CHAPTER 1
OVERVIEW
1.
A market participant has a time horizon of one week. He is typically:
a.
b.
c.
d.
e.
2.
Which one of the following is not one among the broad categories in
which shares are classified into:
a.
b.
c.
d.
e.
3.
True
b.
False
Resilience of a market means:
a.
b.
c.
d.
e.
5.
Speculative shares
Advancing shares
Cyclical shares
Income shares
None of the above
A preference share is a hybrid instrument:
a.
4.
A trader
An investor
A speculator
A gambler
None of the above
There are no frequent price changes in the market
New orders emerge in response to price changes
The market volume is resilient
All the above
None of the above
Traditionally the cut off between short-term and long-term financial
claims has been:
a.
b.
c.
d.
e.
Three years
Five years
Six months
One year
None of the above
6.
Which one of the following factors is not behind the globalisation of
financial markets?
a.
b.
c.
d.
e.
7.
The most important decision in portfolio management is the:
a.
b.
c.
d.
e.
8.
Market value
Discounted value
Value at which it was issued
Long-term average value
None of the above
Investor performance in the long run may not depend on:
a.
b.
c.
d.
e.
10.
Choice of the market
Choice of the instruments
Choice of the asset mix
Cost of the management
None of the above
The true value of a security is its:
a.
b.
c.
d.
e.
9.
Deregulation
Institutionalisation
Liberalisation.
Cartelisation
None of the above
Maintaining composure
Sticking to a pattern
Patience
Diligence
None of the above
The ‘reflexivity’ principle is a special insight developed by
a.
b.
c.
d.
e.
George Soros
Warren Buffett
J.M. Keynes
Benjamin Graham
None of the above
11
Usually, the investment horizon of a speculator is relatively:
a.
b.
c.
d.
e.
12.
An investor typically attaches greater significance to :
a.
b.
c.
d.
e.
13.
Fundamental factors.
Hearsay
Market psychology
All the above
None of the above
Rational people:
a.
b.
c.
d.
e.
14.
Very long
Very short
Medium
Arbitrary
None of the above
Never gamble willingly.
Gamble only for fun
Gamble for income
Consider gambling as a bet on an economic activity.
None of the above
Gambling by gentlemen is called speculation:
a. True
15.
b.
False
Which of the following is not a money market instrument?
a.
b.
c.
d.
e.
Treasury bill
Certificate of deposit
Commercial paper
Repos
None of the above
16.
As an equity shareholder your position with respect to the company is
that of:
a.
b.
c.
d.
e.
17.
Which of the following may not be a factor to judge the liquidity of a
market?
a.
b.
c.
d.
e.
18.
Price
Liquidity
Desirability
All the above
None of the above
The type of claim equity shareholders have on a company is:
a.
b.
c.
d.
e.
20.
Resilience
Breadth
Depth
Volatility
None of the above
Sloppiness in investment decisions could be a result of high:
a.
b.
c.
d.
e.
19.
A creditor
A debtor
An owner
A promoter
None of the above
Fixed
Relative
Residual
Co obligatory
None of the above
A security cannot be both ‘exchange traded’ and ‘over the counter’’
traded:
a.
True
b.
False
21.
Subscribers to ‘castles-in-the-air’ theory believe in:
a.
b.
c.
d.
e.
Fundamental analysis
Discriminate analysis
Differential analysis
Technical analysis
None of the above
KEY
1(a)
2 (b)
3 (a)
4 (b)
5 (d)
6 (d)
7 (c)
8 (e)
9 (b)
10 (a)
11(b)
12(a)
13(b)
14(b)
15(e)
16(c)
17(d)
18(b)
19(c)
20(b)
21(d)
CHAPTER 2
INVESTMENT ALTERNATIVES
1.
Deposits in scheduled banks are very safe because:
a.
b.
c.
d.
e.
2.
A fixed deposit in a bank cannot be withdrawn before maturity.
a.
3.
5.
b.
False
RBI
Company Law Board
SEBI
Registrar of Companies
None of the above
A non-banking finance company can issue deposits for a longer period
than a manufacturing company:
a.
True
b.
False
Which one of the following is the most liquid:
a.
b.
c.
d.
e.
6.
True
Fixed deposits mobilised by finance companies are regulated by:
a.
b.
c.
d.
e.
4.
They are fully insured by the bank
They are supervised by RBI
They are guaranteed by RBI upto an extent
Both b and c
None of the above
National Savings Certificate
Kisan Vikas Patra
Public Provident Fund
Bank fixed deposit
None of the above
An asset play will typically be a:
a.
b.
c.
d.
e.
Turnaround
Stalwart
Cyclical
Fast grower
None of the above
7.
A participating policy allows an investor to:
a.
b.
c.
d.
e.
8.
A paid-up policy can only be a:
a.
b.
c.
d.
e.
9.
Rs.50, 000
Rs. 25,000
Rs.75, 000
Rs.100, 000
None of the above.
Which type of account in scheduled banks generally does not earn any
interest?
a.
b.
c.
d.
e.
11.
Participating Endowment Assurance
Non commutable deferred annuity
Term assurance policy
Endowment benefit policy
None of the above
The amount of deposit guaranteed by Deposit Insurance Corporation
per depositor in a scheduled bank is:
a.
b.
c.
d.
e.
10.
Receive dividend
Receive bonus
Allow inclusion of close dependents
All the above
None of the above
Current account
Recurring deposit account
Savings account
Fixed deposit account
None of the above
Bank deposits in scheduled banks are regulated by:
a.
b.
c.
d.
e.
SEBI
Ministry of Finance
Indian Banks Association
Reserve Bank of India
None of the above
12.
To qualify for income tax relief, a bank deposit should have a maturity
of at least:
a.
b.
c.
d.
e.
13.
One disadvantage of Post Office Monthly Income Scheme is that it cannot
be closed before maturity:
a.
14.
Six years
Five years
Four years
Fifty calendar months
None of the above
True
b.
False
Other things being equal, a deposit in which of the following generally
fetches the highest rate of interest?
a.
b.
c.
d.
e.
Post office
Commercial bank
Company
Both b and c
None of the above
15.
CBLO is not a money market instrument:
a.
True
b.
False
16.
The money market is dominated by:
a.
b.
c.
d.
e.
Corporates
Banks
Financial institutions
Government
None of the above
17.
Treasury bills are the obligations of:
a.
b.
c.
d.
e.
18.
The negligible price-risk of treasury bills is on account of:
a.
b.
c.
d.
e.
19.
Primary dealers
All-India financial institutions
Commercial banks
Corporates
None of the above
Which of the following carries an interest rate on its face ?
a.
b.
c.
d.
e.
21.
Their short tenor
Their ownership pattern
Their supervision by RBI
Both b and c.
None of the above
Who among the following usually do not issue commercial papers?
a.
b.
c.
d.
e.
20.
State Bank of India
Reserve Bank of India
Government of India
FIMMDA
None of the above
Commercial paper
Treasury bill
Certificate of deposit
Both a and c
None of the above
While commercial papers are transferable, certificates of deposits are
not:
a.
True
b.
False
22.
CBLO is operated by:
a.
b.
c.
d.
e.
23.
State Development loans are managed by:
a.
b.
c.
d.
e.
24.
Absolute
Direct
Indirect
Notional
None of the above
As per SEBI guidelines a mutual fund should be constituted in the form
of a:
a.
b.
c.
d.
e.
26.
RBI
State Development Corporation
State Bank of India
Planning Commission
None of the above
The type of control exerted by equity shareholders on their company is:
a.
b.
c.
d.
e.
25.
NSDL
WDS of NSE
PDO of RBI
CCIL
None of the above
Company
Trust
Association of Persons
Either b or c
None of the above
The trustees of a mutual fund are appointed by its Asset Management
Company:
a.
True
b.
False
27.
Which type of policies can also be a tax efficient way of transferring
wealth at any age depending on legislation (often reducing the liability
to inheritance tax)?
a.
b.
c.
d.
e.
28.
Any sum received under a life insurance policy, including the sum
allocated by way of bonus on such policy is exempt from tax under
Section 10 (10D) of the Income Tax Act:
a.
29.
True
b. False
The interest rate on the provident fund balance is declared:
a.
b.
c.
d.
e.
30.
Money Back Plan
Endowment Assurance
Unit Linked Plan
Whole Life Assurance
None of the above
On the last Friday of every quarter
Semi annually
Annually
It is not declared publicly
None of the above
Under New Pension Scheme, Tier II contribution will be kept in a nonwithdrawable Pension Tier II account:
a. True
b. False
31.
Payment under a deferred annuity insurance scheme cannot start
immediately:
a.
True
b.
False
32.
Historically, the most rewarding asset class in India financially has
been:
a.
b.
c.
d.
e.
Equity shares
Gold
Commodities
Real estate
None of the above
KEY
1 (e)
2 (b)
3 (a)
4 (a)
5 (d)
6 (e)
7 (b)
8 (e)
9(d)
10(a)
11(d)
12(b)
13(b)
14(c)
15(b)
16(d)
17(c)
18(a)
19(c)
20(c)
21(b)
22(d)
23(a)
24(c)
25(b)
26(b)
27(d)
28(a)
29(c)
30(b)
31(a)
32(d)
CHAPTER 3
SECURITIES MARKET
1.
Book building is used to help in better:
a.
b.
c.
d.
e.
2.
Sensex is an equal-weighted index:
(a)
3.
(b)
False
Value weighted index
Equal weighed index
Price weighted index
Hybrid index
None of the above
An example of a collateralised short term lending transaction is:
(a)
(b)
(c)
(d)
(e)
5.
True
Nifty is a :
(a)
(b)
(c)
(d)
(e)
4.
Price discovery
Retail participation
Institutional participation
Investor communication
None of the above
Sterilization
Repo
Bank overdraft
Commercial paper
None of the above
Commercial Papers form part of :
(a)
(b)
(c)
(d)
(e)
Bills limit
Working capital limit
LC limit
Guarantee limit
None of the above
6.
In a Dutch auction successful bidders pay the actual price (yield) they
bid for:
(a)
7.
True
(b)
False
Underwrites an issue of securities
Finances an issue of securities
Manages an issue of securities
Collects the subscriptions in an issue of securities.
None of the above
Allotment of shares in a public issue is decided in consultation with:
(a)
(b)
(c)
(d)
(e)
10.
False
A merchant banker:
(a)
(b)
(c)
(d)
(e)
9.
(b)
In a French auction successful bidders pay the actual price (yield) they
bid for:
(a)
8.
True
SEBI
The stock exchange where the share will be listed
Registrar and Transfer Agents
Registrar of Companies in whose jurisdiction the Corporate office
of the issuing firm falls
None of the above
The purpose of IPO rating is to assess the:
(a)
(b)
(c)
(d)
(e)
Investment attractiveness of the issue
Creditworthiness of the company
Fundamental strength of the company
Regulatory compliance of the company
None of the above
11.
Preferential allotment of shares in India is given mainly to:
(a)
(b)
(c)
(d)
(e)
12.
In a block deal, the price is:
(a)
(b)
(c)
(d)
(e)
13.
(b)
False
With the deepening of the market
If the open cry system is reintroduced
If there are large number of institutional investors
If there are restrictions on the speculators
None of the above
For non-delivery based trades (day trades and arbitrage trades) in
equity the STT is less than delivery based trades:
(a)
16.
True
Market impact cost will come down:
(a)
(b)
(c)
(d)
(e)
15.
Discovered by transparent bidding
Negotiated in advance
Arrived at as per a formula set by the exchange
Average of the top ten bids
None of the above
By holding shares in the physical form as against the demat form, an
investor can retain his voting rights:
(a)
14.
Promoters or friendly investors
Employees
Preference share holders
Reserved categories
None of the above
True
(b)
False
Liquidity in a market is supplied by:
(a)
(b)
(c)
(d)
(e)
Those placing active limit orders
Market makers
Jobbers
All the above
None of the above
17.
While matching orders for equity trading in NSE, which one of the
following gets precedence over all the others?
(a)
(b)
(c)
(d)
(e)
18.
Free float represents:
(a)
(b)
(c)
(d)
(e)
19.
SEBI
RBI
NSE
BSE
None of the above
Which one of the following is not one of the factors that attract young
technology companies to list on NASDAQ?
(a)
(b)
(c)
(d)
(e)
21.
Promoters’ non-strategic shareholding
Non-promoter non-strategic shareholding
Shareholdings by non- FIs and non-FIIs
Non-government shareholdings
None of the above
EDIFAR is maintained by:
(a)
(b)
(c)
(d)
(e)
20.
Time of the order
Price of the order
Size of the order
Both b and c
None of the above
Relatively low listing costs
Relatively low listing requirements
Relatively low settlement time
All the above
None of the above
Spot the odd member in the following group:
(a)
(b)
(c)
(d)
PDAI
FIMMDA
AMFI
TRAI
22.
The largest holders of G-secs in India are:
(a)
(b)
(c)
(d)
(e)
23.
Which one of the following facilities is provided by RBI?
(a)
(b)
(c)
(d)
(e)
24.
CRISIL
NSE
I-Sec
CCIL
None of the above.
The bulk of corporate debt in India is issued through:
(a)
(b)
(c)
(d)
(e)
26.
SGL
WDM
BOLT
STT
None of the above.
The most popular bond market index in India is provided by:
(a)
(b)
(c)
(d)
(e)
25.
Insurance companies
FIIs
Banks
Provident funds
None of the above
Preferential allotment
Private placement
Dutch auction
French auction.
None of the above.
If you are doing a reverse repo, you:
(a)
(b)
(c)
(d)
(e)
Lend the securities
Borrow the securities
Pledge the securities
Auction the securities
None of the above
27.
All trades on NSE are guaranteed by:
(a)
(b)
(c)
(d)
(e)
28.
In respect of the sample shares, Sensex reflects the movement of:
(a)
(b)
(c)
(d)
(e)
29.
Banks
Money market
Government securities market
All the above
None of the above
Which of the following is not a depository?
a.
b.
c.
d.
e.
31.
Average total market value of the floating stocks
Average market value of the floating stocks times a fixed multiple
Average capitalisation of the issued and paid up stocks
Average aggregate market value of the subscribed stocks
None of the above
The Reserve Bank of India is primarily responsible for the supervision
of:
a.
b.
c.
d.
e.
30.
SEBI
NSDL
NSCC
CDSL
None of the above.
NSDL
PSDL
CSDL
Both c and a
None of the above
Primary Dealers are appointed by:
a.
b.
c.
d.
e.
SEBI
FIMMDA
RBI
MCA
None of the above
32.
Primary dealers can serve only as market makers in the secondary
market for government securities. They are not allowed to underwrite
in the primary market:
a. True
33.
b.
False
True
b.
False
The main purpose of the various regulations in respect of
preferential allotment of shares is to:
a.
b.
c.
d.
e.
37.
True
In India public issues now have necessarily to be book built ones:
a.
36.
Registrar
Custodian
Transfer agents
Asset Management Company
None of the above
Registrars and transfer agents handle all investor related services of a
mutual fund:
a.
35.
False
Who in a mutual fund receives and delivers securities?
a.
b.
c.
d.
e.
34.
b.
Prevent misuse
Ensure better participation by retail investors
Ensure that the shares go to the hands of strong institutions
Safeguard the interest of the original promoters
None of the above
A very popular form for raising equity capital is to go in for:
a.
b.
c.
d.
e.
Rights issue
Preferential issue to promoters
Reserving large portions to retail investors
QIP
None of the above
38.
Which of the following issue may not need any solicitation on the part of
the company?
a.
b.
c.
d.
e.
39.
An anchor investor is a:
a.
b.
c.
d.
e.
40.
Rights issue
Bonus issue
QIP
Book built issue
None of the above
Financial institution
FII
QIB
VC
None of the above
The identity of a trading member is not revealed by NSE to others even
when his pending orders are displayed:
a. True
41.
NSCC
NSDL
SEBI
Two accredited members of the committee on investor protection
None of the above
NSE hugely benefited by adopting the technological advances made by
the BSE:
b. True
43.
False
On NSC, counterparty risk is eliminated by the presence of:
a.
b.
c.
d.
e.
42.
b.
b.
False
Which of the following exchanges is yet to be demutualised?
a.
b.
c.
d.
e.
BSE
London Stock Exchange
NASDAQ
Tokyo Stock Exchange
None of the above
44.
Securities which are not listed are also traded on a stock exchange:
a.
45.
b. False
True
b. False
Higher depth
Larger volume
Higher breadth
Lower transaction costs.
