NISM 15 Research Analyst Mock Test 9: 600 MCQ Series (Full Detailed Version)
NISM Series XV: Mock Test 9 (Set 9 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. Alternate Investment Funds (AIFs) are regulated by ________.
Options:
A. SEBI | B. RBI | C. IRDA | D. PFRDA
View Correct Answer & Detailed Explanation
Explanation: The Securities and Exchange Board of India (SEBI) regulates the alternative investment funds in India. AIFs are defined in the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012.
Q 52. Identify the TRUE statement with respect to Reverse Book Building process.
Options:
A. When a promoter of a company sets the floor and ceiling of the prices in which shares would be bought back, its known as Reverse Book Building process
B. When a promoter sets the floor price but the shareholders can quote a higher price for offering their shares, its known as Reverse Book Building process
C. A company cannot cancel its delisting plan if a Reverse Book Building offer is given by its promoters
D. A promoter has to accept all the bids tendered under the Reverse Book Building process
View Correct Answer & Detailed Explanation
Explanation: SEBI regulation require that the promoter group provide an exit opportunity to all shareholders. The promoter or promoter group should invite bid to acquire the shares through a reverse book building process. Under this system, the promoter need to specify the floor price. Shareholder's then specify the price at which they are willing to sell the shares.
Q 53. Identify the CORRECT statement with respect to Insider Trading.
Options:
A. Its matter of grave concern if company insiders sell shares
B. Company insiders may sell shares for a variety of reasons and the analyst should try and understand the reasons for these sales
C. Its illegal for company insiders to sell shares
D. An equity analyst should not consider any insider trading of the company management
View Correct Answer & Detailed Explanation
Explanation: Insider trading is not automatically illegal - company insiders (like directors or employees) can sell shares legally if they follow disclosure rules. They may sell for reasons like diversification, personal cash needs or tax planning. What's illegal is trading based on unpublished price-sensitive information. So, analysts should study the reasons behind insider sales rather than assume all insider selling is a grave concern or illegal.
Q 54. In which of these circumstances can an asset be considered underpriced?
Options:
A. When the price of the asset is below its fair value
B. When the EPS is less than the price of the asset
C. When the price of an asset and its value are at par
D. When the price of the asset is above its fair value
View Correct Answer & Detailed Explanation
Explanation: Intrinsic value represents the price at which investors believe the security should be trading at. Intrinsic value is also known as "fair market value". If the market price of an asset is below the fair value, it is considered as underpriced and represents an attractive investment opportunity.
Q 55. There are two companies with P/E ratios of 40 and 13. But they have different growth potentials of 30% and 8% for the next few years. Which of the companies is cheaper on the basis of PEG ratio?
Options:
A. The company with P/E ratio of 13
B. The company with P/E ratio of 40
C. Both are equally cheaper
D. Insufficient data
View Correct Answer & Detailed Explanation
Explanation: Growth adjusted Price to Earnings Ratio (PEG) = PE ratio / Growth rate. PEG Ratio of the first company = 40 / 30 = 1.33. PEG Ratio of the second company = 13 / 8 = 1.62. The PEG ratio of the first company (with P/E of 40) is lower so its cheaper.
Q 56. ABC Ltd. had a revenue of Rs. 580 lakhs and expenses (excluding tax) were of Rs. 320 lakhs. These included finance cost of Rs. 18 lakhs and depreciation of Rs. 63 lakhs. Calculate the EBITDA of ABC Ltd.
Options:
A. Rs. 383 Lakhs | B. Rs. 341 Lakhs | C. Rs. 290 Lakhs | D. Rs. 225 Lakhs
View Correct Answer & Detailed Explanation
Explanation: 'EBITDA' means Earnings before Interest Tax Depreciation and Amortization. Earnings = Rs 580 Lakhs Less Expenses of Rs. 320 Lakhs = 260 Lakhs. To get EBITDA, we will have to add the Depreciation cost and Finance cost (Interest): 260 Lakhs + 63 Lakhs + 18 Lakhs = Rs. 341 Lakhs.
Q 57. The order in which a company will pay off its obligations on liquidation is ________.
Options:
A. Debenture holders - Preference shareholders - Common shareholders
B. Debenture holders - Common shareholders - Preference shareholders
C. Preference shareholders - Debenture holders - Common shareholders
D. Preference shareholders - Common shareholders - Debenture holders
View Correct Answer & Detailed Explanation
Explanation: Debentures have a charge on the assets of a company. They are secured creditors of the company. So they will be paid first. The Preference share holders get priority over common share holders. So they will be paid next.
