Q 1. When a research analyst gives a _______ rating, its akin to a BUY rating.

1. Accumulate
2. Out perform
3. Hold
4. All of the above

CORRECT ANSWER:

Accumulate

Explanation:

Accumulate: Some analyst refer to this category as accumulate while others refer to this as Add. It
typically refers to stocks that are likely to earn about 10% returns in the next one year or approximately
equal to the index returns. Accumulate recommendation refers to stocks that may not have immediate
visibility but has the potential to substantially outperform in the next 3-4 years. It is a stock that calls for
patience in investing.
Outperform means that the company will produce a better rate of return than similar companies, but the
stock may not be the best performer in the index.
A 'hold' is generally an experts suggestion or recommendation to not either sell or purchase securities.

Q 2. Identify the CORRECT statement with respect to GST.

1. GST is applicable on all goods and services imported into India
2. GST is applicable on goods and services provided or sold in India
3. GST is applicable on all goods and services produced in India or imported into India
4. GST is applicable on production and is collected at the time of sale

CORRECT ANSWER:

GST is applicable on goods and services provided or sold in India

Explanation:

Goods and service tax (GST) is a tax that is charged at the time of sale of goods or services. These are
calculated as a percentage of the invoice value and sellers charge this to the customer. Sellers then remit
this amount to the government. In order to avoid double taxation, sellers are allowed tax credit (i.e.
deduct) the GST they paid to their suppliers and they only have to remit the balance to the government.

Q 3. Identify the transaction which will be considered as Capital account transaction?

1. Amount received by an Indian exporter
2. Interest which is earned on investment in foreign entities
3. Remittances by NRIs abroad
4. None of the above

CORRECT ANSWER:
None of the above

Explanation:

International trade refers to the total trade that a country does with all other countries in the world. A
country’s balance of payment is the statement showing transactions of a country with the rest of the
world.
Balance of payment statement is broadly divided into two accounts namely the Current account and the
Capital account. The current account has all the details of transactions on revenue account viz. imports
and exports of goods and services while the capital account captures all the capital flows like FDI, FII,
loans, and grants etc.
None of the above are considered as Capital Account transaction.

Q 4. What is the objective a good management succession plan?

 It is to ensure that operational efficiency of the company keeps improving
 It is to ensure that there is hassle free transfer of the promoters estate to his legal heirs
 It is to ensure that the annual targets of the company are met
 It is to ensure that there is continuity in management

CORRECT ANSWER:

It is to ensure that there is continuity in management

Explanation:

A proper succession management plan ensures continuity even if there is a churn in top management.
Lack of succession planning can create trouble if the current management has to be replaced for any
reason whatsoever.

Q 5. Companies which have _______ will be ranked higher on ESG parameters.

 Between 30% to 50% of directors as independent directors
 Less than 30% of his directors as independent directors
 Over 50% of directors as independent directors
 No independent directors on their boards

CORRECT ANSWER:

Over 50% of directors as independent directors

Explanation:

Environment, Social and Corporate governance (ESG)

Independent directors are those who do not have any material relationship with the company, its
management, or its major shareholders. They are considered independent in their judgment and decision-
making, free from any conflicts of interest that may compromise their ability to act in the best interests of
the company and its stakeholders.
Independent directors are responsible for overseeing the company’s ESG performance. They play a
critical role in guiding the company’s ESG strategy, monitoring progress, and reporting to stakeholders.
Board composition: The directors of a company can include independent directors, nonexecutive directors
(who are not part of management but not independent, either), and executive directors. For the sake of
strong corporate governance standards, majority of the board should comprise of independent directors.
Currently, SEBI regulation stipulates that independent directors should constitute at least 50% of the
board if the chairman is an executive director.

Q 7. As per Section 230 of Companies Act, which of the following is TRUE about 'Scheme of
Arrangement'?
 Scheme of Arrangement is a court monitored settlement process between the company and its
creditors
 Scheme of Arrangement is the settlement of legal succession within the promoter family after the
demise of the promoter
 Scheme of Arrangement is the process of merging the subsidiaries with the holding company
 Scheme of Arrangement is basically a agreement of co-operation by all the companies in an
industry

CORRECT ANSWER:

Scheme of Arrangement is a court monitored settlement process between the company and its creditors

Explanation:

Under section 230 of Companies Act 2013, Scheme of arrangement can be sought by the company or its
creditors / members. The person claiming the scheme of arrangement shall approach the National
Company Law Tribunal (NCLT). The tribunal then orders the meeting between the company, its creditors
and/or members to arrive a compromise or arrangement.