None of the above
Screen based trading may not be advantageous to:
a.
b.
c.
d.
e.
50.
True
Internal efficiency of a market is indicated by:
a.
b.
c.
d.
e.
49.
Bulk deal
Block deal
Odd lot deal
All the above
None of the above
Bulk deals are done on a stock exchange, primarily for reporting
purposes:
a.
48.
False
There is a separate window for block deals on BSE and NSE:
a.
47.
b.
In which of the following deals on NSE, the price is predetermined?
a.
b.
c.
d.
e.
46.
True
Retail investors
Institutional investors
Promoters
Jobbers
None of the above
An investor whose shares are lodged with a depository will cease to be
the owner of the shares in the register of the company:
a.
True
b.
False
51.
Shares in the depository mode will not be fungible:
a. True
52.
b.
No
One week
Ten days
Three days
Fifteen days
None of the above
The cut-off date for ‘ex-dividend’ transactions is normally fixed by:
a.
b.
c.
d.
e.
56.
Yes
Requests for registration of transfers would not be accepted by a
company, if there is book closure due within:
a.
b.
c.
d.
e.
55.
Annual general meeting
Bonus issues
Rights issues
All the above
None of the above
A company has decided that the record date for rights issue would be 6 th
of June. Is anything wrong with that date?
a.
54.
False
A company closes its transfer books at the time of:
a.
b.
c.
d.
e.
53.
b.
The Board of Directors of the company.
A resolution in the AGM
SEBI
The stock exchange authorities.
None of the above
The abbreviation ‘cr’ affixed after the price of a share indicates that it is
a.
b.
c.
d.
e.
Cum-rights
Carries risk
Cross record
Certainly right
None of the above
57.
The shares that become ‘ex-dividend’ may pay dividend in future:
a. True
58.
The base value of Nifty index is:
a.
b.
c.
d.
e.
59
Liquidity
Concentration
Resilience
Focus
None of the above
If the objective of a stock market index is to indicate changes in the
aggregate value of all stocks, the appropriate choice would be a:
a.
b.
c.
d.
e.
61.
3000
1000
4000
2000
None of the above
Constructing a good index involves a trade off between diversification
and:
a.
b.
c.
d.
e.
60.
b. False
Aggregate value index
Normalised index
Equal weighted index
Value-weighted index
None of the above
Clause 49 in the listing agreement pertains to:
a.
b.
c.
d.
e.
Corporate governance
Permissible leverage
Working capital management
Location of the corporate office and the details of all overseas
branches
None of the above
62.
Mutual funds are under the joint purview of SEBI and RBI:
a.
63.
ZITS
IRDP
IMSS
PSPO
None of the above
Wash sales
Pumping and dumping
Synchronised trading
Any or all the above
None of the above
Most actively traded large stocks on the Tokyo Stock Exchange are not
traded electronically:
a.
66.
False
A stock market manipulator may like to indulge in:
a.
b.
c.
d.
e.
65.
b.
Thanks to the following system, officials of SEBI can detect capital
market offences like market domination and control, artificial rigging,
and creation of false market:
a.
b.
c.
d.
e.
64.
True
True
b.
False
More than three fourths of the turnover in the Indian secondary
markets is on account of:
a.
b.
c.
d.
e.
Corporate bonds
Government securities
Bank accepted bills
Commercial bills
None of the above
67.
The cut-off price in G-Secs auctions is decided by:
a.
b.
c.
d.
e.
68.
One disadvantage of SGL is that G-Secs cannot be held therein in demat
form:
a.
69.
b.
False
Mutual funds
Primary dealers
Satellite dealers
Trusts
None of the above
The most active players in the secondary G-Secs market are:
a.
b.
c.
d.
e.
71.
True
Who among the following is not eligible to invest in G-Secs?
a.
b.
c.
d.
e.
70.
The stock exchange concerned
CCIL
RBI
SEBI
None of the above
Commercial banks
Primary Dealers
Insurance companies
Mutual funds
None of the above
Prices estimated using bond valuation models are known as:
a.
b.
c.
d.
e.
Formula prices
Matrix prices
Model prices
Yield curve prices
None of the above
72.
Which of the following is not true in respect of corporate bonds that are
to be publicly traded: They have to be:
a.
b.
c.
d.
e.
73.
The maximum period for which a repo can be done is:
a.
b.
c.
d.
e.
74.
7 days
10 days
15 days
30 days
None of the above
A financial institution is allowed to do repos as well as reverse repos:
a.
75.
Secured
Credit-rated
Listed
All the above
None of the above
True
b.
False
Who among the following can borrow in the call money market?
a.
b.
c.
d.
e.
Mutual Funds
Financial Institutions
Primary Dealers
All the above
None of the above
KEY
1 (a)
2 (b)
3 (a)
4 (b)
5 (b)
6 (b)
7 (a)
8 (c)
9 (b)
10 (c)
11(a)
12(b)
13(b)
14(a)
15(a)
16(d)
17(b)
18(b)
19(a)
20(c)
21(d)
22(c)
23(a)
24(c)
25(b)
26(b)
27(c)
28(e)
29(d)
30(b)
31(c)
32(b)
33(b)
34(a)
35(b)
36(a)
37(d)
38(b)
39(c)
40(a)
41(a)
42(b)
43(e)
44(a)
45(b)
46(a)
47(a)
48(d)
49(b)
50(a)
51(b)
52(a)
53(b)
54(e)
55(d)
56(a)
57(a)
58(b)
59(a)
60(d)
61(a)
62(b)
63(c)
64(d)
65(a)
66(b)
67(c)
68(b)
69(e)
70(b)
71(b)
72(e)
73(e)
74(b)
75(c)
CHAPTER 4
RISK AND RETURN
1.
Variance will always be:
(a)
(b)
(c)
(d)
(e)
2.
An investor for whom the certainty index is less than the expected
value, is:
(a)
(b)
(c)
(d)
(e)
3.
Risk loving
Risk averse
Risk neutral
Risk allergic
None of the above
A normal distribution is completely characterised by:
(a)
(b)
(c)
(d)
(e)
4.
Positive
Negative
Variable
Very high
None of the above
Expected return and standard deviation
Required return and variance
Expected return and range
Standard return and expected variance
None of the above
If a variable is normally distributed what percentage of the values fall
within a band of one standard deviation on either side of the arithmetic
mean:
(a)
(b)
(c)
(d)
(e)
95.4 percent
68.3 percent
99.7 percent
57.5 percent
None of the above
5.
If a variable is normally distributed what percentage of values will fall
within a band of three standard deviations on either side of the
arithmetic mean?
(a) 95.4 percent
(b) 68.3 percent
(c) 99.7 percent
(d) 57.5 percent
(e) None of the above
6.
A return relative is:
(a)
(b)
(c)
(d)
(e)
7.
8.
Bond horizon premium refers to the difference between the returns on:
(a)
(b)
(c)
Long term corporate bonds and treasury bills
Long term government bonds and treasury bills
Long term corporate bonds and long term government bonds
(d)
(e)
Short term corporate bonds and treasury bonds
None of the above
Which of the following is true?
(a)
(b)
(c)
(d)
(e)
9.
Total return +1
1- Total return
1/ Total return
1 + 1/ Total return
None of the above
The geometric mean is always less than the arithmetic mean
The geometric mean is always greater than the arithmetic mean
The geometric mean and the arithmetic mean are always the same
The geometric mean is always less than the arithmetic mean,
except when all the return values being considered are equal
None of the above
Which one of the following cannot be negative?
(a)
(b)
(c)
(d)
(e)
Current return
Capital return
Total return
Both a and b
None of the above
10.
Geometric measure is more accurate than arithmetic mean:
(a)
11.
True
(b)
False
Risk-neutral
Risk-loving
Risk-averse
None of the above
Use of probability distribution in investment analysis makes it:
(a)
(b)
(c)
(d)
(e)
14.
False
In general, investors are:
(a)
(b)
(c)
(d)
13.
(b)
Real returns are typically less than notional returns:
(a)
12.
True
More rational
More objective
More subjective
Both a and b
None of the above
When the probability distribution of rate of return of a security is
defined, the possible outcomes:
(a)
(b)
(c)
(d)
(e)
Should be mutually exclusive
Should be collectively exhaustive
Should not add to more than 1
All the above
None of the above
15.
Preparing the probability distribution of rate of return of a security is:
(a)
(b)
(c)
(d)
(e)
16.
While analysing the returns of a security based on a continuous
probability distribution, probabilities are assigned to:
(a)
(b)
(c)
(d)
(e)
17.
Individual points on the curve
Intervals between two points on the curve
The gradient between any two referenced points on the curve
Either b or c
None of the above
Large scale participation of institutions in the stock market has
considerably dampened the price fluctuations in the market:
a.
18.
An objective exercise based on the prevailing market conditions
An objective exercise based on the past history of the securities
performance
An objective exercise based on the future prospects of the security
A subjective exercise
None of the above
True
b.
False
For estimating discount rates and cost of capital arithmetic mean is
preferable to geometric mean:
a. True
20.
False
Return relative cannot be negative:
a. True
19.
b.
b.
False
Real return cannot exceed notional return even when the inflation is
very low:
a. True
b.
False
21.
All information on the probability distribution of a given set of values
can be obtained if we know its:
a.
b.
c.
d.
e.
22.
Mean
Standard deviation
Variance
Both a and b
None of the above
It is quite possible for the actual return on a risky investment to be less
than that on a less risky investment:
a. True
23.
b.
In very extreme cases, the sum of the probabilities associated with all
the possible outcomes of an event can marginally exceed one:
a. True
24.
b.
False
When probabilities are assigned only to a finite number of specific
values, the distribution is called a:
a.
b.
c.
d.
e.
25.
False
Discrete distribution
Indiscrete distribution
Skewed distribution
Finite value distribution
None of the above
A normal distribution is a continuous probability distribution:
a. True
b.
False
KEY
1 (a)
2 (b)
3 (a)
4 (b)
5 (c)
6 (a)
7 (b)
8 (d)
9 (a)
10 (b)
11(a)
12(c)
13(e)
14(d)
15(d)
16(b)
17(b)
18(a)
19(a)
20(a)
21(e)
22(a)
23(b)
24(a)
25(a)
CHAPTER 5
THE TIME VALUE OF MONEY
1.
If you were scheduled to receive Rs. 100,000 five years hence, but you
wish to sell your contract note for its present value, which type of
compounding would you rather have the purchaser of your contract
note to use to find the purchase price, 8 percent compounded:
(a)
(b)
(c)
(d)
(e)
2.
According to the rule of 69, the doubling period is equal to;
(a)
(b)
(c)
(d)
(e)
3.
0.25 + (69/ Interest rate)
0.35 + (69/ Interest rate)
0.69 +
(0.35/ Interest rate)
0.69 + (0.25 / Interest rate)
None of the above
For a depositor, when the frequency of compounding is increased :
(a)
(b)
(c)
(d)
(e)
4.
Continuously
Quarterly
Semi-annually
Annually
Monthly
Additional gains increase
Additional gains dwindle
Additional gains are unaffected
There are no additional gains
None of the above
Present value interest factor of a perpetuity represents:
(a)
(b)
(c)
(d)
(e)
Interest rate in percentage terms
Reciprocal of interest rate in percentage terms
Reciprocal of interest rate in decimal terms
Interest rate in decimal terms
None of the above
5.
The present value of a perpetuity of one rupee when the interest rate is
r percent is :
(a)
(b)
(c)
(d)
(e)
6.
The present value of an annuity due is equal to the present value of a
regular annuity multiplied by:
(a)
(b)
(c)
(d)
(e)
7.
r
(1 + r)
1/r
r(1 + r)
None of the above
Recurring deposit in a bank is a typical example of:
(a)
(b)
(c)
(d)
(e)
8.
1/r
1/ r2
1/r0.5
2 r2
None of the above
Deferred annuity
Annuity due
Regular annuity
Compound annuity
None of the above
Deposits in a sinking fund is an example of:
(a)
(b)
(c)
(d)
(e)
Deferred annuity
Annuity due
Regular annuity
Either a or c
None of the above
9.
In a loan amortization schedule, as the number of years increases, in the
equated instalment, the proportion of :
(a)
(b)
(c)
(d)
(e)
The interest amount increases
The principal repayment amount increases
The annual installment amount decreases
Both a and c
None of the above
10.
In a low inflationary period a rupee today represents a greater real
purchasing power than a rupee a year hence:
a. True
11.
b.
In a deferred annuity, cash flows start immediately after the first
period:
a. True
12.
False
b.
False
A deferred annually is also known as:
a.
b.
c.
d.
e.
Regular annuity
Annuity due
Postponed annuity
Stayed annuity
None of the above
KEY
1 (d)
2 (b)
3 (b)
10(a)
11(a)
12(a)
4 (c)
5 (a)
6 (b)
7 (b)
8 (d)
9 (a)
CHAPTER 6
FINANCIAL STATEMENT ANALYSIS
1.
An example of an intangible asset is:
(a)
(b)
(c)
(d)
(e)
2.
Which of the following is not a source of cash:
(a)
(b)
(c)
(d)
(e)
3.
Capital reserve
Revenue reserve
Capital redemption reserve
General reserve
None of the above
Which one of the following is not a secured loan?
(a)
(b)
(c)
(d)
(e)
5.
Increase in liabilities
Increase in assets
Increase in owner’s equity
All the above
None of the above
Revaluation reserve is a:
(a)
(b)
(c)
(d)
(e)
4.
Provisions
Copyrights
Prepaid expenses
Depreciation
None of the above
Loan against hypothecation
Loan against pledge
Loan against commercial paper
Loan against certificate of deposit
None of the above
Allocation of cost to various accounting periods is done in respect of:
(a)
(b)
(c)
(d)
(e)
Inventory
Long term investments
Patent
Quoted securities
None of the above
6.
Which one of the following is not a current asset as per the Companies
Act classification?
(a) Deferred tax asset
(b) Prepaid expenses
(c) Advances to suppliers
(d) Interest accrued on investments
(e) None of the above
7.
Discount allowed on the issue of securities is to be classified under:
(a)
(b)
(c)
(d)
(e)
8.
Which one of the following is a leverage ratio?
(a)
(b)
(c)
(d)
(e)
9.
Acid-test ratio
Interest coverage ratio
Price earning ratio
Earning power
None of the above
Other things being equal, you will prefer to invest in a company that has:
(a)
(b)
(c)
(d)
(e)
10.
Current liability
Non current liability
Current asset
Miscellaneous expenses and losses
None of the above
Current ratio more than 1 and debt equity ratio less than1
Debt equity ratio more than 1 and current ratio less than 1
Both current ratio and debt equity ratio more than 1
Both current ratio and debt equity ratio less than 1
None of the above
A company’s current ratio is 2.0. If the company uses cash to pay a
trade creditor, would this transaction increase or decrease the current
ratio and asset turnover ratio?
Current ratio
Asset turnover ratio
(a) Increase
Increase
(b) Increase
Decrease
(c) Decrease
Increase
(d) Decrease
Decrease
(e) None of the above
11.
All other things being equal, what effects will the payment of a cash
dividend have on the following ratios?
Times Interest Earned
Debt/Equity
Ratio
(a) No effect
No effect
(b) Increase
Increase
(c) No effect
Increase
(d) Decrease
Decrease
(e) None of the above
12.
Which one of the following ratios will be of special interest for a person
investing in corporate bonds?
(a)
(b)
(c)
(d)
(e)
13.
In debt service coverage ratio interest on term debt appears in:
(a)
(b)
(c)
(d)
(e)
14.
Numerator
Denominator
Nowhere
Both a and b
None of the above
Tobin q ratio is the ratio of:
(a)
(b)
(c)
(d)
(e)
15.
Asset turnover ratio
Price-earnings ratio
Fixed charges coverage ratio
Acid-test ratio
None of the above
Book value to market value
Book value to replacement cost
Market price to replacement cost
Market price to liquidation value
None of the above
Other ratios being equal, better short- term solvency is indicated by:
(a)
(b)
(c)
(d)
(e)
Higher current ratio
Lower debt-asset ratio
Lower debt-equity ratio
Higher fixed charges coverage ratio
None of the above
16.
Which one of the following is the most stringent measure of liquidity?
(a)
(b)
(c)
(d)
(e)
17.
If sales are steady and no capital expenditure is to be incurred, fixed
assets turnover ratio of a firm over the years will:
(a)
(b)
(c)
(d)
(e)
18.
Production
Pricing
Collection
Both a and b
None of the above
Net working capital is equal to:
(a)
(b)
(c)
(d)
(e)
20.
