio = 2:1
This means Debt = 2x and Equity = x
Total size of Balance Sheet = Total Assets = Total Liabilities = Rs. 51,00,000
Total Liabilities = Debt + Equity
51,00,000 = 2x + x
51,00,000 = 3x
x = 51,00,000 / 3
x = 17,00,000
Debt = 2x = 2 * 17,00,000 = Rs. 34,00,000
Question 54
The Quick Ratio of a business is 3. The Current Assets are of Rs. 75000 and this includes inventory of Rs. 15000. Calculate the Current Ratio of the business.
Options:
A. 4.79 | B. 3.75 | C. 4.00 | D. 3.50
View Correct Answer & Detailed Explanation
Explanation: Quick Ratio = (Current Assets – Inventories) / Current liabilities
3 = 75000 - 15000 / Current liabilities
3 = 60000 / Current liabilities
Current liabilities = 60000 / 3 = 20000
Current Ratio = Current Assets / Current liabilities
= 75000 / 20000
= 3.75
Question 55
_______ is responsible for managing the fiscal policy of India.
Options:
A. Central Bank (RBI)
B. Central Government
C. Capital Market Regulator (SEBI)
D. EXIM Bank of India
View Correct Answer & Detailed Explanation
Explanation: Fiscal policy is defined as the policy under which the government uses the instrument of taxation, public spending and public borrowing to achieve various objectives of economic policy. Simply put, it is the policy of government spending and taxation to achieve sustainable growth. Note – The fiscal policy is managed by the Central Government and the monetary policy is managed by the Central bank (RBI).
Question 56
Identify the TRUE statement with respect to Board Composition and Corporate Governance.
Options:
A. If a company wants strong corporate governance, then it should ensure that majority of the board comprises of independent directors
B. If a company wants strong corporate governance, then it should ensure that the entire board comprises of executive directors who are also part of management
C. If a company wants strong corporate governance, then it should ensure that board comprises of very few independent directors
D. If a company wants strong corporate governance, then it should ensure that the full board comprises of members of the promoter group
View Correct Answer & Detailed Explanation
Explanation: A company's board of directors can include independent directors, non-executive directors and executive directors. For the sake of strong corporate governance standards, majority of the board should comprise of independent directors. Currently, 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.
Question 57
Calculate the BOOK VALUE PER SHARE of a business whose networth is Rs. 5,00,000, P/E Ratio is 8, EPS is Rs. 4 and market capitalization is Rs. 10,00,000.
Options:
A. Rs. 7
B. Rs. 3
C. Rs. 16
D. Rs. 25.50
View Correct Answer & Detailed Explanation
Explanation: Price to Earnings Ratio = Market Price of the share / EPS
8 = Market Price of the share / 4
Market Price of the share = 8 x 4 = Rs. 32
Number of shares = Market Capitalisation / Market Price of share
Number of shares = 1000000 / 32 = 31250
Networth = Book Value x Number of shares
500000 = Book Value x 31250
Book Value = Rs. 500000 / 31250 = Rs. 16
Question 58
When someone is doing a valuation of a business, he/she will be required to forecast the cash flows expected in the future. This can be done by _______.
Options:
A. looking at the internal determinants of growth in a company
B. applying a rate estimated by the analysts based on their information and analysis
C. applying the historical growth rate exhibited by company
D. All of the above
View Correct Answer & Detailed Explanation
Explanation: Business Valuation requires forecast of the cash flows expected in the future. A basic forecast can be derived by extrapolating historical growth rates experienced by the company. However, analysts often use their judgement to refine their forecast by taking into consideration several factors including the internal determinants of growth, namely, the proportion of earnings ploughed back into the business and the return on equity that it is expected to earn.
Question 59
As per SEBI (Research Analyst) Regulations, 2014, a research analyst who is an individual or are a partnership firm will have net tangible assets of _______.
Options:
A. Not less than Rs. 1 lakh
B. Not less than Rs. 5 lakhs
C. Not less than Rs. 10 lakhs
D. Not less than Rs. 15 lakhs
View Correct Answer & Detailed Explanation
Explanation: As per the Securities and Exchange Board of India (Research Analyst) Regulations : Regulation 8: Capital adequacy - A research analyst who is individual or partnership firm shall have net tangible assets of value not less than one lakh rupees.
Question 60
The price of a product can be a key differentiating factor when _______.
Options:
A. There are only a few suppliers of the product in the market
B. The products provided by various suppliers are homogenous in nature
C. The customers are ignorant about other suppliers in the market
D. All of the above
View Correct Answer & Detailed Explanation
Explanation: Homogenous products basically means when the products are of a same / similar kind. For eg. Commodities are basic materials or goods that are largely homogenous in nature. A 22 carat purity gold coin offered by all jewellers will basically be the same. So here the price will be a key differentiating factor.