Q 8. 'Related Party Transactions' have to disclosed by the company because _______ .

 The shareholders are assured that related party transactions are done only with related parties and
not with un-related parties
 The shareholders should know if such related party transactions are enriching some promoters or
shareholders at the cost of other shareholders
 The shareholders should be aware that the company can sell its goods and services outside their
close network
 It's is as per SEBI's KYC rules and regulations

CORRECT ANSWER:

The shareholders should know if such related party transactions are enriching some promoters or
shareholders at the cost of other shareholders

Explanation:
While analysing a company, the analyst has to check its Corporate governance standards.
Related party transactions form a part of corporate governance standards. It is important to prevent
unscrupulous related party transaction that can enrich promoter group or other majority shareholders at
the cost of minority shareholders. Ideally all material related party transactions should be presented to the
audit committee for pre-approval.

Q 10. Identify the factor which will have a positive influence on the sale of sports equipment in a
country?
 Recession
 Young population
 Aging population
 All of the above

CORRECT ANSWER:

Young population

Explanation:

Young people generally take active part in sporting activities. So if a country has a substantial young
population, it can likely help sale of more sporting equipment.

Q 12. ________ gives a review of the company's sources and uses of cash over the year.
 Income and Expense Statement
 Cash Flow Statement
 Working Capital Statement
 Balance Sheet

CORRECT ANSWER:

Cash Flow Statement

Explanation:

Cash flow statement provides a summary of the various sources and uses of cash.

Q 13. In the Pioneering Stage of a business life cycle, _______ .

 the business get many customers as the business becomes viable
 the business becomes very large and captures a good market share
 the business threats from new technologies
 the business concept is still being proven or just been proven
CORRECT ANSWER:

the business concept is still being proven or just been proven

Explanation:

Pioneering stage is the first stage of a business life cycle. In this the industry is just taking shape. It is not
widely adopted. The concept is still being proven or just been proven.

Q 14. As per the SEBI standards of corporate governance, independent directors should constitute at
least ______ of the board if the chairman is an executive director.
 25%
 50%
 65%
 70%

CORRECT ANSWER:

50%

Explanation:

SEBI regulation stipulates that independent directors should constitute at least 50% of the board if the
chairman is an executive director. In all other cases, it requires 1/3rd of the board to be comprised of
independent directors.

Q 15. What can most likely cause an increase in the purchases of premium products over regular cheaper
alternatives?
 Recession
 Inflation
 Increase in income levels
 Growth in population

CORRECT ANSWER:

Increase in income levels

Explanation:

As an economy grows, the income levels grow and the disposable income of population increases. This
can cause change in category of goods and services being consumed. People start consuming premium
products compared to cheaper alternatives.

Q 16. An auditor will give a _____________ if they are convinced that whole or part of the financial
statements do not reflect true and fair view.
  Report with a disclaimer
 Negative Report
 Qualified Report
 Unsigned Report

CORRECT ANSWER:

Qualified Report

Explanation:

A qualified report is given when the auditors are convinced that whole or part of the financial statements
do not reflect true and fair view. These may arise when auditors disagree with the accounting policy being
followed by the company or if they believe that there are some other serious discrepancies in the financial
statements.

Q 18. In BCG matrix, business segments in a fast growing market, but having low market share are
known as _______ .
 Question marks
 Cash Cows
 Stars
 Dogs

CORRECT ANSWER:

Question marks

Explanation:

Question Marks - Business segments in a fast growing market, but having low market share. The right
strategies and investments can help the market share of the business grow, but they also run the risk of
consuming cash in the process of increasing market share and in the end turning out to be not enough cash
generating.
Tata Nano can be considered as an example of a question mark, which did not succeed; whereas, Bajaj
Pulsar may be considered as an example of a question mark product which succeeded.

Q 19. In Expansionary fiscal policy, the Government uses its excess income to repay its debts or acquire
assets. State True or False?
 True
 False

CORRECT ANSWER:

False
Explanation:

A Government tries to balance between its inflows and outflows and based on its actions the fiscal policy
can be categorized as -
Expansionary fiscal policy – Fiscal measures when government’s spending exceeds its income. This
policy stance is usually undertaken during recessions/slow moving economy.
Contractionary fiscal policy – Fiscal measures when government’s spending is lower than its income.
Government uses excess income to repay its debts/obligations or acquire assets.