Increase
Decrease
Remains steady
Either b or c
None of the above
Gross profit margin ratio measures the efficiency of:
(a)
(b)
(c)
(d)
(e)
19.
Acid-test ratio.
Quick ratio
Cash ratio
Current ratio
None of the above
Excess of current assets over current liabilities
Excess of long term assets over long term liabilities
Excess of long term liabilities over current assets
Excess of current assets over long term liabilities
None of the above
The Companies Act, 1956 requires every company to prepare a cash
flow statement as part of financial statements:
a. True
b.
False
21.
A company’s annual turnover is Rs.10 crores. As per the Companies Act,
1956 and the Accounting Standards issued by the Institute of Chartered
Accountants of India, it need not prepare:
a.
b.
c.
d.
e.
22.
The rate of dividend on preference capital is generally:
a.
b.
c.
d.
e.
23.
Balance sheet
Profit and Loss Statement
Cash flow statement
Both a and c
None of the above
Variable
Indexed
Increased periodically
Fixed
None of the above
Bonds are typically secured by a charge on the assets of the firm:
a. True
24.
False
Deferred tax liability arises because of the temporary differences
between taxable income and:
a.
b.
c.
d.
e.
25.
b.
Economic profit
Actual profit
Notional profit
Accounting profit
None of the above
Leave encashment is not a short term provision in the balance sheet of a
company:
a.
True
b.
False
26.
Which of the following is not part of fixed assets in a company’s balance
sheet?
a.
b.
c.
d.
e.
27.
A company’s assets that would be liquidated within 24 months, which is
its normal operating cycle are, for balance sheet purposes:
a.
b.
c.
d.
e.
28.
Long term assets
Long term investments
Short term investments
Current assets
None of the above
Intangible fixed assets are reported in a company’s balance sheet at
their:
a.
b.
c.
d.
e.
29.
Intangible fixed assets
Capital work-in progress
Intangible assets under development
All the above
None of the above
Net book value
Net realisable value
Fair market value
b or c whichever is lower
None of the above
In the balance sheet, current investments are carried
a.
b.
c.
d.
e.
At cost
At market (fair) value
At realisable value
Lower of a and b
None of the above
30.
Which of the following is not part of inventory in the balance sheet?
a.
b.
c.
d.
e.
31
The cost of spares and stores is generally determined on weighted
average basis:
a.
32.
True
False
Finished goods
Raw materials
Packing materials
Stores and spares
None of the above
In financial statements, only the receivables considerd good are to be
included:
a. True
34.
b.
Absorption costing basis is generally used to arrive at the cost of:
a.
b.
c.
d.
e.
33.
Work-in-process
Stores and spares
Packing materials
Finished goods
None of the above
b.
False
Which of the following will not be part of other income in the balance
sheet of a finance company?
a.
b.
c.
d.
e.
Dividend income
Net gain/loss on sale of investments
Interest income
All the above
None of the above
35.
Surplus arising from the settlement of insurance claims can be reported
in a balance sheet under the head:
a.
b.
c.
d.
e.
36.
Potential dilution of equity arises on account of:
a.
b.
c.
d.
e.
37.
24 hours
48 hours
One week
One fortnight
None of the above
The discrepancy between economic depreciation and accounting
depreciation leads to:
a.
b.
c.
d.
e.
39.
Cconversion of debt into equity
Exercise of warrants
Stock options
All the above
None of the above
The time that could be taken by a listed company to furnish unaudited
quarterly financial statements to the stock exchange is:
a.
b.
c.
d.
e.
38.
Extra ordinary income
Exceptional income
Other income
Non-operating income
None of the above
Deferred tax asset
Deferred tax liability
Tax shields
Both a and c
None of the above
Higher the inflation, higher is the market value of a firm’s assets:
a.
True
b.
False
40.
In India, Accounting Standards are notified by;
a.
b.
c.
d.
e.
41.
Central government
SEBI
RBI
ICAI
None of the above
The ‘Indianised’ version of IFRS is known as:
a.
b.
c.
d.
e.
Ind IFRS
Bhar AS
Ind AS
IIFRS
None of the above
42.
There is no federal company law in the US :
a. True
b.
False
43.
The accounting standards that form the US GAAP are issued by:
a.
b.
c.
d.
e.
44.
The more principal based among the following is:
a.
b.
c.
d.
e.
45.
IASB
FASB
IRS
SEC
None of the above
IFRS
IAS
US GAAP
Ind AS
None of the above?
US GAAP has a less elaborate format for the accounting of derivatives
than IFRS:
a. True
b. False
46.
The ability of a firm to meet its obligations in the short run is referred to
by the term:
a.
b.
c.
d.
e.
47.
Which of the following is typically the least liquid component of current
assets:
a.
b.
c.
d.
e.
48.
Liquidity
Solvency
Resilience
Elasticity
None of the above
Receivables
Current investment
Loans and advances
Inventories
None of the above
Higher the debt-equity ratio, higher the degree of protection enjoyed
by the creditors:
a. True
49.
False
When the collection period allowed by a firm is greater than the
average collection period, it could also be due to:
a.
b.
c.
d.
e.
50.
b.
Liberal attitude
Conservative attitude
Sheer negligence
Laxity
None of the above
A ratio similar to the output-capital ratio in economic analysis is the :
a.
b.
c.
d.
e.
Total assets turnover
Inventory turnover
Debtors turnover
Capital sales turnover
None of the above
51.
Jointly considered, the gross and net profit margin ratios help an analyst
to:
a.
b.
c.
d.
e.
52.
Understand the cost structure of the firm
Understand the profit structure of the firm
Identify the sources of business efficiency/inefficiency
All the above
None of the above
Lower the interest, higher the Earning Power ratio:
a.
True
b.
False
53.
The post-tax version of earning power is:
a.
RONW
b.
ROCE
c.
Net profit margin
d.
Gross profit margin
e.
None of the above
54.
Enterprise value of a firm is its equity value plus market value of debt
a. True
55.
In a way the contribution of a firm to the wealth of society is reflected in
the following ratio exceeding one:
a.
b.
c.
d.
e.
56.
b. False
Market value to earning
EV-EBITDA
Market value to book value
All the above
None of the above
Empirical evidence supports the observation that higher the debt equity
ratio, higher is the:
a.
b.
c.
d.
e.
Equity beta
Market share
Resilience
Equity price
None of the above
57.
In respect of which of the following items, business firms have some
latitude in the accounting treatment?
a.
b.
c.
d.
e.
58.
Comparative financial statement analysis may be vitiated owing to:
a.
b.
c.
d.
e.
59.
Research and development expenses
Foreign exchange transactions
Revaluation of assets
All the above
None of the above
Diverse accounting policies practised
Differing sizes of the balance sheets
Considerable variations in the return on assets
All the above
None of the above
The problem of different ratios pointing in different directions can be
overcome to some extent using:
a.
Multivariate analysis
b.
Sensitivity analysis
c.
Scenario analysis
d.
Multiple discriminate analysis
e.
None of the above
KEY
1 (b)
2 (b)
3 (a)
4 (c)
5 (c)
6 (a)
7 (e)
8 (b)
9 (a)
10 (a)
11(a)
12(c)
13(d)
14(c)
15(a)
16(c)
17(a)
18(b)
19(a)
20(b)
21(c)
22(d)
23(a)
24(d)
25(a)
26(e)
27(d)
28(a)
29(d)
30(e)
31(a)
32(a)
33(b)
34(c)
35(b)
36(d)
37(b)
38(e)
39(a)
40(a)
41(c)
42(a)
43(b)
44(a)
45(b)
46(a)
47(d)
48(b)
49(b)
50(a)
51(d)
52(b)
53(b)
54(a)
55(c)
56(a)
57(d)
58(a)
59(d)
CHAPTER 7
PORTFOLIO THEORY
1.
Diversification eliminates risk if returns are:
(a)
(b)
(c)
(d)
(e)
2.
If the return on a security is negatively correlated with the market
return, its beta is:
(a)
(b)
(c)
(d)
(e)
3.
Less than zero
Less than one but more than zero
More than one
Independent of the market return
None of the above
Perfect comovement between two securities is indicated when the
coefficient of correlation between them is:
(a)
(b)
(c)
(d)
(e)
4.
Not perfectly positively correlated.
Perfectly positively correlated.
Perfectly negatively correlated.
All the above.
None of the above.
1
-1
Zero.
Either a or b
None of the above
In respect of an efficient portfolio:
(a)
(b)
(c)
(d)
(e)
There is no alternative with the same expected return and a lower
risk
There is no alternative with the same risk and a higher
expected return
There is no alternative with a higher expected return and a lower
risk
All the above
None of the above
5.
You have developed the following data on three stocks:
Stock
P
Q
R
Standard deviation
15 percent
25 percent
20 percent
Beta
0.79
0.61
1.29
If you are a risk minimiser, you should choose stock …… if it is to be held
in isolation and stock …… if it is to be held as part of a well-diversified
portfolio:
(a)
(b)
(c)
(d)
(e)
6.
Expected return is always :
(a)
(b)
(c)
(d)
(e)
7.
Higher than the fair return
Higher than the average return
Equal to the required return
Less than the required return
None of the above
In which of the following situations can you get the largest reduction in
risk by diversifying your investment across two stocks?
(a)
(b)
(c)
(d)
(e)
8.
R;Q
P;Q
R;P
Q;P
None of the above
There is perfect positive correlation
There is perfect negative correlation
When there is no correlation
When the beta of one of the stocks is one
None of the above
If the returns of two firms are negatively correlated, then one of them
must have a negative beta:
(a)
True
(b)
False
9.
What is the expected return of a zero-beta security?
(a)
(b)
(c)
(d)
(e)
10.
The single index model requires:
(a)
(b)
(c)
(d)
(e)
11.
n(n+1) estimates
n(n-1) estimates
3n+2 estimates
3n-2 estimates
None of the above
The Markowitz model requires:
(a)
(b)
(c)
(d)
(e)
12.
Market return
Risk-free rate of return
Market return- Risk- free return
Market return + Risk-free return
None of the above
3 n + 2 estimates
n (n + 1) /2 estimates
n (n – 1) /2 estimates
n (n + 3) /2 estimates
None of the above
The distribution of rates of return for securities X and Y are given
below:
State of the
Economy
Boom
Normal
Recession
Probability of
Occurrence
X
Y
0.20
10%
–10%
0.60
5%
5%
0.20
0%
50%
We can conclude from the above information that security X will reduce
the riskiness of a well-diversified portfolio more than security Y
(a)
True
(b)
False
13.
The first person to show quantitatively why and how diversification
reduces risk was:
a.
b.
c.
d.
e.
14.
Tobin
Markowitz
Modigliani
Jacobs
None of the above
Best possible portfolios have very little or no risk:
a.
15.
False
Unsystematic risk
Market risk
Systematic risk
Both b and c
None of the above
If the level of government spending is going to affect the fortunes of a
company, the same in portfolio theory is considered as forming part of:
a.
b.
c.
d.
e.
17.
b.
In portfolio theory, the emergence of a new competitor for a firm is
considered:
a.
b.
c.
d.
e.
16.
True
Unsystematic risk
Market risk
Systematic risk
Both b and c
None of the above
Standard deviation of a portfolio is never equal to the weighted average
of the risks of the individual securities in the portfolio;
a.
True
b.
False
18. Which of the following is relative measure:
a.
b.
c.
d.
e.
19.
Coefficient of correlation
Standard deviation
Covariance
All the above
None of the above
A negative covariance between the returns of two securities implies that
they move in exactly opposite direction:
a. True
20.
The variance of a well-diversified portfolio is largely determined by
the:.
a.
b.
c.
d.
e.
21.
Variance terms
Coefficients of variation
Standard deviations
Covariance terms
None of the above
The Markowitz model is highly:
a.
b.
c.
d.
e.
22.
b. False
Complicated
Quantitative
Information-intensive
Analytical
None of the above
One of the assumptions in the single-index model is that the error term
is not correlated with the return on the market portfolio:
a. True
b.
False
23.
Single index model is a very helpful simplification over the:
a. Markowitz model
b. Modigliani-Miller model
c. Tobin Q model
d. Bogle model
e. None of the above
24.
An efficient portfolio is:
a.
b.
c.
d.
e.
Smart
Easy to construct
Least expensive
Most profitable
None of the above
KEY
1 (c)
2 (a)
3 (d)
4 (d)
5 (b)
6 (e)
7 (b)
8 (b)
9 (b)
10 (c)
11(d)
12(b)
13(b)
14(b)
15(a)
16(c)
17(b)
18(a)
19(a)
20(d)
21(c)
22(a)
23(a)
24(e)
CHAPTER 8
CAPITAL ASSET PRICING AND ARBITRAGE PRICING THEORY
1.
A defensive stock is characterised by:
(a)
(b)
(c)
(d)
(e)
2.
Underpriced securities plot:
(a)
(b)
(c)
(d)
(e)
3.
Above the Security Market Line
Below the Security Market Line
Randomly above or below the Security Market Line
Any of the above
None of the above
Which one of the following is an assumption on which Arbitrage Pricing
Theory is based?
(a)
(b)
(c)
(d)
(e)
4.
Negative beta
Positive beta less than one
Positive beta more than one
Beta equal to one
None of the above
The utility functions of investors are quadratic
Security returns are normally distributed
The market portfolio is mean – variance efficient
All the above
None of the above
A portfolio consists of a stock and a treasury bill. Its covariance will be :
(a)
(b)
(c)
(d)
(e)
More than 1
Less than 1
1
Zero
None of the above
5.
An efficient portfolio is one in which there is no alternative with:
(a)
(b)
(c)
(d)
(e)
6.
As an investor relying on CAPM, you will buy a stock if its return plots:
(a)
(b)
(c)
(d)
(e)
7.
Capital asset pricing model
Single index model
Arbitrage pricing theory
(b) and (c)
None of the above
Which of the following is not an assumption of CAPM:
(a)
(b)
(c)
(d)
(e)
9.
Above the SML
On the SML
Below the SML
Below the CML
None of the above
The law of one price guides the following:
(a)
(b)
(c)
(d)
(e)
8.
The same expected return at a lower risk
Higher expected return at higher risk
Lower expected return at lower risk
The same expected return at a higher risk
None of the above
Individuals are risk averse
Individuals have homogeneous expectations
The quantity of risk assets in the market is unlimited
The market is perfect
None of the above
Which of the following is true:
(a)
(b)
(c)
(d)
(e)
The SML is a special case of CML
The CML is a special case of the SML
The CML is more reliable than the SML
The SML represents only efficient portfolios
None of the above
10.
The security market line depicts:
(a)
(b)
(c)
(d)
(e)
11.
The arbitrage pricing theory (APT) differs from the single-factor capital
asset pricing model (CAPM) because the APT:
(a)
(b)
(c)
(d)
(e)
12.
Recognises multiple systematic risk factors
Does not recognise multiple systematic risk factors
Does not treat risk as diversifiable
Both b and c
None of the above
In contrast to the capital asset pricing model, the arbitrage pricing
theory:
(a)
(b)
(c)
(d)
(e)
13.
The market portfolio as the optimal portfolio of risky securities
How the returns of a security are linked to the return on an index
How the expected return of a security is linked to its systematic
risk
A combination of the market portfolio and the risk-free return
None of the above
Requires that the markets be in equilibrium
Uses risk premium based on macro variables
Defines the number and identifies specific factors that determine
expected returns
Does not require the restrictive assumptions concerning the market
portfolio
None of the above
Portfolio theory as developed by Markowitz is essentially:
a.
b.
c.
d.
e.
Qualitative
Normative
Inductive
Reflective
None of the above
14.
CAPM can be used to produce a benchmark for evaluating various
investments:
a. True
15.
As per the CAPM, the beta of a security is proportional to the variance of
the market:
a.
b.
c.
d.
e.
16.
Inversely
Directly
Occasionally
There is no proportionality
None of the above
In a given market, higher the alpha of a stock:
a.
b.
c.
d.
e.
17.
Lower will be its attractiveness
Higher will be its attractiveness
Higher will be its beta
Lower will be the price per unit of risk
None of the above
The expected return from a security cannot be both as per the CML and
the SML:
a. True
18.
b. False
b.
False
Using daily returns in the estimation of beta may introduce:
a.
b.
c.
d.
e.
Trading bias
Non-trading bias
Speculative bias
Short term bias
None of the above
19.
Which of the following may have significant effect on the beta of a stock?
a.
b.
c.
d.
e.
20.