Question 61
Which analysis is not concerned about whether a stock is trading at its fair price with respect to its intrinsic value or not?
Options:
A. Fundamental Analysis
B. Technical Analysis
C. Quantitative Analysis
D. All of the above
View Correct Answer & Detailed Explanation
Explanation: Intrinsic value is the estimated value per equity share, based on the future earning potential of a company. A fundamental analyst will focus on arriving at the intrinsic value of a share based on the company / industry etc. data. In technical analysis, analysts instead of studying the value of a stock, focuses on the underlying and historical price data. They study the relationship between the price up moves and down moves, the volume and other parameters to gauge the direction of stock prices. Quantitative approach can be used for both technical analysis and fundamental analysis.
Question 62
Identify which of these information is included in a fundamental research report.
Options:
A. Comprehensive analysis of the financial performance of the company
B. Comprehensive analysis of short term volatility in the prices of the company's stock
C. Comprehensive analysis of volume of company's shares traded in the market
D. All of the above
View Correct Answer & Detailed Explanation
Explanation: Fundamental research involves both quantitative and qualitative studies. This includes studying the financial performance of the company i.e. studying the Profit and Loss Statement etc. In technical analysis, analysts study the movement in prices, the volumes, the volatility etc.
Question 63
_______ is considered as an Economic Factor in PESTLE analysis.
Options:
A. Foreign Exchange Reserves | B. Monitory policies of the RBI | C. Dependence of a country on other countries for important natural resources
D. All of the above
View Correct Answer & Detailed Explanation
Explanation: Political, Economic, Socio-cultural, Technological, Legal and Environmental (PESTLE) Analysis. Monitory policies of the Central Banker, country's dependence on other countries in terms of important natural resources such as oil, Balance of payment positions and forex reserves etc. all form a part of the economic factors under PESTLE analysis.
Question 64
An analyst is studying the 'financial aspect' of an industry. This comes under which category of the Structure Conduct Performance (SCP) analysis?
Options:
A. Conduct
B. Structure
C. Performance
D. All of the above
View Correct Answer & Detailed Explanation
Explanation: Structure Conduct Performance (SCP) Analysis method of analysing industries is to look at the industry structure (monopoly, oligopoly), its conduct (commoditized or specialized, seasonal or round the year, cyclical or non-cyclical etc.) and finally its performance (RoE, RoIC, WACC, etc.). Performance analysis: While analyzing performance of an industry, analysts will also look at the financial aspects like numerical ratios etc.
Question 65
The Earnings Per Share (EPS) of M/s. PQR Ltd. is Rs. 7 and book value per share is Rs 35. The paid up capital is Rs. 14,00,000. Calculate the Return on Equity of M/s. PQR Ltd.
Options:
A. 20%
B. 100%
C. 10%
D. Insufficient Data
View Correct Answer & Detailed Explanation
Explanation: Return on Equity = (Earning Per Share / Book Value) x 100
= 7 / 35 x 100
= 0.2 x 100
= 20 %
Question 66
A business, once it reaches its Matured Stage, _______.
Options:
A. will again re-enter the growth phase
B. may decline and die or it can reinvent it self and revive the business
C. will reinvent it self and revive the business
D. will eventually decline and die
View Correct Answer & Detailed Explanation
Explanation: Every industry typically goes through the following phases:
a) Pioneering stage: The industry is just taking shape...
b) Growth stage: The concept is found viable and many customers start adopting the new product...
c) Matured stage: The industry has existed for long and most customers who can use the product are already using it. Number of new (potential) customers are relatively less.
d) Declining stage: Change in customer preference or a new technology replaces the industry's product...
e) Reinvention and revival: Although it is very rare, it is possible that the goods or services produced by the industry finds a new use in a different application and starts a new cycle all over again.
Question 67
Identify the TRUE statement with respect to CREDIT RATING.
Options:
A. Credit rating is only relevant to those equity share holders who also hold debt securities of the company
B. Credit rating is relevant to equity share holders as a company can provide returns to equity investors only if the lenders are serviced first
C. Credit rating is not at all relevant to equity share holders as it is only related with debt
D. None of the above
View Correct Answer & Detailed Explanation
Explanation: Credit rating refers to the rating of the ability of a borrower to service its debt related obligations. Although credit rating pertains to debt, it is also of relevance to equity investors as a company can provide returns to equity investors only if the lenders are serviced first. Thus, credit rating provides an investor with the level of financial risk involved and can thus drive the return expectations of investors.
Question 68
When Free Cash Flows to firm are discounted by the appropriate discount rate, we arrive at the _______ of the firm.