Q 20. The work of a research analyst can be hampered by _______ .

 Lots of unnecessary and irrelevant information
 Contradiction of data from multiple sources
 Inaccessibility of data
 All of the above

CORRECT ANSWER:

All of the above

Explanation:

Sometimes a reseach analyst receives a lot of data which is irrelevant or contradicting. Going through this
for getting the right information is a time consuming task and many a times unproductive.
On the other hand, sometimes, there can be a lack of available data which will delay the research work.

Q 22. The expected rate of return at the time of valuation of a security known as _______ .
 IRR Rate
 Discount rate
 Premium rate
 Interest rate

CORRECT ANSWER:

Discount rate

Explanation:
Conceptually, discounted cash flow approach to valuation is the most appropriate approach for valuations
when three things are known with certainty:
- Stream of future cash flows
- Timings of these cash flows, and
- Expected rate of return by the investors (called Discount Rate).
Q 23. When is the threat of substitutes very high ?
 When the substitute offer better quality
 When the substitute is available at a better price
 When the substitute offer better ease
 All of the above

CORRECT ANSWER:

All of the above

Explanation:
Threat of substitutes would be high if -

1. Substitutes offer equal or better experience to customers – quality, price, ease etc.
2. Switching cost for customers from one product/service to another is low or nil

Q 25. What is the risk called when a company which had issued bonds goes INSOLVENT and is unable
to make the payments of principal and interest?
 Market Risk
 Call Risk
 Liquidity Risk
 Credit Risk

CORRECT ANSWER:

Credit Risk

Explanation:
Credit Risk or default risk refers to the possibility that a particular bond issuer will not be able to make
expected interest rate payments and/or principal repayment.

Q 26. Which of these sections form a part of a company research report?

 Company fundamentals
 Key strengths and key concerns
 Shareholding pattern
 All of the above

CORRECT ANSWER:

All of the above

Explanation:

The major sections of a research report include - Company business, peer group analysis, shareholding
pattern, key strengths, key concerns, industry overview, company fundamentals, key financial indicators
and financials.

Q 27. The disclosures of actual and potential conflicts of interest should be stated _______ in the
research reports by the analysts.
 Completely
 Timely
 Concisely
 All of the above

CORRECT ANSWER:

All of the above

Explanation:
Advice from investment analysts is many times prone to conflicts of interest that may prevent them from
offering independent and unbiased opinions.

One of the principles on addressing conflicts of interest is - Disclosures of actual and potential conflicts of
interest should be complete, timely, clear, concise, specific and prominent.

Q 28. What are the important factor(s) for a research analyst while examining the quality of independent
directors?
 How many board meetings they are attending?
 What is their relationship with the promoters?
 What is their qualification and experience
 All of the above

CORRECT ANSWER:

All of the above

Explanation:
Analysts should focus on the qualifications and experiences of these independent directors, how many
meetings they attend and what are their contributions to the business. They also have to see whether these
directors are truly independent or are relatives and friends of the promoters.

Q 30. Which of these corporate actions are only book entries and they do not have any economic impact
on the share holders?
 Stock Consolidation
 Bonus Issue
 Stock Split
 All of the above

CORRECT ANSWER:
All of the above

Explanation:
Bonus issue, Share Split and Share consolidation are only book entries without any economic benefit
whatsoever to the shareholders. For eg. In Bonus issue, the shareholder get more free shares but the
market price drops accordingly to adjust for the increase in shares.

These are to influence the psychology of investors without any economic benefit to the shareholders.

Q 31. Identify which of these are competing technology for digital cameras?
 Smart Phones
 E-Commerce
 Laptop computers
 OTT Platforms

CORRECT ANSWER:

Smart Phones

Explanation:

Camera manufacturing is an example that shows the challenges in defining an industry.

Couple of decades ago, cameras were a standalone product. However, with the emergence of smart
mobile phones with built-in cameras, a lot of entry level digital cameras started losing their sales to these
phones.

Q 32. Identify the goods which attract customs duty in India?

 Only liquor
 Only fossil fuels
 both liquor and fossil fuels
 All imported goods

CORRECT ANSWER:

All imported goods

Explanation:

Customs duty is a tax that is levied on almost all imported products. The rate of customs duty vary based
on the product that is imported.

