NISM 15 Research Analyst Mock Test 7: 600 MCQ Series (Full Detailed Version)
NISM Series XV: Mock Test 7 (Set 7 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 1. As per the data collected by a research analyst, the Indicators are showing that prices of a equity share could go down. However, the research analyst has a very strong intuition that the share prices could go up. What should the analyst recommend to his clients?
Options:
A. Intuitions usually come true and the analyst should recommend a buy or hold rating
B. As the analyst is in two minds, he should not recommend anything on that equity share
C. The analyst can give two recommendations - one based on intuition and other on indicators
D. The analyst should recommend a sell rating on that equity share as this is what the data and indicators are pointing to
View Correct Answer & Detailed Explanation
Explanation: As per the Code of Conduct for Research Analyst : Regulation 15 - Research analyst or research entity shall have written internal policies and control procedures governing the dealing and trading by any research analyst for promoting objective and reliable research that reflects the unbiased view of research analyst.
Q 2. Identify the correct statement with respect to Quantitative Analysis.
Options:
A. Quantitative analysis is useful only for technical analysis
B. Quantitative analysis is useful only for traders but not for investors
C. Quantitative analysis is useful for both traders and investors
D. Quantitative analysis is more useful for long term investors than short term investors
View Correct Answer & Detailed Explanation
Explanation: Quantitative analysis uses numerical data, statistics, and models to evaluate securities. It can be applied in technical analysis (trading) as well as fundamental analysis (investing). Therefore, it is useful for both traders and investors, across different time horizons.
Q 3. For _________ industries it is more suitable to use EV/EBITDA over EV/EBIT as a valuation metric.
Options:
A. Start-Ups | B. Matured | C. Labour intensive | D. Capital intensive
View Correct Answer & Detailed Explanation
Explanation: In the case of capital-intensive industries, the difference in the historical cost of asset and choice of depreciation method can cause major discrepancy in the method of depreciation. Therefore, for such industries it is preferable to use EV/EBITDA. For other industries, EV/EBIT is preferable.
Q 4. What is the objective a good management succession plan?
Options:
A. It is to ensure that operational efficiency of the company keeps improving
B. It is to ensure that there is hassle free transfer of the promoters estate to his legal heirs
C. It is to ensure that the annual targets of the company are met
D. It is to ensure that there is continuity in management
View Correct Answer & Detailed Explanation
Explanation: A proper succession management plan ensures continuity even if there is a churn in top management. Lack of succession planning can create trouble if the current management has to be replaced for any reason whatsoever.
Q 5. Calculate the outstanding number of shares of a company for the given data : Net Profit - Rs. 500000 Return on Equity - 25% Book Value per share - Rs. 100
Options:
A. 2,000 | B. 20,000 | C. 2,00,000 | D. 200
View Correct Answer & Detailed Explanation
Explanation:
Return On Equity (ROE) = Net Profit / Value of Equity
25% = 5,00,000 / Value of Equity
Value of Equity = 5,00,000 / 0.25 = 20,00,000
Value of Equity = Book Value per share * No of Shares
20,00,000 = 100 * No of Shares
No of Shares = 20,00,000 / 100 = 20,000
Q 6. A situation of _________ is most likely to result in high bargaining power for buyers.
Options:
A. limited production capacity but large number of buyers
B. large production capacity but limited number of buyers
C. limited production capacity and limited number of buyers
D. large production capacity and large number of buyers
View Correct Answer & Detailed Explanation
Explanation: Buyers can exert a lot of pressure and dictate prices, if there are a large number of sellers with similar products/services. Therefore, if there is a large production capacity / many sellers and few buyers, than the buyers can bargain for better prices.
Q 7. What is the Depository Receipt known as which is issued in India and listed on an Indian Stock Exchange with foreign stocks as underlying shares ?
Options:
A. Indian Depository Receipts (IDR)
B. Global Depository Receipts (GDR)
C. Hybrid Depository Receipts (HDR)
D. American Depository Receipts (ADR)
View Correct Answer & Detailed Explanation
Explanation: An IDR is in Indian rupees and is created by a domestic depository. It is issued against the underlying equity of the company to enable foreign companies to raise funds from the Indian securities Markets. As foreign companies are not allowed to list on Indian equity markets, IDR is a way to own shares of those companies.