As per empirical studies, which of the following factors too seem to have
a bearing on the return of a security, in addition to beta:
a.
b.
c.
d.
e.
21.
Coefficient of variation
Standard deviation
Company size
Both b and c
None of the above
Which of the following assumptions undergird Arbitrage Pricing
Theory:
a.
b.
c.
d.
e.
22
Industry affiliation
Earnings variability
Financial leverage
All the above
None of the above
The utility functions of investors are quadratic
Security returns are normally distributed
The market portfolio that contains all risky assets is meanvariance efficient
All the above
None of the above
In Arbitrage Pricing Theory, investors’ preference for more wealth is
taken for granted:
a. True
23.
b. False
Fat tails are associated with:
a. High kurtosis
b. Low kurtosis
c. High convexity
d. Low skewness
e. None of the above
24.
The poor performance of active portfolio managers is consistent with
the classical market theory as well as the complex adaptive model:
a. True
b. False
KEY
1 (b)
2 (a)
3 (e)
4 (d)
5 (a)
6 (c)
7 (c)
8 (c)
9 (b)
10 (c)
11(a)
12(d)
13(b)
14(a)
15(a)
16(b)
17(b)
18(b)
19(d)
20(d)
21(e)
22(a)
23(a)
24(a)
CHAPTER 9
EFFICIENT MARKET HYPOTHESIS
1.
Efficient market hypothesis says that:
(a)
(b)
(c)
(d)
(e)
2.
The market prices are exaggerated
Price movements are irrational
Market prices impound all available information
Only efficient investors can beat the market
None of the above
According to Weak -form efficiency, market prices impound available:
(a)
(b)
(c)
(d)
(e)
Past information
Private information
Public information
Future information
None of the above
3.
Strong –form efficiency supports technical analysis:
(a) True
(b) False
4.
According to the semi-strong form of the efficient market hypothesis,
stock prices:
(a)
(b)
(c)
(d)
(e)
5.
Fully reflect all historical price information
Fully reflect all information, public as well as private
May be predictable
Fully reflect all publicly available information
None of the above
Which of the following would provide evidence against the semi-strong
form of the efficient market theory?
(a) Low P/E stocks tend to provide positive abnormal returns over the
long run
(b) About 50 percent of mutual funds underperform the market in
any year
(c) All investors have learnt to exploit signals about future
performance
(d) Trend analysis is worthless in determining stock prices
(e) None of the above
6.
Market efficiency implies that:
(a)
(b)
(c)
(d)
(e)
7.
Market efficiency exists because :
(a)
(b)
(c)
(d)
(e)
8.
Week end effect
January effect
Budget effect
Both a and b
None of the above
Serial correlation tests, run tests and filter rules tests have been
commonly employed to verify:
(a)
(b)
(c)
(d)
(e)
10.
Portfolio managers are doing their job well
There is keen competition among market participants
New information cannot be predicted in advance
All the above
None of the above
Which of the following is a calendar anomaly?
(a)
(b)
(c)
(d)
(e)
9.
Errors in the market prices are biased
Market price equals intrinsic value
Price deviations cannot be predicted
It is not possible to identify over and under-valued stocks
None of the above
Strong form of efficient market hypothesis
Semi- strong form of efficient market hypothesis
Weak form of efficient market hypothesis
Both a and b
None of the above
In an efficient market, the market price of a security is:
(a)
(b)
(c)
(d)
(e)
An unbiased predictor of its intrinsic value
An unbiased estimate of its intrinsic value
A logical mean of the market participants’ expectations
The expected value of a normal distribution
None of the above
11.
Which of the following will lead to market efficiency?
a.
b.
c.
d.
e.
12.
Investor rationality
Independent deviation from rationality
Effective arbitrage.
All the above
None of the above
According to the Efficient market hypothesis, market has perfect
forecasting abilities:
a. True
13.
Market inefficiency
Mean reversion
Excess volatility
Both b and c
None of the above
The bulk of the empirical evidence suggests that the market reacts
rationally to various corporate events:
a. True
15.
b. False
By and large, portfolio studies have supported the semistrong form of
market efficiency:
a. True
16.
False
According to Fama and others, it is the changing market risk premiums
over time that result/s in:
a.
b.
c.
d.
e.
14.
b.
b.
False
When risk aversion is high, bond default spread is :
a.
b.
c.
d.
e.
Low
High
Normal
Fair
None of the above
17.
According to the semi-efficient market hypothesis:
a.
b.
c.
d.
e.
18.
Who among the following seem to earn superior risk-adjusted returns
in the US markets?
a.
b.
c.
d.
e.
19.
Retail investors
HNI investors
Professional money managers
Specialists
None of the above
According to Paul Samuelson’s definition, market is inefficient if :
a.
b.
c.
d.
e.
20
Markets are only half as efficient as that proposed by the EMH
There is a pecking order of efficiency in the market
Markets are efficient only at certain long intervals which cannot
be predicted.
All the above
None of the above
Future (excess) returns are predictable
Future (excess) returns are unpredictable
One cannot predict excess returns in future fairly most of the time
Either b or c
None of the above
Investment schemes that fail to produce superior returns will be
reported, whereas investment schemes that produce superior returns
will not be reported: This problem is called:
a.
Reporting bias
b.
Selection bias
c.
Sadistic bias
d.
Choice bias
e.
None of the above
KEY
1 (c)
2 (a)
3 (b)
4 (d)
5 (a)
6 (e)
7 (d)
8 (d)
9 (c)
10 (b)
11(d)
12(b)
13(d)
14(a)
15(b)
16(b)
17(b)
18(d)
19(a)
20(b)
CHAPTER 10
BEHAVIOURAL FINANCE
1.
Under mental accounting, investors have a tendency:
(a)
(b)
(c)
(d)
(e)
2.
Narrow framing leads to:
(a)
(b)
(c)
(d)
(e)
3.
A deluge of new information
Beginning of large fads
Cascading effect of inside information
Access to restricted information
None of the above
Horizon of arbitrage is limited for a portfolio manager because of :
(a)
(b)
(c)
(d)
(e)
5.
Mental accounting
Myopic risk aversion
House-money effect
Endowment effect
None of the above
Information cascade is regarding:
(a)
(b)
(c)
(d)
(e)
4.
To prolong the sale of winners
Not to realise losses
Not to dip into the capital
All the above
None of the above
Lack of mandate from investors
Evaluation once every few months
Regulatory restrictions
Inadequacy of skills
None of the above
Under self-attribution bias an investor is prone to attribute a loss to:
(a)
(b)
(c)
(d)
(e)
Inadequacy of data
Bad luck
Self-made mistakes
All the above
None of the above
6.
‘Anchoring’ in behavioural finance refers to:
(a)
(b)
(c)
(d)
(e)
7.
According to behavioural finance, familiarity breeds:
(a)
(b)
(c)
(d)
(e)
8.
The base rate
The case rate
The par rate
Either b or c
None of the above
Modigliani-Miller approach to corporate finance is:
(a)
(b)
(c)
(d)
(e)
10.
Aversion
Contempt
Investment
Illusion
None of the above
An event representing the normal experience is referred to as:
(a)
(b)
(c)
(d)
(e)
9.
Aversion to ambiguity
Conservatism
Representativeness
Holding centre stage
None of the above
Case- dependent
Base- independent
Frame – dependent.
Frame-independent
None of the above
According to Prospect Theory, people value gains/losses according to a
utility function which is:
(a)
(b)
(c)
(d)
(e)
S-shaped
V-shaped
Parabolic
Normally distributed
None of the above.
11.
Narrow framing can lead people to:
(a)
(b)
(c)
(d)
(e)
12.
Myopic risk aversion means:
(a)
(b)
(c)
(d)
(e)
13.
Cognitive dissonance
Over-money effect
House – money effect
Guilt effect
None of the above
According to psychologist Lola Lopes, hope finally converts into:
(a)
(b)
(c)
(d)
(e)
15.
Mental accounting
Frame dependence
Aversion to ambiguity
Cognitive dissonance
None of the above
A lottery winner is more likely to donate to a charity than a non-winner
because of:
(a)
(b)
(c)
(d)
(e)
14.
Reduce risk
Overestimate risk
Underestimate risk
Become risk averse
None of the above
Anticipation
Pride.
Anxiety
Regret
None of the above
Available evidence indicates that stocks that have appreciated in the
past tend to perform poorly in future and vice versa:
(a)
True
(b)
False
16.
Summer’s Model is consistent with:
(a)
(b)
(c)
(d)
(e)
17.
Which of the following is likely to impair investment judgement?
a.
b.
c.
d.
e.
18.
Self- attribution bias
Anchoring bias
Confirmation bias
Success bias
None of the above
If the share price of a company that is believed to have above-average
long-term earnings prospect, does not slide on a day when it has
announced unexpectedly
poor results, the same could be due to
investors’:
a.
b.
c.
d.
e.
20.
Anchoring
Innumeracy
Representativeness
All the above
None of the above
“Head I win, tail it’s chance” is:
a.
b.
c.
d.
e.
19.
Overreactions
Fads
Speculative bubbles
All the above
None of the above
Innumeracy
Aversion to ambiguity
Anchoring bias
Familiarity bias
None of the above
Affect heuristic is about:
a.
Gut feeling
b.
Guilty conscience
c.
Self doubt
d.
Familiarity
e.
None of the above
21.
Regret of omission is typically more painful than the regret of
commission:
a.
22.
b.
False
Anchoring
Narrow framing
Frame dependence
Mental accounting
None of the above
Chase trends
Overreact to news
Follow market gurus
Do all the above
None of the above
Who among the following are supposed to be guided by fundamentals
and immune to sentiments:
a.
b.
c.
d.
e.
26.
True
Noise traders tend to:
a.
b.
c.
d.
e.
25.
False
The investor tendency to sell stocks that have appreciated, rather
than stocks that have depreciated is likely to be on account of
a.
b.
c.
d.
e.
24.
b.
Investors generally tend to be more focused on price changes in
individual stocks and less concerned about the behavior of their overall
portfolio:
a.
23.
True
Arbitrageurs
Noise traders
Professional money managers
Technical analysts
None of the above
Arbitrageurs may not always counter the actions of noise traders:
a.
True
b.
False
27.
Who among the following could contribute to a stock market bubble:
a.
b.
c.
d.
e.
Arbitrageurs
Noise traders
Retail investors
All the above
None of the above
KEY
1.
1 (d)
2 (b)
3 (b)
4 (b)
5 (b)
6 (b)
7 (c)
8 (a)
9 (d)
10 (a)
11(b)
12(e)
13(c)
14(b)
15(a)
16(d)
17(d)
18(a)
19(c)
20(a)
21(b)
22(a)
23(b)
24(d)
25(a)
26(a)
27(d)
Appendix 10.A- Neuroeconomics
On average, professional investors do not outperform amateur
investors:
a. True
2.
b.
False
The illusion of control over an investment tends to be stronger when an
activity appears:
a.
b.
c.
d.
e.
To offer multiple choices
To be familiar
To require effort
All the above
None of the above
3. The reflexive brain is highly sensitive to changes in the amount of reward
at stake:
a. True
4.
b.
False
In general, investors wait for a market crash to buy stocks cheaper:
a.
True
b.
False
5.
According to neuroeconomics, you get best investment results only
when you learn to use logic to downplay your emotions:
a.
6.
True
b.
False
True
b.
False
The illusion of control creates actual comfort by reducing the neural
activity in areas of brain where the following is processed:
a.
b.
c.
d.
e.
9.
False
According to neuroeconomics familiarity breeds contentment:
a.
8.
b.
Human beings hate randomness:
a.
7.
True
Conflict
Pain
Anxiety
All the above
None of the above
The brain part that rapidly process large volumes of information across
time and space is:
a.
b.
c.
d.
e.
Anterior cingulated cortex
Amygdala.
The caudate area
Hypothalamus
None of the above
10.
The part of the reflexive brain which acts like a thermostat regulating
pulse, body temperature, and so on is :
a.
b.
c.
d.
e.
Anterior cingulated cortex
Amygdala.
The caudate area
Hypothalamus
None of the above
KEY
1 (a)
10(d)
2 (d)
3 (a)
4 (b)
5 (b)
6 (a)
7(a)
8(d)
9(a)
CHAPTER 11
BOND PRICES AND YIELDS
1.
The annual interest on a bond in relation to its prevailing market price
is called its:
(a)
(b)
(c)
(d)
(e)
2.
Market price of a coupon bond is independent of :
(a)
(b)
(c)
(d)
(e)
3.
Maturity period
Coupon rate
Required rate of return
Inflation rate
None of the above
When inflation is expected to rise in the coming decade, as a bond
issuer, you will prefer to issue:
(a)
(b)
(c)
(d)
(e)
4.
Coupon rate
Promised yield
Current yield
Yield to maturity
None of the above
Fixed rate bonds
Floating rate bonds
Callable bonds
Puttable bonds
None of the above
Reinvestment risk for a bond refers to the risk that the periodic interest
payment may have to be reinvested at:
(a)
(b)
(c)
(d)
(e)
A lower interest rate
A higher interest rate
A risk-free rate
(a) and (c)
None of the above
5.
Internal rate of return on a bond investment is its:
(a)
(b)
(c)
(d)
(e)
6.
Which set of conditions leads to a bond with the highest price volatility?
(a)
(b)
(c)
(d)
(e)
7.
The effective annual yield
Annualised yield based on simple interest
Annualised yield based on compound interest
Annualised yield with half-yearly rests
None of the above
Changes in real interest rate is not caused by:
(a)
(b)
(c)
(d)
(e)
9.
A short maturity and a high coupon
A short maturity and a low coupon
A long maturity and a high coupon
A long maturity and a low coupon
None of the above
Bond equivalent yield is :
(a)
(b)
(c)
(d)
(e)
8.
Current yield
Yield to maturity
Holding period return
Realised yield
None of the above
Change in competition for funds
Change in supply of funds
Change in expected inflation rate
Change in government policies
None of the above
Which one of the following can affect real interest rate:
(a)
(b)
(c)
(d)
(e)
Expected higher inflation
Tax law changes
Heightened competition for funds
Both b and c
None of the above
10.
The amount payable by an issuer on the maturity of a bond is called:
a.
b.
c.
d.
e.
11.
Coupons on bonds issued by government agencies in India are typically
payable:
a.
b.
c.
d.
e.
12.
Debenture.
Bond
Warrant
CDO
None of the above
The value of which of the following typically does not change with time?
a.
b.
c.
d.
e.
14.
Monthly
Quarterly
Semi-annually
Annually
None of the above
Internationally, an unsecured medium to long term debt instrument
issued by a corporate is typically called a:
a.
b.
c.
d.
e.
13.
Face value
Par value
Redemption value
Any of the above
None of the above
Equity
Callable bond
Puttable bond
Perpetual bond
None of the above
If the semi-annual yield of a plain vanilla bond is five percent, the
annual percentage rate is:
a.
b.
c.
d.
e.
10 percent
Slightly more than 10 percent
Slightly less than 10 percent
Compounded value of 10 percent
None of the above
15.
The effective annual yield of a bond is also called bond equivalent yield:
a.
16.
Pensioners
Borrowers
Lenders
All the above
None of the above
Low inflation
High inflation
Volatile inflation
Increasing bond yields
None of the above
A change in real interest rate could result from a significant change in :
a.
b.
c.
d.
e.
20.
YTM
YTC
Current yield
Average current yield
None of the above
Floating rate bonds become popular in periods of:
a.
b.
c.
d.
e.
19.
False
Higher inflation is beneficial to:
a.
b.
c.
d.
e.
18.
b.
The holding period return of a plain vanilla bond equals:
a.
b.
c.
d.
e.
17.
True
Supply of funds
Demand for funds
Tax laws
Any of the above
None of the above
In a callable bond, the issuer is likely to call the bond when:
a.
The inflation is steady
b.
There is a rise in interest rates
c.
The interest rate falls
d.
The issuer is in financial distress
e.
None of the above
21.
Liquidity risk is not a major concern for a long term retail investor who
plans to hold a bond until maturity:
a. True
22.
Purchasing
Selling
Holding
Booking profit
None of the above
A credit rating of a bond is essentially a rating on its issuer:
a.
26.
Maturity period is long
Coupon rate is high
Required return is low
Both a and b
None of the above
A rating on a corporate bond by Moody’s is a recommendation to
investors for:
a.
b.
c.
d.
e.
25.
Corporate risk
Event risk
Merger risk
Income risk
None of the above
Reinvestment risk is high when:
a.
b.
c.
d.
e.
24.