Q 33. The views which are expressed in a research report should be consistent with the views of
________ .
  The research entity
 The head of research in the research entity
 The individual research analyst publishing the report
 The compliance team in that research entity

CORRECT ANSWER:

The individual research analyst publishing the report

Explanation:

As per SEBI (Research Analyst) Regulation 18: Limitations on publication of research report, public
appearance and conduct of business, etc. -
'Research analyst or research entity shall not issue a research report that is not consistent with the views of
the individuals employed as research analyst regarding a subject company'.

Q 37. Who is/are included as deemed to be 'connected person' under the SEBI Insider Trading
Regulations?
 Company under same management
 Subsidiary of the company
 Company under same group
 All of the above

CORRECT ANSWER:

All of the above

Explanation:

As per SEBI, (Prohibition of Insider Trading) Regulations, deemed to be connected persons include -
'A holding company, subsidiary or associate company under the same management or group'

Q 38. A Government is said to be implementing Expansionary Fiscal policy when ______ .

 the Government's spending is lower than its income
 the Government's spending exceeds its income
 the Government's income and expenditure are in equilibrium
 None of the above

CORRECT ANSWER:

the Government's spending exceeds its income

Explanation:
Expansionary fiscal policy – Fiscal measures when government’s spending exceeds its income. This
policy stance is usually undertaken during recessions/slow moving economy

Q 39. What is likely to be the impact on the stock markets when central banks change from
contractionary policy to expansionary policy?
 Stock markets are likely to go up
 Stock markets are likely to go down
 Fiscal policies have no impact on stock markets
 Monetary policies have no impact on stock markets

CORRECT ANSWER:

Stock markets are likely to go up

Explanation:

Expansionary fiscal policy – Fiscal measures when government’s spending exceeds its income. This
policy stance is usually undertaken during recessions/slow moving economy.
Expansionary monetary policy is used to push the economy up by increasing the money supply steeply
and reduction in the interest rates. This usually leads to stock markets going up.
(On the other hand, Contractionary policy is intended to cool down the heated up economy through
reduction in the money supply or slow increase in money supply and increase in the interest rates.)

Q 40. State whether true or false? - If imports are more than exports, then the country will have a capital
account deficit.
 True
 False

CORRECT ANSWER:

False

Explanation:

A country’s balance of payment is the statement showing transactions of a country with the rest of the
world. Balance of payment statement is broadly divided into two accounts namely the current account and
the capital account.
The current account has all the details of transactions on revenue account viz. imports and exports of
goods and services while the capital account captures all the capital flows like FDI, FII, loans, and grants
etc.
If imports are more than exports, then country will have a current account deficit (not capital account) and
if exports are more than imports then it will have current account surplus.
Q 42. A fundamental research analyst will base his recommendation on what basis?
 The recommendations will be based on qualitative assessment of the business
 The recommendations will be based on the volatility and momentum in share prices
 The recommendations will be based on trends and patterns in historical prices and volumes
 The recommendations will be based on assessment of fair value of the company’s share

CORRECT ANSWER:

The recommendations will be based on assessment of fair value of the company’s share

Explanation:

As per Fundamental Analysis, an investor should first gauge the fair price of the equity based on the
expected performance of the business. If the market price is below the fair value, it represents an
attractive investment opportunity. On the other hand, if the market price is above the fair value, the
investor should sell the share or avoid investing.

Q 43. In which of these circumstances can an asset be considered underpriced?

 When the price of the asset is below its fair value
 When the EPS is less than the price of the asset
 When the price of an asset and its value are at par
 When the price of the asset is above its fair value

CORRECT ANSWER:

When the price of the asset is below its fair value

Explanation:

Intrinsic value represents the price at which investors believe the security should be trading at. Intrinsic
value is also known as “fair market value
If the market price of an asset is below the fair value, it is considered as underpriced and represents an
attractive investment opportunity.

Q 45. Identify which of these information is included in a fundamental research report.

 Comprehensive analysis of the financial performance of the company
 Comprehensive analysis of short term volatility in the prices of the company's stock
 Comprehensive analysis of volume of company's shares traded in the market
 All of the above

CORRECT ANSWER:

Comprehensive analysis of the financial performance of the company

Explanation:

Fundamental research involves both quantitative and qualitative studies. This includes studying the
financial performance of the company i.e. studying the Profit and Loss Statement etc.
In technical analysis, analysts study the movement in prices, the volumes, the volatility etc.