Q 8. 'Related Party Transactions' have to disclosed by the company because _________.
Options:
A. The shareholders are assured that related party transactions are done only with related parties and not with un-related parties
B. The shareholders should know if such related party transactions are enriching some promoters or shareholders at the cost of other shareholders
C. The shareholders should be aware that the company can sell its goods and services outside their close network
D. It's is as per SEBI's KYC rules and regulations
View Correct Answer & Detailed Explanation
Explanation: While analysing a company, the analyst has to check its Corporate governance standards. Related party transactions form a part of corporate governance standards. It is important to prevent unscrupulous related party transaction that can enrich promoter group or other majority shareholders at the cost of minority shareholders.
Q 9. Which element provides important inputs on the underlying strength of the trend in technical analysis?
Options:
A. Volume of trading
B. Market Capitalisation
C. Historical Prices
D. Enterprise Value
View Correct Answer & Detailed Explanation
Explanation: According to technical analysis, there are three essential elements in understanding the price behaviour:
1. The history of past prices provides indications of the underlying trend.
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.
Q 10. Which instruments are issued by SEBI registered foreign institutional investors to overseas investors who want to invest in Indian stock markets but without registering with SEBI?
Options:
A. Treasury Bills | B. Commercial Papers | C. P-Notes | D. None of the above
View Correct Answer & Detailed Explanation
Explanation: Participatory Notes (P.Notes or PNs) are instruments issued by SEBI registered foreign portfolio investors to overseas investors, who wish to invest in the Indian stock markets without registering themselves with the market regulator SEBI.
Q 11. A share is currently trading at Rs 40.50 with a PE ratio of 13.50. The company has a policy of 70% dividend payout ratio. Calculate the dividend per share.
Options:
A. Rs 3.50 | B. Rs 2.10 | C. Rs 5 | D. Rs 1.60
View Correct Answer & Detailed Explanation
Explanation:
PE Ratio = Market Price / EPS
13.50 = 40.50 / EPS
EPS = 40.50 / 13.50 = 3
Dividend Payout Ratio = Dividend Per Share / EPS
70% = Dividend Per Share / 3
Dividend Per Share = 3 * 0.70 = 2.10
Q 12. Which of these can be considered as STRENGTH in SWOT analysis?
Options:
A. Strong financial position of the company
B. Booming economy
C. Low interest rates
D. All of the above
View Correct Answer & Detailed Explanation
Explanation: Strengths, Weaknesses, Opportunities and Threats (SWOT) Analysis : Strengths refer to internal capabilities of the company. Strong financial position is internal. Booming economy and low interest rates are external factors (Opportunities).
Q 13. All else held constant, a stock with a relatively low PE is considered as _________ stock.
Options:
A. Over valued / Expensive
B. Under valued / Cheap
C. More volatile
D. Less volatile
View Correct Answer & Detailed Explanation
Explanation: The PE ratio indicates the amount an investor needs to invest to receive 1 unit of profit. All else held constant, a stock with higher PE compared to peers is expensive; a relatively low PE is considered undervalued.
Q 14. Identify the action which SEBI is NOT empowered to take?
Options:
A. To appoint directors of Financial Intelligence Unit
B. To suspend an office bearer of a SEBI registered intermediary
C. To suspend trading in a security listed on a stock exchange
D. Impound and retain the proceeds or securities in respect of any violation
View Correct Answer & Detailed Explanation
Explanation: Financial Intelligence Unit - India (FIU-IND) was set by the Government of India in 2004. The directors of FIU are appointed by the Central Government and not by SEBI.
Q 15. Which institution has to be approached for a Scheme of Arrangement?
Options:
A. Supreme Court | B. State High Court | C. National Company Law Tribunal | D. SEBI
View Correct Answer & Detailed Explanation
Explanation: Scheme of arrangement is a court monitored settlement process. The person claiming the scheme of arrangement shall approach the National Company Law Tribunal (NCLT).