False
The risk faced by a market participant on account of a corporate
takeover is called:
a.
b.
c.
d.
e.
23.
b.
True
b.
False
Securities with low credit rating typically have relatively:
a.
b.
c.
d.
e.
High returns
Low returns
Stable returns
Volatile returns
None of the above
27.
Which of the following issuer’s financial ratio may not have an
important bearing on their bond ratings:
a.
b.
c.
d.
e.
28.
In India, the symbols used by CRISIL to rate long term debt securities
are the same as those used by:
a.
b.
c.
d.
e.
29.
ICRA
FITCH
CARE
Both a and b
None of the above
Which shape of yield curve is not possible under the preferred habitat
theory?
a.
b.
c.
d.
e.
30.
Asset turnover ratio
Return on capital employed
Times interest earned
Current ratio
None of the above
Upward sloping
Downward-sloping
Flat
Humped
None of the above
The market segmentation theory is an extreme form of the preferred
habitat theory:
a. True
31.
b.
False
Other things remaining unchanged, a puttable bond will have:
a.
b.
c.
d.
e.
Lower required rate of return
Higher required rate of return
Moderate required rate of return
Either a or c
None of the above
32.
Investors may seek a higher rate of return on a zero than a plain vanilla
bond:
a.
True
b.
False
KEY
1 (c)
2 (e)
3 (a)
4 (a)
5 (b)
6 (d)
7 (b)
8 (c)
9 (d)
10(d)
11(c)
12(a)
13(e)
14(a)
15(b)
16(e)
17(b)
18(c)
19(d)
20(c)
21(a)
22(b)
23(d)
24(e)
25(b)
26(a)
27(a)
28(b)
29(e)
30(a)
31(a)
32(b)
CHAPTER 12
BOND PORTFOLIO MANAGEMENT
1.
Which of the following features of a yield curve is attractive to a bond
investor?
(a)
(b)
(c)
(d)
(e)
2.
Immunisation attempts to balance:
(a)
(b)
(c)
(d)
(e)
3.
Duration is zero
Duration is one-half the term to maturity
Duration is undefined
Duration is the same as the term to maturity
None of the above
Which bond has the longest duration?
(a)
(b)
(c)
(d)
(e)
5.
Price risk and default risk
Price risk and reinvestment risk
Recall risk and reinvestment risk
Inflation risk and price risk
None of the above
For a zero coupon bond:
(a)
(b)
(c)
(d)
(e)
4.
Concavity
Convexity
Complexity
Linearity
None of the above
12-year maturity, 5 % coupon
12-year maturity, 7% coupon
8-year maturity , 7% coupon
8-year maturity , 5 % coupon
None of the above
An increase in yield causes a proportionately smaller price change than
a decrease in yield of the same magnitude:
(a)
True
(b)
False
6.
An ascending yield curve means that :
(a)
(b)
(c)
(d)
(e)
7.
YTMs for valuing ‘available-for-sale’ bonds is announced by:
(a)
(b)
(c)
(d)
(e)
8.
High convexity bond
Zero coupon bond
Sterilised bond
Any one of the above
None of the above
Riding the yield curve is a particular version of horizontal analysis:
(a)
10.
RBI
AMFI
Fimmda
SEBI
None of the above
Immunisation by way of cash flow matching involves buying:
(a)
(b)
(c)
(d)
(e)
9.
Long- term rates are expected to rise in future
Short-term rates are expected to rise in future
Investors may be willing to hold long term bonds
Both a and d
None of the above
True
(b)
False
In a substitution swap, the bonds involved are very similar in terms of:
(a)
(b)
(c)
(d)
(e)
Credit rating
Coupon payments
Maturity
All the above
None of the above
11.
In a tax swap, the bond seller:
(a)
(b)
(c)
(d)
(e)
12.
The duration of which of the following is the same as its maturity?
a.
b.
c.
d.
e.
13.
Makes a capital gain
Incurs a capital loss
Incurs a current loss
Either a or c
None of the above
Plain vanilla bond
Fully convertible bond
Optionally convertible bond
Zero coupon bond
None of the above
For a bond of given maturity, lower the coupon rate, lower the duration:
a. True
14.
False
Which of the following is not a bond index?
a.
b.
c.
d.
e.
15.
b.
Shearson Lehman index
Salomon Brothers Index.
i-BEX
Both b and c
None of the above
Which of the following strategy eliminates interest rate risk and the
need of periodic rebalancing?
a.
b.
c.
d.
e.
Cash flow matching strategy
Dedication strategy
Balanced strategy
Both b and c
None of the above
16.
Horizon analysis is a method of forecasting the total return on a bond
over:
a.
b.
c.
d.
e.
17.
Bond portfolio investors who are comfortable with moderate interest
income with moderate price volatility can go in for a:
a.
b.
c.
d.
e.
18.
Long horizons
Short horizons
A given holding period
A notional holding period
None of the above
Laddering strategy
Barbell strategy
Limit strategy
Either a or c
None of the above
MIBOR is fixed by:
a.
b.
c.
d.
e.
SEBI
IBA
FIMMDA
RBI
None of the above
KEY
1 (b)
2 (b)
3 (d)
4 (a)
5 (a)
6 (b)
7 (c)
8 (b)
9 (a)
10 (d)
11(b)
12(d)
13(b)
14(e)
15(b)
16(c)
17(b)
18(e)
CHAPTER 13
EQUITY SHARES
1.
The constant-growth dividend discount model will not produce a finite
value if the dividend growth rate is:
(a)
(b)
(c)
(d)
(e)
2.
For any given stock, which of the following must be true?
(a)
(b)
(c)
(d)
(e)
3.
Market value  book value  par value
Book value  market value  par value
Par value  market value  book value
Par value = book value  market value
None of the above must be true
Limited growth prospects are indicated by:
(a)
(b)
(c)
(d)
(e)
4.
Above its historical average
Below its historical average
Above the market capitalisation rate
Below the market capitalisation rate
None of the above.
High dividend
High P/E ratio
Low dividend
High dividend and low P/E ratio
None of the above
Riskier stocks have:
(a)
(b)
(c)
(d)
(e)
Higher P/E multiple
Lower P/E multiple
Higher variance
(b) and (c)
None of the above
5.
Which of the following is true?
(a)
(b)
(c)
(d)
(e)
6.
Which of the following is not true:
(a)
(b)
(c)
(d)
(e)
7.
Earnings-price ratio is equal to r when PVGO is zero
Earnings-price ratio is less than r when PVGO is positive
Earnings-price ratio is less than r when PVGO is negative
Earnings-price ratio is more than r when PVGO is negative
None of the above
Which one of the following represents an ‘objective’ measure of value?
(a)
(b)
(c)
(d)
(e)
8.
Prima facie if the PEG ratio exceeds 1, the stock is deemed
undervalued.
Prima facie if the PEG ratio equals 1, the stock is deemed
overvalued.
Prima facie if the PEG ratio is less than 1, the stock is deemed
over-valued.
Prima facie if the PEG ratio exceeds 1, the stock is deemed
overvalued.
None of the above.
Market price
Liquidation value
Book value
Earnings capitalisation value
None of the above
In equity valuation, the dominant explanatory variable is called:
(a)
(b)
(c)
(d)
(e)
Main variable
Companion variable
Sister variable
Core variable
None of the above
9.
The companion variable in Price to Sales ratio is :
(a)
(b)
(c)
(d)
(e)
10.
In SOTP valuation a suitable earnings multiple is applied in:
(a)
(b)
(c)
(d)
(e)
11.
Indexing strategy
Market timing strategy
Stock rotation strategy
Security selection strategy
None of the above
An increase in the market value of a company indicates:
(a)
(b)
(c)
(d)
(e)
13.
Core business valuation
Unlisted subsidiary valuation
Listed subsidiary valuation
All the above
None of the above
If you believe that the market is efficient, in managing an equity
portfolio, you will adopt a:
(a)
(b)
(c)
(d)
(e)
12.
g
ROE
NPM
PBT
None of the above
Increase in profitability
Increase in revenues
Increase in future prospects
All the above
None of the above
Intrinsic value of a security is its:
(a)
(b)
(c)
(d)
(e)
DCF value
Book value
Real value
Market capitalization value
None of the above
14.
Which one of the following is not a major driver of growth?
(a)
(b)
(c)
(d)
(e)
15.
In the case of stocks with lower P/E multiples:
(a)
(b)
(c)
(d)
(e)
16.
Low future growth prospects
Considerable growth prospects
Moderate growth prospects
Fund constraints
None of the above
Which of the following is subtracted from the discounted value of the
free cash flow to investors, to arrive at the value of equity of a company?
a.
b.
c.
d.
e.
18.
Liquidity is low
Required return is high
Risk is high
All the above
None of the above
Low dividend yield and high price-earnings ratio imply:
a.
b.
c.
d.
e.
17.
Sales growth ratio
Plough back ratio
Return on equity
All the above
None of the above.
Value of preference shares
Value of short term debt
Value of medium and long term debt
All the above
None of the above
In the calculation of the enterprise value of a normal firm using free
cash flow method, the horizon value of the cash flows is seen to be
greater than the cash flow during the explicit forecasting period:.
a.
True
b.
False
19.
One should invest in equity shares with low P/E ratios as their risk is
low:
a. True
20.
Decreases the P/E multiple
Increases the P/E multiple
Decreases the Retention ratio
Both a and c
None of the above
If retained earnings earn a return equal to the market capitalisation
ratio for a growing firm, then its E/P ratio is equal to:
a.
b.
c.
d.
e.
23.
Real rate of return
Real interest rate
Equity earnings
Rate required by the investors
None of the above
When the discount rate is more than the return on equity, an increase in
the growth rate:
a.
b.
c.
d.
e.
22.
False
According to a popular rule of thumb used by analysts, the benchmark
price to earnings multiple is equal to the projected growth rate in the:
a.
b.
c.
d.
e.
21.
b.
Growth rate
Expected return
Return on capital employed
Retention ratio
None of the above
E/P ratio is nothing but the market capitalisation rate:
a.
True
b.
False
24.
Which of the following feature may be considered a bargain?
a.
b.
c.
d.
e.
25.
Value ratio is obtained by dividing PBV with:
a.
b.
c.
d.
e.
26.
P/E ratio more than 10
PEG ratio much less than 1
P/BV ratio much more than 1
P/S ratio much less than 1
None of the above
ROE
NPM
Growth rate
ROCE
None of the above
Which of the following is a principal vector in an active strategy of
equity investment?
a.
b.
c.
d.
e.
Market timing
Sector rotation
Security selection
All the above
None of the above
KEY
1 (c)
2 (e)
3 (d)
4 (d)
5 (d)
6 (c)
7 (e)
8 (b)
9 (c)
10 (b)
11(a)
12(e)
13(a)
14(a)
15(d)
16(b)
17(d)
18(a)
19(b)
20(c)
21(a)
22(b)
23(b)
24(d)
25(a)
26(d)
CHAPTER 14:
MACROECONOMIC AND INDUSTRY ANALYSIS.
1.
A current account deficit is indicative of:
(a)
(b)
(c)
(d)
(e)
2.
To check inflationary expectations a central bank may:
(a)
(b)
(c)
(d)
(e)
3.
A deficit budget
A surplus budget
A balanced budget
A current account deficit
None of the above
In the recent past, growth rate in Japan has exceeded the growth rate in
emerging countries:
(a)
5.
Increase the income tax
Increase the bank rate
Decrease the CRR rate
All the above
None of the above
A nation with a growing economy should necessarily have:
(a)
(b)
(c)
(d)
(e)
4.
Excess of savings over investments
Excess of investments over savings
Slowdown of foreign investments
(a) and (c)
None of the above
True
(b)
False
Which of the following countries has been registering the highest
average growth rate:
(a)
(b)
(c)
(d)
(e)
India
USA
UK
China
None of the above
6.
The prevalence of low interest rates in the US is attributed to:
(a)
(b)
(c)
(d)
(e)
7.
The now famous BRIC report is the handiwork of:
(a)
(b)
(c)
(d)
(e)
(f)
8.
Dampens the economy
Stimulates the economy
Has no significant impact on the economy
Either b or c
None of the above
Direct impact on interest rate is through:
(a)
(b)
(c)
(d)
(e)
10.
Morgan Stanley
Meryl Lynch
Goldman Sachs
J.P. Morgan
None of the above
A large budgetary surplus typically:
(a)
(b)
(c)
(d)
(e)
9.
The glut in global savings
Heavy regulatory interventions
Increased competitiveness of the US corporates
Low demand for imports
None of the above
Fiscal policy
Monetary policy
Exchange rate policy
All the above
None of the above
Monetary tightening is signaled by:
(a)
(b)
(c)
(d)
(e)
Increase in CRR
Decrease in SLR
Decrease in Bank Rate
All the above
None of the above
11.
The bulk of the household financial savings in India are invested or
parked in:
(a)
(b)
(c)
(d)
(e)
12.
When we talk of money supply, we usually refer to:
(a)
(b)
(c)
(d)
(e)
13.
True
(b)
False
The sensitivity of a firm’s earnings to the business cycle is determined
by:
(a)
(b)
(c)
(d)
(e)
15.
M3
M2
M1
Either b or c
None of the above
Foreign direct investment is more desirable that foreign portfolio
investment:
(a)
14.
Small savings schemes
Provident and pension funds
Insurance funds
Bank deposits
None of the above
The sensitivity of the firm’s sales to business conditions
The operating leverage
The financial leverage
All the above
None of the above
A firm with higher operating leverage performs better:
(a)
(b)
(c)
(d)
(e)
During an upturn.
During a downturn
When the economy is stable
During recession
None of the above
16.
Which one of the following does not find place in the Porter Model on
the profit potential of industries:
(a)
(b)
(c)
(d)
(e)
17.
Which of the following countries has recently overtaken the US as the
largest economy?
a.
b.
c.
d.
e.
18.
China
Euro land
India
ASEAN
None of the above
China and most Asian countries have invested their large savings and
trade surpluses mostly in :
a.
b.
c.
d.
e.
19.
Rivalry among new entrants
Pressure from substitute products
Bargaining power of buyers
Bargaining power of sellers
None of the above
Gold
SDRs
US treasury securities
World Bank deposits
None of the above
Asian central banks generally would like to see their currencies:
a.
b.
c.
d.
e.
Depreciate against the USD
Appreciate against the USD
Remain stable against the USD
Remain stable with the currencies of all their major trading
partners
None of the above
20.
Which of the following may not be a main tool of monetary policy?
a.
b.
c.
d.
e.
21.
The most important indicator of the performance of the economy among
the following is the :
a.
b.
c.
d.
e.
22.
Open market operation
Bank rate
Reserve requirements
Direct credit controls
None of the above
Growth rate of GDP
Growth rate of domestic capital formation in real terms
Reduction in unemployment data
Growth rate in savings and investment
None of the above
There is increasing evidence that the current phase of high economic
growth in India is more due to structural changes in the economy and
less due to cyclical forces:
a. True
23.
False
Which of the following is an attendant benefit of increase in foreign
direct investment:
a.
b.
c.
d.
e.
24.
b.
Superior technology
Better management practices
Greater competition
All the above
None of the above
The most volatile component of GDP is the:
a.
b.
c.
d.
e.
Manufacturing sector
Agricultural sector
Services sector
Banking sector
None of the above
25.
Which of the following appears to be good for the stock market?
a.
b.
c.
d.
e.
26.
The sales of firms in which of the following industries would be typically
least sensitive to prevailing business condition?
a.
b.
c.
d.
e.
27.
Personal care products
Automobiles
Air transport
Machine tools
None of the above
Interest on working capital advance is considered a variable cost:
a.
28.
A mild level of inflation
No inflation
A moderately high level of inflation
Slightly high rate of interest rate
None of the above
True
b.
Firms with high fixed costs as opposed to variable costs are said to have
low operating leverage:
a. True
29.
False
b.
False
Rivalry among existing firms will be high when the fixed costs are high:
a.
True
b.
False
KEY
1 (b)
2 (b)
3 (e)
4 (b)
5 (d)
6 (a)
7 (c)
8 (a)
9 (b)
10 (a)
11(d)
12(a)
13(a)
14(d)
15(a)
16(a)
17(e)
18(c)
19(a)
20(e)
21(a)
22(a)
23(d)
24(a)
25(a)
26(a)
27(a)
28(b)
29(a)
CHAPTER 15
COMPANY ANALYSIS
1.
Sustainable growth ratio is a function of:
(a)
(b)
(c)
(d)
(e)
2.