Q 46. Identify the TRUE statement with respect to 'communication by a research analyst to a client' as
per Regulation 18 of Research analyst code of conduct.
 A Research analyst shall not engage in any communication with a client in the presence of
personnel from investment banking division about an ongoing investment banking services
transaction
 A Research analyst shall not engage in any communication with a client without the presence of
personnel from investment banking division about an ongoing investment banking services
transaction
 A Research analyst shall not engage in any communication about an ongoing investment banking
services transaction
 Non of the above

CORRECT ANSWER:

A Research analyst shall not engage in any communication with a client in the presence of personnel from
investment banking division about an ongoing investment banking services transaction

Explanation:

As per Regulation 18: Limitations on publication of research report, public appearance and conduct of
business, etc. -
Research analyst or individuals employed as research analyst by research entity shall not engage in any
communication with a current or prospective client in the presence of personnel from investment banking
or merchant banking or brokerage services divisions or company management about an investment
banking services transaction.

Q 48. Identify the CORRECT statement with respect to 'SURCHARGE' levied along with income tax.
 'Surcharge' is a special amount which is collected to be used for a specific purpose
 'Surcharge' is a levy charged on the taxes which are paid using digital methods
 'Surcharge' is an additional levy that is transferred to the State Governments
 'Surcharge' is an additional levy and its not shared with the State Governments

CORRECT ANSWER:

'Surcharge' is an additional levy and its not shared with the State Governments

Explanation:
Surcharge is a tax on tax.
In terms of income tax, the central government shares the revenue with the state governments in which the
companies are located.
However, in terms of surcharge the entire tax revenue goes to the central government funds and it is not
shared with the state governments.

Q 49. Identify the TRUE statement with respect to Reverse Book Building process.
 When a promoter of a company sets the floor and ceiling of the prices in which shares would be
bought back, its known as Reverse Book Building process
 When a promoter sets the floor price but the shareholders can quote a higher price for offering
their shares, its known as Reverse Book Building process
 A company cannot cancel its delisting plan if a Reverse Book Building offer is given by its
promoters
 A promoter has to accept all the bids tendered under the Reverse Book Building process

CORRECT ANSWER:

When a promoter sets the floor price but the shareholders can quote a higher price for offering their
shares, its known as Reverse Book Building process

Explanation:

SEBI regulation require that the promoter group provide an exit opportunity to all shareholders. The
promoter or promoter group should invite bid to acquire the shares through a reverse book building
process.
Under this system, the promoter need to specify the floor price. Shareholder’s then specify the price at
which they are willing to sell the shares.

Q 50. Alternate Investment Funds (AIFs) are regulated by _______ .

 SEBI
 RBI
 IRDA
 PFRDA

CORRECT ANSWER:

SEBI

Explanation:

The Securities and Exchange Board of India (SEBI) regulates the alternative investment funds in India.
AIFs are defined in the Securities and Exchange Board of India (Alternative Investment Funds)
Regulations, 2012.
Q 1. Silverstone Company has a very good financial position. However, due to weak economic
conditions, it has experienced a fall in profits. Considering this scenario, which of the below statements is
TRUE ?
 As the profit has fallen due to external factors, it does not indicate and major WEAKNESS as per
SWOT analysis
 The fall in profits should be considered as an OPPORTUNITY as per SWOT analysis as the
company can grow faster from here-on
 The fall in profits should be considered as a THREAT as per SWOT analysis as it a warning for the
future financial stability for the company
 The fall in profits should be considered as a WEAKNESS of the company as per SWOT analysis

CORRECT ANSWER:
The fall in profits should be considered as a THREAT as per SWOT analysis as it a warning for the future
financial stability for the company

Explanation:
In SWOT Analysis, threats are essentially risk that comes from external environment.

Weak economic condition is an external factor and such economic recession can cause significant decline in
the fortunes of many businesses.

Q 4. Identify the industry which will fall under the 'Defensive' industry category?
 Tourism
 Processed Foods
 Media and information
 Defense Equipment

CORRECT ANSWER:
Defense Equipment
Explanation:
Defensive industries: These are industries that create products and services that have low income elasticity
i.e., a fall or rise in income does not affect the demand significantly. Therefore, these industries experience
minimal impact on account of economic cycles. Rather, their business prospects are affected only by secular
trends.