Q 16. Which of these investment most probably has the highest uncertainty in terms of return?
Options:
A. Mutual Fund | B. Pension Fund | C. Venture Capital Fund | D. Provident Fund
View Correct Answer & Detailed Explanation
Explanation: Since venture capital funds invest in new and upcoming companies, the chances of failure can be high, but successes can bring very high returns. This leads to the highest uncertainty of returns.
Q 17. Editing a research report includes the following EXCEPT _________.
Options:
A. Checking the financial figures
B. Spelling checks
C. Correction of Grammatical Errors
D. Validation of conclusion
View Correct Answer & Detailed Explanation
Explanation: Editing focuses on clarity and accuracy (figures, spelling, grammar). Validation of conclusion falls under the research and analysis phase, not editing.
Q 18. The competing technology for digital cameras is _________.
Options:
A. Laptops | B. OTT platforms | C. Smart phones | D. Online shopping
View Correct Answer & Detailed Explanation
Explanation: With the emergence of smart mobile phones with built-in cameras, entry-level digital cameras started losing their sales to these phones.
Q 19. _________ risks are factored in Beta calculations.
Options:
A. Credit Risk | B. Liquidity Risk | C. Market Risks | D. All of the above
View Correct Answer & Detailed Explanation
Explanation: Beta measures the sensitivity of a stock to the overall market. It is a measure of systematic risk (Market Risk) that cannot be diversified away.
Q 20. The Debt to Equity ratio of an organization is 2 : 1. The debt on the balance sheet is Rs 8,00,000 and the Return on Equity is 25%. Calculate the Net Profit of the company.
Options:
A. Rs 4,00,000 | B. Rs 3,50,000 | C. Rs 2,00,000 | D. Rs 1,00,000
View Correct Answer & Detailed Explanation
Explanation:
Debt:Equity = 2:1. So Equity is half of Debt.
Equity = 8,00,000 / 2 = 4,00,000.
Net Profit = Equity * ROE = 4,00,000 * 25% = 1,00,000.
Q 21. Securities Contract (Regulation) Act 1956 covers which of the following issues?
Options:
A. Corporatization and demutualization of stock exchanges
B. Power to suspend business of recognized stock exchanges
C. Power to prohibit undesirable speculation
D. All of the above
View Correct Answer & Detailed Explanation
Explanation: The SCRA 1956 covers granting recognition, corporatization, calling for returns, superseding bodies, and prohibiting undesirable speculation in stock exchanges.
Q 22. A quick sense of quality of a business can be judged from ________.
Options:
A. Historical financials
B. Future financial projections
C. Environmental care
D. Micro economic factors
View Correct Answer & Detailed Explanation
Explanation: Historical financials provide a concrete and objective measure of a business's past performance. While projections are important, they are based on assumptions. Historical data gives direct insight into health.
Q 23. Investments in ________ is considered quiet risky.
Options:
A. Provident Fund | B. Venture Capital Fund | C. Pension Fund | D. Mutual Fund
View Correct Answer & Detailed Explanation
Explanation: Venture Capital Funds invest in early-stage enterprises. While they have growth potential, the risk of failure in these new enterprises is quite high.
Q 24. Research Analysts, while meeting the management of companies, can seek information which is still confidential and not in public domain - State True or False ?
Options:
A. True
B. False
View Correct Answer & Detailed Explanation
Explanation: Analysts must have an unbiased opinion and hold independence. They must make it clear with management NOT to reveal any information which is not available in the public domain.
Q 25. The general state of an economy is determined by ________.
Options:
A. Domestic Consumption
B. Quality of life
C. Domestic Production
D. All of the above
View Correct Answer & Detailed Explanation
Explanation: Macroeconomics helps us understand the general state of the economy – Domestic Production, Domestic Consumption, General Price levels, Growth, and Quality of life.
Mock Test 7 of 24 Complete. 175 questions mastered! Keep pushing!
Dhaval Visariya
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