The key elements of Dell computer Corporation’s strategy of cost
leadership does not include:
(a)
(b)
(c)
(d)
(e)
3.
Low-cost service
Direct selling
Negative working capital
Built-to-order manufacturing
None of the above
Decentralisation almost invariably:
(a)
(b)
(c)
(d)
(e)
4.
Current ratio
Return on equity
Book value
(a) and (c)
None of the above
Enhances goal congruence
Diminishes goal congruence
Facilitates economies of scale
All the above
None of the above
Which among the following is the most popular method of equity
valuation?
(a)
(b)
(c)
(d)
(e)
Dividend discount method
Horizon bond value method
Net present value method
Earnings multiplier method
None of the above
5.
Which one of the following is a measure of risk?
(a)
(b)
(c)
(d)
(e)
6.
A good finance manager should take great efforts to manage:
(a)
(b)
(c)
(d)
(e)
7.
Velocity ratio
Futures ratio
Acceleration ratio
Expectation ratio
None of the above
The primary responsibility for making appropriate judgments in
reflecting business transactions using the basic accrual accounting
framework lies with the:
a.
b.
c.
d.
e.
9.
The top line
The middle line
The bottom line
Both a and c
None of the above
The ratio of expected future growth to recent growth is called:
(a)
(b)
(c)
(d)
(e)
8.
Beta
Range of return
Volatility of return
All the above
None of the above
Finance managers
Operating managers
Top executives
Treasury managers
None of the above
A qualified audit report points to good accounting quality:
a.
True
b.
False
10.
In India the dividend is stated as a percentage of the:
a.
b.
c.
d.
e.
11.
According to Warren Buffett, the key to investing is assessing:
a.
b.
c.
d.
e.
12.
Sales growth
Profit margins
Return on equity
All the above
None of the above
The most likely key factor among the following, shaping the profitability
of a firm is:
a.
b.
c.
d.
e.
14.
How much an industry is going to affect society
How much the company will grow
The competitive advantage and its durability
How beneficial the company will be to the common man
None of the above
Which of the following reflects the quality of the management of a
company?
a.
b.
c.
d.
e.
13.
Fully paid equity and free reserves
Profit after tax
Profit after tax and dividend on preference shares
Paid up value per share
None of the above
Proprietary technology
Access to cheap raw materials
Strategic location
The quality of management
None of the above
The duration of an equity stock is in practice equated with the:
a.
b.
c.
d.
e.
Inverse of its dividend yield
Reserve and surplus divided by the net profit
Inverse of its average pre-tax interest cost
Inverse of its average post-tax interest cost
None of the above
15.
A stock with a low expected five-year EPS growth rate and a low
dividend yield is deemed to be:
a.
b.
c.
d.
e.
16.
Fairly valued
Undervalued
Overvalued
Either a or c
None of the above
ROE divided by the price earning ratio is known as :
a.
Value of ROE
b.
Earning return ratio
c.
Price of equity
d.
Return per price
e.
None of the above
KEY
1 (b)
2 (e)
3 (b)
4 (d)
5 (d)
6 (e)
7 (c)
10(d)
11(c)
12(d)
13(d)
14(a)
15(c)
16(a)
8(b)
9(b)
CHAPTER 16
TECHNICAL ANALYSIS
1.
Extensive analysis of various factors is involved in:
(a)
(b)
(c)
(d)
(e)
2.
Inverse Head and Shoulders Top Pattern is believed to indicate:
(a)
(b)
(c)
(d)
(e)
3.
Flags and Pennants
Heads and Shoulders
Triangles
Double bottom
None of the above
A technical analyst believes that a high short interest ratio indicates:
(a)
(b)
(c)
(d)
(e)
5.
Bullish development
Bearish development
Sideways movement
Consolidation
None of the above
In technical analysis, a pattern of uncertainty is indicated by:
(a)
(b)
(c)
(d)
(e)
4.
Technical analysis
Fundamental analysis
DCF analysis
EVA analysis
None of the above
Bullish development
Bearish development
Sideways movement
Consolidation
None of the above
Fundamental analysis is superior to technical analysis:
(a)
True
(b)
False
6.
According to chartists, flags and pennants signify:
(a)
(b)
(c)
(d)
(e)
7.
For timing the market investors often use:
(a)
(b)
(c)
(d)
(e)
8.
A bullish trend
A bearish trend
Stable market
Volatile market
None of the above
Which of the following is considered a bullish signal by a technical
analyst?
(a)
(b)
(c)
(d)
(e)
10.
Technical analysis
Fundamental analysis
Company analysis
Viability analysis
None of the above
Low mutual fund liquidity is supposed to forecast:
(a)
(b)
(c)
(d)
(e)
9.
A bullish trend
A pause
A bearish trend
A reversal
None of the above
Double top formation
A rise in the put/call ratio
A high short-interest ratio
A trin ratio of more than 1
None of the above
Technical analysts don’t evaluate a large number of fundamental factors
relating to the:
a.
b.
c.
d.
e.
Company
Industry
Economy
All the above
None of the above
11. Technical analysis appeals mostly to:
a.
b.
c.
d.
e.
12.
In Dow Theory, the duration of the main movement is not less than:
a.
b.
c.
d.
e.
13.
Daily fluctuations
Secondary movements
Primary trends
Resistance levels
None of the above
Which of the following pattern is considered a signal to sell by a
technical analyst?
a.
b.
c.
d.
e.
15.
Four years
Three years
Five years
Six years
None of the above
In Dow Theory, technical correction is represented by:
a.
b.
c.
d.
e.
14.
Value traders
Long- term traders
Short-term traders
Traders who have abundant patience
None of the above
Inverse Head and Shoulders Top
Double Top
Double Bottom
Pennant
None of the above
Which of the following pattern is considered a signal to buy by a
technical analyst?
a.
b.
c.
d.
e.
Flag
Head and Shoulders Top
Triangle
Double bottom
None of the above
16.
In a Point and Figure chart, the horizontal scale ( X-axis) represents :
a.
b.
c.
d.
e.
17.
Relative strength analysis is based on the assumption that prices of the
securities that rise rapidly during the bull phase also fall rapidly during
the bear phase in relation to the market as a whole:
a.
18.
Price
Time
Volume
Both a and c
None of the above
True
b.
False
Buy
Sell
Consolidate
Average
None of the above
Generally, a trin ratio of more than 1 is deemed bearish:
a.
21
True
When the breadth of the market is moving downwards in a market
where the market average is moving up, as a believer in technical
analysis, it is time for you to:
a.
b.
c.
d.
e.
20
False
The breadth of the market is indicated by the advance–decline Line:
a.
19.
b.
True
b.
False
A fall in market along with a decrease in open interest implies that the
market is weakening:
a.
True
b.
False
KEY
1 (b)
2 (a)
3 (a)
4 (a)
5 (b)
6 (b)
7 (a)
8 (b)
9 (c)
10(d)
11(c)
12(a)
13(b)
14(b)
15(d)
16(e)
17(b)
18(a)
19(b)
20(a)
21(b)
CHAPTER 17
OPTIONS
1.
Change in option value with respect to time to expiration is denoted by:
(a)
(b)
(c)
(d)
(e)
2.
Change in option value with respect to the change in the volatility of the
underlying price is denoted by:
(a)
(b)
(c)
(d)
(e)
3.
Buying a call option
Writing a call option
Buying a put option
Writing a put option
None of the above
In the case of a put option, the intrinsic value is always:
(a)
(b)
(c)
(d)
5.
Delta
Vega
Theta
Gamma
None of the above
In which of the following there is an unlimited downside risk?
(a)
(b)
(c)
(d)
(e)
4.
Delta
Vega
Theta
Gamma
None of the above
Greater than or equal to the market value
Greater than or equal to the time value
Less than or equal to the time value
None of the above
Which one of the following is not an assumption underlying the BlackScholes model:
(a) The call option is the American option
(b) The stock pays no dividend
(c) The risk- free interest rate is constant
(d) There are no transaction costs and taxes
(e) None of the above
6.
Value of a call option increases when:
(a)
(b)
(c)
(d)
(e)
7.
An out-of-the-money call option means that:
(a)
(b)
(c)
(d)
(e)
8.
Market price is more than the exercise price
Exercise price is more than the market price
The time to expiration is over
The call option cannot be exercised
None of the above
Intrinsic value of an in-the –money option:
(a)
(b)
(c)
(d)
(e)
9.
Stock price is low
Volatility is high
Time to expiration is near
All the above
None of the above
Is more than the time value of the option
Is less than the time value of the option
Is equal to the market value of the option
Is the option value if it were to expire immediately
None of the above
If the value of a call option on a stock is equal to the value of a put
option on the same stock:
(a)
(b)
(c)
(d)
(e)
Maximum loss on the call option would be greater than the
maximum loss on the put option
Maximum loss on the call option would be less than the maximum
loss on the put option.
Maximum loss on the call option would be equal to the maximum
loss on the put option
Either a or b
None of the above
10.
As per the Black and Sholes model, the value of a call option is affected
by the:
(a)
(b)
(c)
(d)
(e)
11.
Risk aversion of the investor
Risk appetite of the investor
Expected return on the stock
Expected return on the market
None of the above.
The holder of a call option is not entitled to receive cash dividends:
a. True
12.
Protective put
Covered call
Straddle
Strangle
None of the above
Higher the variability lower would be the demand for:
a.
b.
c.
d.
e.
14.
False
By writing which of the following, institutional investors can hope to
earn some extra income out of their large holdings of stocks?
a.
b.
c.
d.
e.
13.
b.
Equity stocks
Call options
Put options
Collars
None of the above
Lower the rate of interest higher will be the value of:
a.
b.
c.
d.
e.
Equity stock
Call option on the stock
Put option on the stock
All the above
None of the above
15.
The basic idea underlying the Black and Scholes model is to set up a
portfolio which in its payoff imitates the:
a.
b.
c.
d.
e.
16.
Market index
Call option
Put option
Risk free interest rate
None of the above
The price of an option depends on the investor attitude toward risk:
a. True
17.
False.
The value of a call option is not affected by the
a.
b.
c.
d.
e.
18.
b.
Market risk premium
Risk aversion of the investor
Expected return on the stock
All the above
None of the above
If investors believe that the actual standard deviation is more than the
implied volatility, then the option’s fair price is deemed to be greater
than its observed price:
a.
True
b.
False
KEY
1 (c)
2 (b)
3 (b)
4 (d)
5 (a)
6 (d)
7 (b)
8 (d)
9 (c)
10 (e)
11(a)
12(b)
13(a)
14(a)
15(b)
16(b)
17(d)
18(a)
CHAPTER 18
FUTURES
1.
Open interest in a futures market is the:
(a)
(b)
(c)
(d)
(e)
2.
Which of the following is incorrect?
(a)
(b)
(c)
(d)
(e)
3.
Investors are risk neutral
Sellers provide service to buyers
Buyers provide service to sellers
There will be no trade, whatsoever
None of the above
Which one of the following is not an investment?
(a)
(b)
(c)
(d)
(e)
5
A futures contract is a forward contract
A forward contract is a futures contract
Futures are standardised contracts
Futures are exchange traded
None of the above
A normal backwardation implies that:
(a)
(b)
(c)
(d)
(e)
4.
Number of long contracts outstanding
No. of pending orders
Sum of all contracts, long and short
(a) + (b)
None of the above
Forwards
Futures
Options
All the above
None of the above
In India, a commodity exchange has to necessarily allow an option to the
seller of the futures to give physical delivery at the end of the contract
period, if he so wishes:
(a)
True
(b)
False
6
The regulatory authority for futures trading in commodities in India is:
(a)
(b)
(c)
(d)
(e)
7
Tendering time in a commodity exchange refers to the period during
which a purchaser of a futures contract should state his intention of :
(a)
(b)
(c)
(d)
(e)
8
Basis
Spread
Contango
Backwardation
None of the above
According to empirical evidence the volatility in the underlying cash
markets diminishes with the introduction of derivatives:
(a)
10
Settling the contract by paying cash
Settling the contract by taking physical delivery
Modifying the sales tax documents tendered earlier
Modifying the strike price
None of the above
The difference between the futures price and the spot price is called the:
(a)
(b)
(c)
(d)
(e)
9
Forward Markets Commission
Futures Markets Commission
Securities Markets Commission
Commodities Trading Commission
None of the above
True
(b)
False
Derivatives are devices for:
(a)
(b)
(c)
(d)
(e)
Eliminating risk
Analysing risk
Managing risk
Understanding risk
None of the above
11
For commodities the following relationship is expected to hold:
(a)
Futures price
=
t
(1+rf)
Spot price
Futures price
(b)
(1+rf)t
= Spot price + Present value of storage costs
+ Present value of convenience yield
Futures price
(c)
(1+rf)t
= Spot price + Present value of storage costs
- Present value of convenience yield
Futures price
(d)
(1+rf)t
(e)
12.
None of the above
Which among the following is typically not settled with the differences?
a.
b.
c.
d.
e.
13.
= Spot price – Present value of storage costs
+ Present value of convenience yield
Futures
Call options
Put options
Forwards
None of the above
In which of the following contracts traded in CBOT, a conversion factor
is applied at the time of delivery?
a.
b.
c.
d.
e.
Options on S & P 500 index
Futures on Treasury bonds
Futures on common stocks
All the above
None of the above
14.
Because of the high volatility, forward contracts in currencies are
usually marked to market:
b. True
15.
The expected spot price of the underlying commodity
The risk premium associated with the futures position.
The present value of convenience yield
All the above
None of the above
In a futures contract where both the buyer and seller are speculators,
there will be:
a.
b.
c.
d.
e.
18.
Cost of carry relationship
Spot-futures parity relationship
Derivative futures relationship
Either a or b
None of the above
Which of the following factors has no influence on the futures contract
price of a perishable commodity?
a.
b.
c.
d.
e.
17.
False
The relationship of the spot price to the futures price is known as :
a.
b.
c.
d.
e.
16.
b.
No storage costs
No convenience yield
No risk premium
All the above
None of the above
Who among the following participate in the futures market?
a.
b.
c.
d.
e.
Hedgers
Speculators
Arbitragers
All the above
None of the above
19.
On maturity, the basis of a futures contract would tend to be:
a.
b.
c.
d.
e.
20.
In a futures contract, basis ideally reflects:
a.
b.
c.
d.
e.
21.
The basis is steady
The basis becomes nil
The basis widens
The basis narrows
None of the above
Speculators increase the variability of futures prices over time:
a.
23.
Interest cost
Cost of hedging
Present value of convenience yield
All the above
None of the above
A speculator with a long spot-short futures position profits when :
a.
b.
c.
d.
e.
22
Equal to the spot price
Equal to the expected spot price in the future
Nil
Either a or c
None of the above
True
b.
False
Trading of baskets of stocks tied to expiring futures contracts is called:
a.
b.
c.
d.
e.
Index trading
Basket trading
Program trading
Expiry programming
None of the above
KEY
1 (a)
2 (b)
3 (c)
4 (d)
9 (a)
10(c)
11(c)
12(d)
18(d)
19(c)
20(a)
21(d)
5 (a)
6 (a)
7 (b)
8 (a)
13(b)
14(b)
15(d)
16(c)
17(d)
22(b)
23(c)
CHAPTER 19
MUTUAL FUNDS
1.
An Asset Management Company to run a mutual fund is appointed by:
(a)
(b)
(c)
(d)
(e)
2.
An Exchange Traded Fund is a variety of :
(a)
(b)
(c)
(d)
(e)
3.
A close-ended index fund
An open-ended index fund.
An equity fund
Both a and b
None of the above
Equity Linked Savings Schemes are:
(a)
(b)
(c)
(d)
(e)
5.
Fund of Fund
Sectoral Fund
Index Fund
Debt Fund
None of the above
An Exchange Traded Fund has the properties of :
(a)
(b)
(c)
(d)
(e)
4.
Sponsor
Trustees
Custodian
SEBI
None of the above
Hybrid schemes
Debt schemes
Tax planning schemes
Bank schemes
None of the above
Who is the Investment Manager for a Mutual Fund?
(a)
(b)
(c)
(d)
(e)
The Custodian
The Sponsor
The Trustees
The Asset Management Company
None of the above
6.
Recurring expenses are the lowest for:
(a)
(b)
(c)
(d)
(e)
7.
A fixed maturity plan (FMP) is debt scheme that is:
(a)
(b)
(c)
(d)
(e)
8.
Stocks
Bonds
Derivative schemes
Mutual fund schemes
None of the above
Which one of the following is a disadvantage of a fund-of-fund scheme as
compared to a mutual fund?