Q 58. Which of the following intermediaries is supposed to frame a code of internal conduct?
Options:
A. Asset Management Companies (AMCs) | B. Trustees of Mutual Funds | C. Self Regulatory Organisations (SROs) | D. All of the above
View Correct Answer & Detailed Explanation
Explanation: Under the SEBI (Prohibition of Insider Trading) Regulations, all the above entities have to have strict internal code of conduct as they deal with price sensitive information.
Q 59. A company paid a dividend of 25% on face value of Rs. 5. The market price of its share is Rs. 70. The dividend payout ratio is 80%. Calculate the Earnings Yield.
Options:
A. 2.23% | B. 8% | C. 4.63% | D. 5%
View Correct Answer & Detailed Explanation
Explanation: The company paid a dividend of 25% on Rs. 5 face value. So the dividend is Rs. 1.25 (25% of Rs. 5). Dividend Payout ratio = Dividend Per Share / EPS. 80% = 1.25 / EPS. EPS = 1.56. Earning Yield % = EPS / Stock Price x 100 = 1.56 / 70 x 100 = 2.23 %.
Q 60. What does the Consumer Price Index (CPI) indicate?
Options:
A. CPI is a basket of products based on general consumption in the economy and compute its prices based on retail prices
B. CPI is a basket of products based on general consumption in the economy and compute its prices based on wholesale prices
C. CPI is a basket of products based on general consumption in the economy and compute its prices based on both wholesale and retail prices
D. None of the above
View Correct Answer & Detailed Explanation
Explanation: Generally, inflation is measured in two ways - wholesale level (WPI) and retail level (CPI). Typically, economists define a basket of products based on general consumption and compute its prices based on retail prices defining CPI.
Q 61. Why do Governments / Central Banks sometimes intentionally slowdown the economy?
Options:
A. Because the Balance of Payments are very high | B. Because the inflation is very high | C. Because the foreign exchange reserves are very high | D. Because the unemployment rate is very high
View Correct Answer & Detailed Explanation
Explanation: When economy is heated up and inflation is very high, it may need fiscal measures to slowdown. In such a situation, a government can increase taxes to suck money out of the economy or decrease in its spending thereby decreasing the money in circulation.
Q 62. Corporate Governance takes into account which aspect of the Management ?
Options:
A. Efficiency | B. Integrity | C. Profitability | D. All of the above
View Correct Answer & Detailed Explanation
Explanation: Corporate governance refers to rules, processes, and procedures. The objective is to ensure that the company is run well to take care of all the stakeholders. It primarily takes into account the integrity and transparency aspect of the management.
Q 63. The paid up capital of the company is Rs 25,00,000 with face value of Rs 5 per share. The P/E ratio of a company is 12 and the EPS is Rs 7. Calculate the Enterprise Value of the company if it has zero debt and Rs 33 lakhs as cash equivalents.
Options:
A. Rs 50,00,000 | B. Rs 2,74,00,000 | C. Rs 4,22,00,000 | D. Rs 3,87,00,000
View Correct Answer & Detailed Explanation
Explanation: No of Shares = 25,00,000 / 5 = 5,00,000. Market Price = PE * EPS = 12 * 7 = 84. Market cap = 5,00,000 * 84 = 4,20,00,000. Enterprise value = Market cap + Debt - Cash = 4,20,00,000 + 0 - 33,00,000 = 3,87,00,000.
Q 64. Sell side Analyst generally work for money managers like mutual funds, hedge funds, portfolio managers who purchase and sell securities for their own investment accounts or on behalf of their clients. State whether True or False.
Options:
A. True | B. False
View Correct Answer & Detailed Explanation
Explanation: Sell-side analysts typically work for brokerage firms or investment banks. Their role is to provide reports to clients. Buy-side analysts work internally for money managers like mutual funds and hedge funds.
Q 65. Mr. Ashutosh is a research analyst and he finds that one of his family member owns a stock of a company which he is covering. What action should Mr. Ashutosh take?
Options:
A. He should not give any ratings | B. He can give buy rating without any disclosures | C. He can publish research but cannot give ratings | D. He can give a rating based on genuine assessment and should disclose personal and family holdings
View Correct Answer & Detailed Explanation
Explanation: A research analyst must disclose if associates or relatives have actual/beneficial ownership of one per cent or more securities of the subject company. Transparency through disclosure is the ethical requirement.