Options:
A. Enterprise Value (EV) | B. Present Value (PV) | C. Discounted Value (DV) | D. Future Value (FV)
View Correct Answer & Detailed Explanation
Explanation: Cost of equity is generally computed with help of Capital Asset Pricing Model (CAPM). The free cash flows are then discounted at the appropriate discount rate to arrive at the Enterprise Value (EV) of the firm or the value of equity. Free Cash Flows to Firm (FCFF) represent the cash flows available to all capital providers — both equity and debt holders. When these cash flows are discounted at the Weighted Average Cost of Capital (WACC), which reflects the required return by all investors, the resulting value is the Enterprise Value of the firm.
Question 69
Identify the important ingredient which is required for taking investment decision.
Options:
A. Timely information only
B. Relevant information only
C. Accurate information only
D. Accurate, Timely and Relevant information
View Correct Answer & Detailed Explanation
Explanation: Timely and accurate information about investment products is an important ingredient for making investment decisions. An investor / research analyst needs to be methodical, have an enquiring mind and be discerning to know where to find relevant information.
Question 70
Amaze Industries Ltd. is a listed company and has a market cap of Rs. 22 crores. The market index has a PE ratio of 20x and PB ratio of 3x. Under which of the following circumstances it will be put under Graded Surveillance Mechanism?
Options:
A. Amaze Industries Ltd.'s PE ratio is 25 x and PB ratio is 6x
B. Amaze Industries Ltd.'s PE ratio is negative and PB ratio is 3x
C. Amaze Industries Ltd.'s PE ratio is 45x and PB ratio is 2.5x
D. Amaze Industries Ltd.'s PE ratio is 25x and PB ratio is negative
View Correct Answer & Detailed Explanation
Explanation: One of the criteria for putting a security under Graded Surveillance Mechanism (GSM) is : Companies with market cap below Rs 25 crores but trading at -
PE ratio that is greater than 2x the PE of benchmark index OR
is trading at negative PE ratio with P/B ratio that is negative or 2x the P/B of the benchmark index.
Among the four options given above, only the option in which the PE ratio is negative and PB ratio is 3x satisfies the condition no. 2 i.e. - Is trading at negative PE ratio with P/B ratio that is negative or 2x the P/B of the benchmark index.
Question 71
Identify the TRUE statement with respect to 'Holding period return of securities'.
Options:
A. Holding period return is much more accurate than CAGR
B. Holding period return considers the time value of money
C. Holding period return is a very effective measure of return over the holding period of securities
D. Holding period return is not a very effective measure of return as it does not annualize the return over the holding period of securities
View Correct Answer & Detailed Explanation
Explanation: Holding Period Return (HPR) is the return earned on an investment during a specific period when it was bought and held by the investor. HPR is not effective as its a single period return and does not annualize the return to the investors.
Question 72
Which of these can be described as 'Pricing Power' of a company?
Options:
A. When a company has low manufacturing cost
B. When the customers of the company have high purchasing power
C. When the company can increase the prices of its products without affecting the demand
D. When the suppliers of the company have high bargaining powers
View Correct Answer & Detailed Explanation
Explanation: A key factor to look while studying the business of a company is its pricing power as that would help a company maintain and grow its profit margin. 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.
Question 73
_______ can result in reduction in fiscal deficit.
Options:
A. A decrease in tax collection
B. An increase in public expenditure
C. Both of the above
D. None of the above
View Correct Answer & Detailed Explanation
Explanation: Fiscal deficit is the difference between the government's total expenditure and its total revenue (excluding borrowings). A reduction in the fiscal deficit means this difference needs to become smaller. A decrease in tax collection would reduce the government's revenue, leading to a larger fiscal deficit, not a reduction. An increase in public expenditure would increase the government's spending, also leading to a larger fiscal deficit, not a reduction.
Question 74
Which department of the Ministry of Finance is also involved with matters such as financial assistance to states and borrowings by states?
Options:
A. Department of Expenditure
B. Department of Economic Affairs
C. Department of Financial Services
D. Department of Revenue
View Correct Answer & Detailed Explanation
Explanation: Department of Expenditure oversees the expenditure management of Government of India. It is concerned with, among other things, the administration of various financial rules and regulations including service conditions of all Central Government employees. The department is also involved with matters such as financial assistance to states and borrowings by states.
Question 75
Identify the CORRECT statement with respect to 'SURCHARGE' levied along with income tax.
Options:
A. 'Surcharge' is a special amount which is collected to be used for a specific purpose
B. 'Surcharge' is a levy charged on the taxes which are paid using digital methods
C. 'Surcharge' is an additional levy that is transferred to the State Governments
D. 'Surcharge' is an additional levy and its not shared with the State Governments
View Correct Answer & Detailed Explanation
Explanation: Surcharge is a tax on tax. In terms of income tax, the central government shares the revenue with the state governments in which the companies are located. However, in terms of surcharge the entire tax revenue goes to the central government funds and it is not shared with the state governments.
Mock Test 5 of 24 Complete. Consistency is the key to success!
Dhaval Visariya
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