(a)
(b)
(c)
(d)
(e)
10.
Open ended
With guaranteed returns
With indicative returns
Both a and b
None of the above
A fund of fund scheme, invests in:
(a)
(b)
(c)
(d)
(e)
9.
Index fund
ELSS
Floating rate debt fund
Arbitrage fund
None of the above
The cost of investment is more
It increases the risk
It is less tax efficient
All the above
None of the above
In which of the following mutual fund scheme you cannot withdraw
funds as and when you like?
(a)
(b)
(c)
(d)
(e)
A diversified scheme
A balanced scheme
An open- ended scheme
A close- ended scheme
None of the above
11.
An open-ended mutual fund scheme is listed in the secondary market:
(a)
12.
Retail investors
Institutional investors
Wealthy individuals
Both b and c
None of the above
Taking high risk
Taking low risk
Being risk – neutral
Being risk-averse
None of the above
Which among the following is not an option offered by a mutual fund?
(a)
(b)
(c)
(d)
(e)
15.
False
A market-neutral position involves:
(a)
(b)
(c)
(d)
(e)
14.
(b)
Hedge funds are typically not open to:
(a)
(b)
(c)
(d)
(e)
13.
True
Dividend payout option
Dividend reinvestment option
Growth option
Call option
None of the above
If you have fairly strong speculative instincts, you should invest mostly
in:
(a)
(b)
(c)
(d)
(e)
Mutual funds
Primary equity market
Secondary equity market
Secondary bond market
None of the above
16.
In a mutual fund, interaction with investors is usually done by the:
a.
b.
c.
d.
e.
17.
Sponsor
Trustees
Investment manager
Registrar and transfer agents
None of the above
The assets of a mutual fund are held in the safe custody of its trustees:
a.
18.
b.
False
The maturity period of an open ended mutual fund scheme cannot be
more than:
a.
b.
c.
d.
e.
19.
True
36 months
60 months
84 months
120 months
None of the above
On sale of mutual fund units, the discount to the net asset value will be
less in an open ended scheme than in a closed ended scheme:
a.
True
b.
False
20.
Which of the following mutual fund schemes are likely to face
concentration risk?
a.
Index funds
b.
Thematic funds
c.
Micro funds
d.
Hybrid funds
e.
None of the above
21.
Who among the following is eligible to invest in ELSS?
a.
b.
c.
d.
e.
Commercial banks
Cooperative banks
Trusts
Private limited companies
None of the above
22.
The most popular debt-oriented schemes in India are:
a.
b.
c.
d.
e.
23.
The largest share of the mutual fund industry in India is in:
a.
b.
c.
d.
e.
24.
Gilt schemes
Monthly Income Plans
Liquid schemes
FMPs
None of the above
Cash schemes
FMPs
MIPs
Thematic schemes
None of the above
FMPs are the only mutual fund scheme where the returns are
guaranteed:
a.
True
b.
False
25.
The corpus of an FMP is invested primarily in:
a.
G-Secs
b.
Cash schemes
c.
Corporate bonds
d.
Indexed funds
e.
None of the above
26.
Which of the following is an advantage of an ETF over an open ended
mutual fund scheme?
a.
b.
c.
d.
e.
Lower cash balance
Lower expense ratio
Higher tax benefits
Both a and b
None of the above
27.
Which of the following mutual fund scheme is typically an interval
scheme?
a.
b.
c.
d.
e.
28.
A mutual fund cannot launch a scheme unless the contents of its offer
documents are approved by SEBI:
a.
29.
Arbitrage scheme
ETF
Fund of fund scheme
Thematic scheme
None of the above
True
b.
False
As a holder of units in a closed-ended mutual fund scheme, you will get a
better price on sale of the units if the same are:
a.
b.
c.
d.
e.
31.
False
A mutual fund is liable to pay securities transaction tax on its purchases
and sales of equity shares:
a. True
30.
b.
Sold in an exchange
Tendered to the mutual fund for repurchase
Discounted with a commercial bank
Either a or c
None of the above
A typical speculator will have least interest in:
a.
b.
c.
d.
e.
Open ended mutual fund schemes
Closed ended mutual fund schemes
Equity cash market
Equity derivatives
None of the above
32.
R-squared of a mutual fund is also called the:
a.
b.
c.
d.
e.
33.
The risk-adjusted extra return earned by a mutual fund is called its:
a.
b.
c.
d.
e.
34.
Entry load
Exit load
Annual recurring expenses
Initial issue expenses,
None of the above
The gains of a mutual fund scheme does not get reflected in the NAV of
the scheme in the:
a.
b.
c.
d.
e.
36.
Alpha
Beta
Theta
Icing
None of the above
Which among the following is a cost not associated with mutual fund
investing:
a.
b.
c.
d.
e.
35.
Alpha
Beta
Ex-Sign
Ex-Mark
None of the above
Dividend payout option
Dividend reinvestment option
Growth option
Both b and c
None of the above
In India, the majority of large cap and diversified equity funds have
started beating their bench mark indices:
a.
True
b.
False
37.
Which of the following schemes are relatively immune to interest rate
risk?
a.
b.
c.
d.
e.
38.
Among the following, expense ratio tends to be relatively highest for:
a.
b.
c.
d.
e.
39.
Floating rate debt schemes
Cash schemes
Fixed maturity plans
All the above
None of the above
Cash schemes
Fixed maturity plans
Floating rate schemes
Mixed debt schemes
None of the above
SRI funds have to be compliant with:
a.
b.
c.
d.
e.
ESG
PMLO
IFRS
All the above
None of the above
KEY
1 (b)
2 (c)
3 (d)
4 (c)
5 (d)
6 (a)
7 (c)
8 (d)
9 (a)
10 (d) 11(b)
12(a)
13(e)
14(d)
15(c)
16(c)
17(b)
18(e)
19(a)
20(b)
21(e)
22(b)
23(a)
24(b)
25(c)
26(d)
27(a)
28(b)
29(a)
30(b)
31(b)
32(d)
33(a)
34(e)
35(a)
36(b)
37(d)
38(d)
39(a)
CHAPTER 20;
INVESTMENT IN REAL ASSETS
1.
Annual value of a rented property is equal to the gross amount of rent
less actual property tax paid:
a.
2.
True
True
REPE funds desist from investing in illiquid securities of private
companies:
False
Physical gold
e-Gold
Gold ETF
Gold bonds
None of the above
Management fee of Gold ETFs is less than that of Gold Funds:
a. True
7.
b.
Which of the following is tax- efficient from the capital gains tax point of
view?
a.
b.
c.
d.
e.
6.
False
Incentive fee
Performance bonus
Carried interest
Carried bonus
None of the above
c. True
5.
b.
Performance fees of a REPE fund are also called:
a.
b.
c.
d.
e.
4.
False
For rented building property also depreciation can be claimed:
a.
3.
b.
b.
False
Interest on loan taken for only self- occupied property is tax-deductible:
a. True
b.
False
8.
In India, investment in a residential house does not have much
downside risk :
a.
True
b.
False
9. You get full title to a residential property on entering into a purchase and
sell agreement and registering the title of the property in your name in the
office of the sub-registrar of assurances (or its equivalent):
a. True
10.
10.00 percent
10.457 percent
10.518 percent
10.325 percent
None of the above
A fixed rate housing loan tends to, on average, over the tenor of the loan,
be more expensive than the floating rate loan:
a. True
12.
b.
False
Investment in which of the following is more attractive both in terms of
regular monthly income and capital appreciation over a period of time ?
a.
b.
c.
d.
e.
13.
False
If a bank announces that the interest rate on a housing loan repayable in
EMIs is 10 percent per annum, it generally means that the effective
annual interest rate is:
a.
b.
c.
d.
e.
11.
b.
Commercial property
Residential property
Agricultural property
Both b and c
None of the above
It is not necessary to show your agricultural income in the tax return:
a. True
b.
False
14.
A real estate property has been sold in an auction at Rs.60 lakhs. If the
net operating income from the property is Rs.9 lakhs and the required
return on the investment is 15 percent, the market capitalisation rate is:
a.
b.
c.
d.
e.
15.
The pricing in the commercial real estate market is dominated by:
a.
b.
c.
d.
e.
16.
Residential property
Farm house
Gold
Precious stones
You cannot use your existing beneficiary and trading account for equity
stocks for buying e-gold:
a.
18.
The Income Approach
The Sales Comparison Approach
Hedonic Price Estimation
The DCF model
None of the above
On which of the following, trading commission would usually be the
lowest?
a.
b.
c.
d.
17.
0.30
0.15
0.18
0. 0833
None of the above
True
b. False
From a pure tax efficiency point of view, e-Gold is better than physical
gold:
a. True
b.
False
19.
Which of the following are not coloured stones?
a.
b.
c.
d.
e.
20.
Rubies
Sapphires
Emeralds
Diamonds
None of the above
Which among the following is the least scarce?
a.
b.
c.
d.
Rubies
Sapphires
Emeralds
Diamonds
KEY
1 (a)
10(b)
19(d)
2 (b)
11(a)
20(d)
3 (c)
12(a)
4 (b)
13(b)
5 (c)
14(b)
6 (a)
15(d)
7(b)
16(c)
8(a)
17(a)
9(b)
18(b)
CHAPTER 21
INTERNATIONAL INVESTING
1 Empirical evidence suggests that exchange rate uncertainty contributes
more significantly to the risk associated with foreign bond returns and less
significantly to the risk associated with foreign equity returns:
a. True
2.
The US State governments
Non-US governments
Non-US corporates
All the above
None of the above
Yankee bonds have to be registered with SEBI also:
a.
5
The issuer as agent of the investor
Investment bank
Custodian
Merchant bank in the host country
None of the above
Yankee bonds are not issued by:
a.
b.
c.
d.
e.
4.
False
Shares underlying an ADR are held by:
a.
b.
c.
d.
e.
3.
b.
True
b.
False
Bulldog bonds are denominated in:
a.
b.
c.
d.
e.
US dollars
Japanese yen
British pounds
Euro
None of the above
6
To purchase foreign shares directly using the services of an online
broker, you need to obtain prior permission from:
a.
b.
c.
d.
e.
7
RBI
SEBI
Finance ministry
Income tax authorities
None of the above
Which of the following is not a national equity index?
a.
b.
c.
d.
e.
8
Dow Jones Industrial Average
Nikkei 225
FTSE 100
DAX
None of the above
All MSCI equity indices are:
a.
b.
c.
d.
e.
Price-weighted
Capitalisation-weighted
Equally weighted
Log normally weighted
None of the above
9. Investment in which of the following assets abroad is yet to be allowed in
India?
a.
b.
c.
d.
e.
10.
Hedge funds
Real estate
Foreign currency derivatives
Both b and c
None of the above
It has been empirically found that under normal conditions, returns
from different national equity markets are strongly correlated with one
another:
a. True
b.
False
11.
a.
b.
c.
d.
e.
12.
a.
b.
c.
d.
e.
13.
Which of the following may not pose a major risk in global investments?
Custody risk
Liquidity risk
Market volatility
All the above
None of the above
In an APT model for global investing, a parameter likely to be included
is:
Currency movement factor
A national (domestic) stock index
Industrial sector index
All the above
None of the above
Surprisingly, an IMF study has found that the importance of global
factors has decreased significantly since the mid-1990s in explaining
stock price movements:
a.
14.
True
a.
b.
c.
d.
e.
b.
False
If you find investing globally on your own to be daunting—as is the case
with most individual investors—your best bet will be to invest through
GDRs:
a. True
16.
False
Listing of ADRs in the US is optional:
a. True
15.
b.
b.
False
A bond issued by a Japanese company in the US, denominated in yen,
could be a:
Yankee bond
Bulldog bond
Samurai bond
Either b or c
None of the above
KEY
1 (a)
2 (c)
3 (a)
4 (b)
5 (c)
6 (e)
7 (e)
10(b)
11(e)
12(d)
13(b)
14(b)
15(b)
16(e)
8 (b)
9(e)
CHAPTER 22:
PORTFOLIO MANAGEMENT: INVESTMENT POLICY AND STRATEGY
1
Which of the following mean makes greater sense when returns in
successive years are independent?
a.
b.
c.
d.
e.
Arithmetic mean
Geometric mean
Weighted average of a and b
Simple average of a and b
None of the above
2.
Nominal equity returns is driven by :
a.
Real growth in corporate earnings
b.
Inflation rate
c.
Dividend yield
d.
All the above
e.
None of the above
3.
Balanced asset allocation is concerned with establishing the long-term
asset mix of a portfolio:
a.
4.
False
True
b.
False
Time diversification makes sense only if returns follow a random walk:
a.
6.
b.
An investor with a shorter investment horizon should tilt his portfolio in
favour of bonds:
a.
5.
True
True
b.
False
According to the proponents of time diversification, your risk exposure
should depend on your:
a.
b.
c.
d.
e.
Expected return
Required rate of return
Investment horizon
Both a and b
None of the above
7.
Which of the following asset allocation strategy can be viewed as the
modern version of market timing?
a.
b.
c.
d.
e.
8.
The portfolio value cannot fall below the value of the initial investment
in bonds in:
a.
b.
c.
d.
e.
9.
Insured asset allocation
Tactical asset allocation
Drifting asset allocation
Balanced asset allocation
None of the above
Value stocks typically have:
a.
b.
c.
d.
e.
11
Insured asset allocation
Tactical asset allocation
Drifting asset allocation
Balanced asset allocation
None of the above
The policy that can be considered as the opposite of the constant mix
policy is the:
a.
b.
c.
d.
e.
10.
Insured asset allocation
Tactical asset allocation
Drifting asset allocation
Balanced asset allocation
None of the above
Low price-earnings ratios
Below average earnings growth
High dividend yields
All the above
None of the above
Contrarians believe in mean-reversion:
a.
True
b.
False
12.
Reversion of returns to the mean over time is a tendency found in:
a.
b.
c.
d.
e.
13.
Equities
Bonds
Derivatives
All the above
None of the above
Which one of the following is not a commonly stated investment goal?
a.
b.
c.
d.
e.
14.
Growth
Stability
Liquidity
Income.
None of the above
The notion of time diversification can mathematically be shown to be
fallacious if returns follow:
a.
b.
c.
d.
e.
A secular linear uptrend
A random walk
An uptrend with convexity
A random walk
None of the above
15.
The actual risk of bonds declines more slowly than the theoretical risk,
as the holding period increases:
a.
16.
True
(b)
False
Growth stocks typically have high:
a.
b.
c.
d.
e.
Price-earnings ratios
Low price-to-book value ratios
High dividend yields
All the above
None of the above
17.
Insured asset allocation calls for:
(a)
(b)
(c)
(d)
(e)
18.
For good downside protection and riding a bull market you will adopt a:
a.
b.
c.
d.
e.
19.
Drifting asset allocation policy
CPPI policy
Balanced asset allocation policy
Speculative policy
None of the above
A drifting asset allocation policy:
(a)
(b)
(c)
(d)
(e)
20.
Shifting the asset mix mechanistically in response to changing
market conditions
Shifting the asset mix as per a predetermined stock-bond mix
Following a buy and hold policy
Annual rebalancing of the portfolio
None of the above
Gives rise to a convex pay off curve
Gives rise to a concave pay off curve
Gives rise to a straight line pay off
Gives rise to an elliptical pay off curve
None of the above
A constant proportion portfolio insurance (C PPI) policy calls for:
a.
b.
c.
d.
e.
Selling stocks as they fall and buying stocks as they rise
Buying stocks as they fall and selling stocks as they rise
Buying a constant number of shares of a stock every month
Selling a constant number of shares of a stock every month
None of the above
21.
If a portfolio manager has a good ability to select undervalued securities
but a poor ability to forecast overall market, the following makes sense
for him:
a.
b.
c.
d.
e.
22.
If a portfolio manager has a good ability to forecast overall market but a
poor ability to select undervalued securities, the following makes sense
for him :
a.
b.
c.
d.
e.
23.
Concentrate holdings in selected undervalued stocks and shift
beta below and above the desired long-term average based on
market forecasts
Hold a broadly diversified portfolio of stocks and keep beta stable
at the desired long-term average
Concentrate holdings in selected undervalued stocks and keep
beta stable at the desired long-term average
Hold a diversified portfolio of stocks and shift beta above and
below desired long-term average based on market forecasts
None of the above
Concentrate holdings in selected undervalued stocks and shift
beta below and above the desired long-term average based on
market forecasts
Hold a broadly diversified portfolio of stocks and keep beta stable
at the desired long-term average
Concentrate holdings in selected undervalued stocks and keep
beta stable at the desired long-term average
Hold a diversified portfolio of stocks and shift beta above and
below desired long-term average based on market forecasts
None of the above
Typically, as risk increases, the expected return increases at an
increasingly greater rate:
a. True
b.