Q 66. The 'Income Method' of measuring national income measures the national income as an aggregated flow of goods and services in the economy from the different sectors: agriculture, industry and services. State whether True or False?
Options:
A. True | B. False
View Correct Answer & Detailed Explanation
Explanation: The Income Method measures national income by summing all incomes earned by factors of production (wages, rent, etc.). The method that measures aggregated flow of goods and services is the Production (or Output) Method.
Q 67. Identify the Act / Regulation which empowers SEBI to direct any intermediary or person associated with the securities market, not to dispose of any asset which is a part of an investigation.
Options:
A. SEBI Act, 1992 | B. SCRA, 1956 | C. SEBI (Intermediaries) Regulations, 2008 | D. SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulation, 2003
View Correct Answer & Detailed Explanation
Explanation: As per these regulations, SEBI can direct an intermediary or associated person not to dispose of or alienate an asset forming part of a fraudulent and unfair transaction pending investigation.
Q 68. ________ regulates the registered valuers in India.
Options:
A. SEBI | B. ROC | C. ICAI | D. IBBI
View Correct Answer & Detailed Explanation
Explanation: IBBI is the regulator for overseeing the insolvency process and professionals. It is also appointed as the authority for regulation and development of valuers in India.
Q 69. ________ measures the ability of the company to satisfy its short term obligations.
Options:
A. Current Ratio | B. High ROE | C. High ROCE | D. Inventory Turnover Ratio
View Correct Answer & Detailed Explanation
Explanation: Current Ratio compares current assets with current liabilities, measuring the ability of the company to meet its short-term obligations.
Q 70. When does a company usually declare its final dividend, if any ?
Options:
A. Any time during the year | B. At the end of financial year | C. Monthly | D. Quarterly
View Correct Answer & Detailed Explanation
Explanation: Final dividend is always declared at the end of the financial year. 'Interim dividends' can be declared during the financial year.
Q 71. Ms. Swati is a research analyst and has assessed the fair value of a listed stock at Rs. 570. The current market price of this stock is Rs. 475. Identify the appropriate way in which this can be expressed in a research report.
Options:
A. We assign an 'Overweight' rating on the stock with target price of Rs. 570
B. We assign a BUY rating on the stock and it can approx 20% return in one year
C. We firmly recommend that investors should buy this share
D. All of the above
View Correct Answer & Detailed Explanation
Explanation: Research reports should use standardized ratings and target prices. Overweight indicates expectation to outperform. Phrases like "approx 20% return" or firm recommendations are inappropriate for objective research reports.
Q 72. If the price of a stock breaks its RESISTANCE LEVEL, it is ________.
Options:
A. most likely to rise till the next resistance level | B. most likely to stay at the same price | C. most likely to slowly decline | D. most likely to decline at a fast pace
View Correct Answer & Detailed Explanation
Explanation: Resistance is a price point where traders expect maximum supply. If price breaks this with good volumes, it signals strong demand likely to push the price to the next resistance level.
Q 73. SEBI has given guidelines for Research Analyst with the main intention of ________.
Options:
A. Research Analyst to follow all compliance rules | B. Investors never lose money | C. building confidence among the investors | D. Both building confidence and investors never losing money
View Correct Answer & Detailed Explanation
Explanation: The prime objective of these regulations is to protect investors and enhance confidence in the market. No one can guarantee that investors never lose money due to inherent market risks.
Q 74. What does the Wholesale Price Index (WPI) indicate?
Options:
A. WPI is a basket based on general consumption at wholesale prices
B. WPI is a basket based on general consumption at retail prices
C. WPI is a basket based on general consumption at both wholesale and retail prices
D. None of the above
View Correct Answer & Detailed Explanation
Explanation: WPI measures inflation at the wholesale level. It contrasts with CPI, which measures inflation at the retail level.
Q 75. The ________ section of a research report will contain the analysis of competition landscape.
Options:
A. Industry Analysis | B. Company Analysis | C. Valuation Analysis | D. All of the above
View Correct Answer & Detailed Explanation
Explanation: Industry analysis requires understanding the regulatory environment, business models, and the competitive landscape prevalent in that specific industry.
Mock Test 9 of 24 Complete. 225 questions done! You're making excellent progress.
Dhaval Visariya
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