Q 6. As per the BCG Matrix, _______ is that segment of the market in which then business is growing
strongly and the company has a large market share.
 Dog
 Question Mark
 Star
 Cash Cow

CORRECT ANSWER:
Star

Explanation:
As per the BCG matrix, business segments can be classified as:

Stars: These are segments in a business where market is growing rapidly and company is having a large
market share.

Cash Cows: These are segments which require low cash infusion for investment to maintain market shares
because of low growth prospects but at the same time steadily generate cash for the company from the
established market share.

Question Marks: Business segments in a fast growing market, but having low market share.

Dogs: Business segments, which have slow growth rates and intense competition.

[Stars: These are segments in a business where market is growing rapidly and company is having a large
market share. This segment generates increasing cash for the business with the passage of time. Cera
Sanitaryware could be a good example of “star” with large market share, continuous growth and significant
cash generation]
Q 7. ________ is an objective of SEBI regulations.
 Prevention of volatility in markets
 Protecting interest of investors
 Securing steady returns for the investors
 All of the above

CORRECT ANSWER:
Protecting interest of investors

Explanation:
The Preamble of the SEBI Act describes the basic functions of SEBI : “…..to protect the interests of
investors in securities and to promote the development of, and to regulate the securities market and for
matters connected therewith or incidental thereto”

Thus, SEBI’s primary role is to protect the interest of the investors in securities and to promote the
development of and to regulate the securities market.

Q 8. What is the cause of high inflation?

 Increase in foreign exchange reserves
 Higher interest rates
 Strengthening of local currency
 None of the above

CORRECT ANSWER:
Increase in foreign exchange reserves
Explanation:
Substantial Increase in foreign exchange reserves will influence the monetary policy by increase money
supply and increase in money supply leads to inflation. This excess liquidity creates some inflationary
pressure

(Increase in international reserves also had a profound effect on the structure of world inflation. The increase
in demand expansion triggered by the monetary expansion results in a sharp increase in the demand for
traded commodities because the increase in international reserves had eliminated or substantially reduced
the foreign exchange constraint in many countries. Consequently, the foreign trade sector became the
leading sector in inflation)

Q 9. How are corporate actions regulated?

 Corporate actions are regulated by SEBI regulations
 Corporate actions are regulated by the listing agreement between the companies and Stock
exchanges
 Corporate actions are regulated by the provisions of Companies Act
 All of the above

CORRECT ANSWER:
All of the above

Explanation:
A company initiates several actions, apart from those related to its business, that have a direct implication
for its stakeholders. These include sharing of surplus with the shareholders in the form of dividend, changes
in the capital structure through the further issue of shares, buy backs, mergers and acquisitions and delisting,
raising debt and others. In a company that has made a public issue of shares, the interest of the minority
investors has to be protected.

Corporate actions are regulated by provisions of the following: • Provisions of the Companies Act, 2013, •
Relevant regulations of SEBI, and • Terms of the listing agreement entered into with the stock exchange.
Q 10. The unique parameter for evaluation of the business in hotel sector is ________ and for the retail
sector is _________ .
 Net Room Income , Net profit margin
 Average room tariffs , Foot falls and same store sales
 Average Revenue Per User , Net profit margin
 Average room tariffs , Net profit margin

CORRECT ANSWER:
Average room tariffs , Foot falls and same store sales

Explanation:
Each sector has its own unique parameters for evaluation. For the retail sector, foot falls and same store sales
(SSS) are important parameters, whereas for banking it is Net Interest Income (NII)/ Net Interest Margin
(NIM). For telecom, it is Average Revenue Per User (ARPU) and for hotels, it is average room tariffs etc.

Q 12. _______ refers to the possibility that a company will be unable to honour its debt obligations.
 Market Risk
 Liquidity Risk
 Business Risk
 Credit Risk

CORRECT ANSWER:
Credit Risk
Explanation:
Credit Risk or default risk refers to the possibility that a particular bond issuer will not be able to make
expected interest rate payments and/or principal repayment.

Q 13. In ________ bias, investors look for evidence of some other investors buying specific securities.
 Gambler's fallacy
 Confirmation bias
 Herd Mentality
 Anchoring

CORRECT ANSWER:
Herd Mentality

Explanation:
Herd mentality: This is a common behaviour disorder in investing community. This bias is an outcome of
uncertainty and a belief that others may have better information, which leads investors to follow the
investment choices that others make.