False
24.
According to John Bogle’s Balanced Asset Allocation Model, during the
accumulation stage, older investors should maintain the following
proportion between stocks and bonds:
a.
b.
c.
d.
e.
25.
70:30
80:20
50:50
60:40
None of the above
Which among the following asset allocation policies calls for
discretionary shifts?
a.
b.
c.
d.
e.
Drifting asset allocation
Tactical asset allocation
Dynamic (or insured) asset allocation
Balanced asset allocation
None of the above.
KEY
1 (a)
10 (a)
19(a)
2 (d)
11(a)
20(c)
3 (b)
12(c)
21(d)
4 (a)
13(b)
22(a)
5 (c)
14(a)
23(a)
6 (b)
15(a)
24(b)
7 (c)
16(a)
8 (a)
17(b)
9 (d)
18(c)
CHAPTER 23:
PORTFOLIO MANAGEMENT: IMPLEMENTATION AND REVIEW
1.
Who among the following serve as the anchor for the securities trading
system?
a.
Liquidity Based Transactors
b.
Information Based Transactors
c.
Value Based Transactors
d.
Pseudo-information Based Transactors
e.
None of the above
2.
Most likely it is the fundamental analysis rather than technical analysis
that would be relied upon by:
a.
b.
c.
d.
e.
3.
Liquidity Based Transactors
Information Based Transactors
Value Based Transactors
Pseudo-information Based Transactors
None of the above
IRR is also referred to as time-weighted rate of return:
a.
4
b.
False
The measure that is based on CAPM is the:
a.
b.
c.
d.
e.
5.
True
Sharpe measure
Treynor measure
Jensen measure
All the above
None of the above
In which of the following you will find a ‘managed’ portfolio?
a.
b.
c.
d.
e.
Sharpe measure
Treynor measure
Jensen measure
M2 measure
None of the above
6.
Fama’s measure of net selectivity is based on the:
a.
b.
c.
d.
e.
7.
In Fama’s measure of net selectivity, βp (RM – Rf) denotes the impact of:
a.
b.
c.
d.
e.
8.
True
(b)
False
Empirical studies have shown that nearly 90 percent of the variance of
the portfolio return is explained by its:
a.
b.
c.
d.
e.
10.
Systematic risk
Unique risk
Total risk
Market risk
None of the above
Sharpe measure reflects the excess return earned on a portfolio per unit
of its total risk:
(a)
9.
Unsystematic risk
Unique risk
Total risk
Market risk
None of the above
Investment horizon
Unique circumstances
Asset-mix
Liquidity position
None of the above
Which of the following is not a principal vector of an active portfolio
strategy?
a.
b.
c.
d.
e.
Market management
Sector rotation
Security selection
Use of a specialized concept
None of the above
11.
An investor who extensively analyses publicly available information is
a:
(a)
(b)
(c)
(d)
(e)
12.
The appropriate measure of risk used in Treynor measure is
(a)
(b)
(c)
(d)
(e)
13.
Excess return over market portfolio
Excess return over fair return as per CAPM
Excess return over fair return as per APT
Excess return over risk free return
None of the above
Which of the following measures reflects the excess return earned on a
portfolio per unit of its total risk?
(a)
(b)
(c)
(d)
(e)
15.
Variance
Beta
Standard deviation
Range
None of the above
Jensen measure of a portfolio reflects:
(a)
(b)
(c)
(d)
(e)
14.
Liquidity based transactor
Value based transactor
Information based transactor
Pseudo-information based transactor
None of the above
Treynor’s measure
Sharpe’s measure
Jensen’s measure
Total measure
None of the above
A ratio that could be useful in assessing the default risk on a bond is:
a.
b.
c.
d.
e.
Debt-to-equity ratio
Times interest earned ratio
Earning power
All the above
None of the above
16.
If you believe that the market is efficient and securities are properly
priced, you should go in for:
a.
b.
c.
d.
e.
17.
A person trading to rebalance a portfolio is typically a:
a.
b.
c.
d.
e.
18.
Liquidity based transactor
Value based transactor
Information based transactor
Pseudo-information based transactor
None of the above
You may find several informationless traders among:
a.
b.
c.
d.
e.
19.
Fundamental approach
Technical approach
Random selection
Balanced approach
None of the above
Liquidity based transactors
Value based transactors
Noise traders
Arbitrageurs
None of the above
Typically, the bid price of the stock dealer is higher than the bid price of
the value based transactors:
a. True
20.
b.
False
In respect of any security a dealer has to necessarily take a view on the
worthwhileness of going in for:
a.
b.
c.
d.
e.
Buying
Selling
Auctioning
All the above
None of the above
21.
Among the transactors in the trading game, whose odd of winning is
next only to that of an information based transactor?
a
b.
c.
d.
e.
22.
The timing of the trade is left to the ebb and flow of market conditions in
the case of a:
a.
b.
c.
d.
e.
23.
Best efforts order
Market-on-open order
Market order
Limit order
None of the above
The most appropriate order for an information based trader would be:
a.
b.
c.
d.
e.
24.
Liquidity based transactor
Value based transactor
Pseudo-information based transactor
Both b and c
None of the above
Best efforts order
Limit order
Market order
Either a or b
None of the above
Which of the following is a serious trading error?
a.
b.
c.
d.
e.
A value based transactor selling time too cheaply
An information based transactor buying time too expensively
A liquidity based transactor by appearing motivated by
information, evokes very defensive responses from other market
participants
All the above
None of the above
25.
The basic idea of the policy is to ensure that the portfolio value does not
fall below a floor level in the:
a.
b.
c.
d.
e.
26.
Investors with strong contrarian instincts may resort to:
a.
b.
c.
d.
e.
27.
Drifting asset allocation
Tactical asset allocation
Dynamic asset allocation
Balanced asset allocation
None of the above.
Which among the following requires greater courage and
determination?
a.
b.
c.
d.
e.
28.
Drifting asset allocation
Tactical asset allocation
Dynamic asset allocation
Balanced asset allocation
None of the above.
Drifting asset allocation
Tactical asset allocation
Insured asset allocation
Balanced asset allocation
None of the above.
The internal rate of return is also referred to as the money-weighted
rate of return:
a.
True
b. False
KEY
1 (c)
2 (c)
3 (b)
4 (c)
5 (d)
10 (a)
11(b)
12(b)
13(b)
14(b)
19(a)
20(e)
21(b)
22(d)
23(c)
28(a)
6 (c)
15(d)
24(d)
7 (a)
8 (a)
9 (c)
16(c)
17(a)
18(a)
25(c)
26(c)
27(c)
CHAPTER 24
PROFESSIONAL AND INSTITUTIONAL MONEY MANAGEMENT
1.
In the professional money management business, an asset management
firm typically employs separate “model” portfolios for each client:
a. True
2.
b.
False
Capital provided by many investors is ‘commingled’ by:
a.
b.
c.
d.
e.
NBFCs
Private management firms
Investment companies
All the above
None of the above
3.
The fees charged by Investment companies is highest for a/an :
a.
Index fund
b.
Debt fund
c.
Equity fund
d.
Savings fund
e.
None of the above
4.
The key determinant of the asset mix to be included in a portfolio of an
institutional investor is the:
a.
b.
c.
d.
e.
5.
The nature of its liabilities
The target profit for the period
The liquidity of the asset mix
The portfolio beta
None of the above
The held-to-maturity portfolio of a financial institution contains no
equity stocks:
a.
True
b.
False
6
Market value accounting is used for assets held by an institution in;
a.
Held-to-maturity
b.
Available for sale account
c.
Held-for-trading account
d.
Both b and c
e.
None of the above
7.
Bank assets predominantly consist of:
a.
State government securities
b.
Central government securities
c.
Loans and advances
d.
Corporate bonds
e.
None of the above
8.
In defined benefit plans the risk of the fund’s investment performance
is borne by the:
a.
Employee
b.
Employer
c.
PF Commissioner
d.
Central government nominated agency
e.
None of the above
9.
Regulations prohibit a hedge fund from using:
a.
Leverage,
b.
Short sales
c.
Derivatives
d.
All of the above
e.
None of the above
10.
Who among the following typically take a bet on relative valuations?
a.
Hedge funds
b.
PMS
c.
P & C Companies
d.
Contrarian funds
e.
None of the above
11.
An investment company typically develops a personal relationship with
the clients and understands the specific investment objectives and
constraints of every client;
a. True
b.
False
12.
Market value of a liability is simply the present value of the liability:
a. True
b.
False
13.
Accounting surplus is calculated on the basis of:
a.
b.
c.
d.
e.
14.
Institutional investors are required to provide to regulators financial
reports prepared according to:
a.
b.
c.
d.
e.
15.
Financial statements
Management perception
Cash flow from operations
Funds held in excess of the actual liabilities
None of the above
Institutional accounting principles
Regulatory accounting principles
IFRS
Managerial accounting principles
None of the above
In investment management business, higher the market share of a
product, higher will be its quality:
a.
16.
b.
False
Who among the following is not a typical institutional investor?
a.
b.
c.
d.
e.
17.
True
Pension funds
Endowment funds
Investment companies
Insurance companies
None of the above.
The principal liabilities of banks are in the form of:
a.
b.
c.
d.
e.
Loans and advances
Overdrafts
Deposits
Bonds
None of the above
18.
In a defined contribution plan the employee has the discretion of
choosing among several investment funds (or schemes) in which the
assets can be placed:
a. True
19.
Trust funds
Endowment funds
Corporate governance funds
Targeted societal funds
None of the above
From a tax point of view, a PMS is more advantageous than an equity
mutual fund:
a. True
21.
False
Hedge funds
Pension funds
Mutual funds
Endowment funds
None of the above
A market-neutral position allows a hedge fund to maintain a low risk
position:
a. True
23.
b.
Heavy use of derivatives across various markets can be resorted to by:
a.
b.
c.
d.
e.
22.
False
Funds held by organisations that are mandated to use their money for
specific non-profit purposes are called:
a.
b.
c.
d.
e.
20.
b.
b.
False
Because of their hedged positions, the returns from hedge funds are
usually not very volatile:
a. True
b.
False
KEY
1 (b)
2 (c)
3 (c)
4 (a)
5 (a)
6 (d)
7 (c)
8 (b)
9 (e)
10 (a)
11(b)
12(a)
13(a)
14(b)
15(b)
16(e)
17(c)
18(a)
19(b)
20(b)
21(a)
22(b)
23(b)
CHAPTER 25 :
GUIDELINES FOR INVESTMENT DECISIONS
1.
The advantage of a PPF account is the:
a.
b.
c.
d.
e.
2.
Facility for partial withdrawals
Immunity from attachment through a court decree
Continuing tax advantage
All the above
None of the above
Convertible debentures, in general, sell for a price lower than the
market value of the underlying equity:
a. True
3
False
A will is probated by a/an:
a.
b.
c.
d.
e.
4
b.
Trustee
Executor
Advocate
Court nominated Tahsildar
None of the above
To be valid, a will has to be executed in non-judicial stamp paper of
requisite value as notified by state government from time to time:
a.
True
b.
False
5.
The investor who sells his rights tends to lose:
a.
True
b. False
6
The most convenient form to maintain a cash reserve by an individual
would be:
a.
b.
c.
d.
e
Cash credit account
Units in a mutual fund scheme
Monthly income deposit in post office
Fixed deposit in a bank
None of the above
7.
The need for insurance is highest in the age bracket:
a.
b.
c.
d.
e.
8.
A very successful investment manager seeks your advice on the
insurance cover appropriate for him. You may recommend to him;
a.
b.
c.
d.
e.
9.
Endowment assurance policy
Money back policy
Term insurance policy
Any of the above
None of the above
Other things being equal, your portfolio should be tilted in favour of
bonds if your:
a.
b.
c.
d.
e.
10.
0-25 years
25-50 years
50-60 years
60 to 70 years
None of the above
Investment horizon is shorter
Risk tolerance is higher
Capacity for risk taking is higher
All the above
None of the above
For most people, their investment horizon is shorter than their living
horizon:
a. True
11.
b.
False
Diversification of a bond portfolio is typically done not for reduction of:
a.
b.
c.
d.
e.
Default risk
Unsystematic risk
Interest rate risk
All the above
None of the above
12.
In India, it is now mandatory that a will should be in writing:
a. True
b.
False
13.
In a bonus issue of shares, which of the following decreases?
a. Book value per share
b. Earnings per share
c. Market price per share
d.
All the above
e.
None of the above
14.
The key element for establishing a stock’s intrinsic value is the
company’s:
a.
b.
c.
d.
e.
Projected earnings
Projected asset growth
Track record of the management team
Projected market share of its key products
None of the above
KEY
1 (d)
2 (a)
3 (b)
4 (b)
5 (a)
10(b)
11(b)
12(b)
13(d)
14(a)
6(d)
7(b)
8(c)
9(a)
CHAPTER 26:
STRATEGIES OF THE GREAT MASTERS
1
The desire to build big business empires by mindlessly imitating others
is referred to by Warren Buffett as:
a.
b.
c.
d.
e.
2.
Who among the following believed in bargain-hunting?
a.
b.
c.
d.
e.
3.
Warren Buffett
Peter Lynch
John Templeton
George Soros
None of the above
According to whom a P/E ratio that’s twice the growth rate is very
negative?
a.
b.
c.
d.
e.
4.
Institutionalisation
Institutional imperative
Castles approach
Empire approach
None of the above
Warren Buffett
Peter Lynch
John Templeton
George Soros
None of the above
According to the ‘relative contrarian strategy’ advocated by David
Dreman, one should buy:
a.
b.
c.
d.
e.
Cheapest stocks within an industry
Cheap stocks that have above average PBV ratios
Cheapest stocks within manufacturing sector
Low beta stocks with high earnings multiple
None of the above
5.
After risk and return, which is the third side of Bogle’s ‘eternal triangle’?
a.
b.
c.
d.
e.
6.
Cost
Time
Capacity
‘Guts’
None of the above
Benjamin Graham, the father of security analysis attached utmost
importance to:
a.
b.
c.
d.
e.
7.
Quality of the business
Earnings and other numbers of the company
Capability of the management
Quality of the management
None of the above
Philip Fisher was a pioneer in:
a.
b.
c.
d.
e.
Value stock investing
Global investing
Contrarian investing
Growth stock investing
None of the above
8. Warren Buffett believes in forecasting the economic environment and
selecting stocks that are likely to benefit most from it:
a. True
9.
A
a.
b.
c.
d.
e.
b.
False
financial yardstick that is not in the top of the list of Buffett is:
Return on equity
Profit margin
Assets turnover
All the above
None of the above
10.
11.
12.
Who among the following was a pioneer in the global investing:
a.
b.
c.
d.
Warren Buffett
Peter Lynch
John Templeton
George Soros
e.
None of the above
Who said: “When it comes to predicting the market, the important skill
is not listening, it’s snoring”?
a.
b.
c.
d.
Warren Buffett
Peter Lynch
John Templeton
George Soros
e.
None of the above
The methods employed by whom were/are inordinately complex?
a.
Warren Buffett
b.
Peter Lynch
c.
John Templeton
d.
George Soros
e.
13.
None of the above
George Soros calls the two-way connection between flawed perceptions
and the actual course of events as:
a.
b.
c
d
e.
Reflexivity
Reactivity
Reciprocity
Recurcivity
None of the above
14.
Soros made a famous killing on:
a.
b.
c.
d.
e.
15.
Gold
Crude
Pound sterling
US dollar
None of the above
According to Charles Ellis, in a ‘Loser’s game’ most researchers should
spend most of their time in :
a. Bargain hunting
b. Making buy decisions
c. Making sell decisions
d. Relative valuations
16.
‘Buying good businesses when they are cheap’ was underlined by:
a.
b.
c.
d.
e.
17.
John C. Bogle
Joel Greenblatt
Charles D. Ellis
George Soros
None of the above.
Who among the following is/was a financial giant in the field of mutual
fund investments?
a.
b.
c.
d.
e.
John C. Bogle
Joel Greenblatt
Charles D. Ellis
George Soros
None of the above.
KEY
1 (b)
2 (c)
3 (b)
4 (a)
5 (a)
6(b)
7(d)
8(b)
10(c)
11(b)
12(d)
13(a)
14(c)
15(c)
16(b)
17(a)
9(c)