Small investors keep watching other participants for confirmation and then end up entering when the
markets are over heated and poised for correction.

Q 18. The competing technology for digital cameras is _______ .

 Laptops
 OTT platforms
 Smart phones
  Online shopping

CORRECT ANSWER:
Smart phones

Explanation:
Camera manufacturing is an example that shows the challenges in defining an industry.

Couple of decades ago, cameras were a standalone product. However, with the emergence of smart mobile
phones with built-in cameras, a lot of entry level digital cameras started losing their sales to these phones.

Q 19. In ________ , the issuers have the right to call the bonds back.
 Convertible bonds
 Callable bonds
 Puttable bonds
 Zero coupon bonds

CORRECT ANSWER:
Callable bonds

Explanation:
A callable bond, also known as a redeemable bond, is a bond that the issuer may redeem before it reaches
the stated maturity date. A callable bond allows the issuing company to pay off their debt early.

Q 20. What will be the likely Beta of a stock which is more volatile than the market?
 Zero
 Below zero
 Between zero and one
  Greater than one

CORRECT ANSWER:
Greater than one

Explanation:
Beta of 1 indicates that the security's price will move with the market. Beta of less than 1 means that the
security will be less volatile than the market. And, beta of greater than 1 indicates that the security's price
will be more volatile than the market.

For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market both on up and
down moves.

Q 21. What is the advantage of the 'CHECKLIST' approach to investing?

 There are less chances of overlooking data
 It ensures a disciplined approach
 It leaves a decision-making trail that can be modified and corrected with time.
 All of the above

CORRECT ANSWER:
All of the above

Explanation:
A checklist is a type of job aid used to reduce failure by compensating for potential limits of human memory.
It helps to ensure consistency and completeness in carrying out a task. A basic example is the "to do list".

Advantages of checklist approach are:

- Checklist helps avoid lazy mistakes or short-cuts.

- Checklist ensures than an analyst always does what he or she intends to do in a disciplined
manner.
- Checklists help in objective and facts based decisions.
- Checklists leave a decision-making trail that can be modified and corrected with time.

Q 22. The role of an Research Analyst is to _______ .

 Study companies and industries, analyze raw data, and make forecasts
 Give recommendations about whether to buy, hold or sell securities.
 Both 1 and 2
 None of the above

CORRECT ANSWER:
Both 1 and 2

Explanation:
Research Analysts play an important role in interpreting the complex data related to economy, industry,
companies etc. They study Companies and industries, analyze raw data, and make forecasts /
recommendations about whether to buy, hold or sell securities.

Q 23. Investments in _______ is considered quiet risky.

 Provident Fund
 Venture Capital Fund
 Pension Fund
 Mutual Fund

CORRECT ANSWER:
Venture Capital Fund

Explanation:
Venture Capital Funds - A venture capital fund refers to a pooled investment vehicle like mutual fund but
with mandate to invest money in enterprises that are in the early stage of development but with the potential
of long-term growth. However the risk of failure is quiet high in these new enterprises.

Q 24. Which of the following is NOT TRUE about INVESTING ?

 Risk and return are an integral part of investing
 Investments in bonds is safer than investing in equities
 All investments carry risk of erosion of capital
 All types of investment will result in capital appreciation over a long period of time

CORRECT ANSWER:
All types of investment will result in capital appreciation over a long period of time

Explanation:
Capital appreciation usually happens over a long period of time but it is not a certainity. There could be
losses also in the long term.

Q 25. Identify the correct statement with respect to the 'Face Value' of a share -
 Face value depends on the market price of the share
 Dividends are not declared as a percentage to the face value of the share
 A Company can have various face value or its shares
 Face value of company’s shares would increase in case of share split

CORRECT ANSWER:
Dividends are not declared as a percentage to the face value of the share

Explanation:
SEBI has mandated that listed companies shall declare dividends in rupees terms on per share basis as
against the earlier practice of declaring dividends as a percentage of the face value.
This is to avoid confusion among investors while comparing dividend on various shares of different face
values.

Q 26. An agent or a dealer who buys and sells shares in a registered stock exchange is known as
__________ .
 Underwriter
 Share transfer agent
 Stockbroker
 Lead merchant banker

CORRECT ANSWER:
Stockbroker

Explanation:
Trading members or Stock Brokers are registered members of a Stock Exchange. They facilitate buy and sell
transactions of investors on stock exchanges. All secondary market transactions on stock exchanges have to
be essentially conducted through registered brokers of the stock exchange.

Q 27. Which of the below mentioned actions is NOT included in the powers of Securities and Exchange
Board of India (SEBI)?
 To appoint the directors of Financial Intelligence Unit (FIU).
 Suspend an officer of a SEBI registered Stock Broker.
 Impound and retain the proceeds or securities in respect of any transaction which is in violation of
regulations.
 Suspend trading of a listed security on a recognised stock exchange.

CORRECT ANSWER:
To appoint the directors of Financial Intelligence Unit (FIU).
Explanation:
FIU is an independent body reporting directly to the Economic Intelligence Council (EIC) headed by the
Finance Minister.

Q 28. Which of the below options is TRUE for an industry which has low competition, few substitutes and
low bargaining power of the buyers?
 It has strong pricing power and high profit margin
 It has strong pricing power and low profit margin
 It has weak pricing power and high profit margin
 It has weak pricing power and low profit margin

CORRECT ANSWER:
It has strong pricing power and high profit margin

Explanation:
If an industry has the following features, it would have strong pricing power and high profit margins -

1. Low competition
2. High barriers to entry
3. Weak suppliers’ bargaining power
4. Weak buyers’ bargaining power
5. Few substitutes

A good example of this is the Education industry in India.

Q 30. ________ is NOT a valuation parameter for business analysis.
 P/E ratio
 P/BV ratio
 The demand and supply of the companies shares in the stock market
 Intrinsic value

CORRECT ANSWER:
The demand and supply of the companies shares in the stock market

Explanation:
When a business is valued, the demand and supply of its shares in the stock market is not considered.

Q 31. The manager of the Indian Government's borrowing program is ______ .

 SEBI
 IRDA
 RBI
 Ministry of Finance

CORRECT ANSWER:
RBI

Explanation:
Reserve Bank of India (RBI) is the central bank of the country which has the responsibility of administering
the monetary policy.

It regulates the money markets and is the manager of Government's borrowing programs.
Q 32. One can see low consumer confidence during ________ .
 Recession
 Slow Down
 Recovery
 Boom

CORRECT ANSWER:
Recession

Explanation:
Recession Phase : As utilization rates are low, manufacturers cut down on their further expansion plans.
Further, to control cost, they may begin layoffs. This results in increase in unemployment, decrease in
income levels and in turn decrease in consumption.

Decreasing consumption causes losses and more unemployment and the cycle sustains the decreased
consumption. Consumer confidence declines. Consumers start saving rather than borrowing and/or
spending.

Q 33. The formula for calculating Growth adjusted Price to Earnings ratio (PEG Ratio) is ______ .
 [Current price of stock x Earnings Per Share] / Growth rate
 [Current price of stock/ Earnings Per Share] x Growth rate
 [Current price of stock/ Earnings Per Share] / Growth rate
 Market price X Number of outstanding shares

CORRECT ANSWER:
[Current price of stock/ Earnings Per Share] / Growth rate
Explanation:
Growth Adjusted Price to Earning Ratio (PEG) =

[Current price of stock/ Earnings Per Share] / Growth rate

To understand the difference between a normal PE Ratio and PEG Ratio, lets take an example.

There are two businesses with P/E ratios 12 and 28. They have different growth potentials of 10 % and 40
% for next few years. If we look at PE Ratio, we will derive that the stock with PE of 12 is cheaper than the
stock with PE 28.

However if we calculate the PEG ratio ie - 12/10 = 1.2 and 28/40 = 0.7 , we will find that the second stock
is cheaper due to the high growth rate of the company.

Q 34. When an investor suffers a loss in his bond portfolio due to insolvency of the company, this is known
as ______ .
 Interest Rate Risk
 Market Risk
 Credit Risk
 Liquidity Risk

CORRECT ANSWER:
Credit Risk

Explanation:
Credit Risk or default risk refers to the possibility that a particular bond issuer will not be able to make
expected interest rate payments and/or principal repayment.

Debt instruments are subject to default risk as they have pre-committed pay outs. The ability of the issuer of
the debt instrument to service the debt may change over time and this creates default risk for the investors.
Q 35. Unfair trade practice excludes :
 Active concealment
 Publicly known information
 Wilful mis-statement
 Misleading info

CORRECT ANSWER:
Publicly known information

Explanation:
Some of the instances of unfair trade practices cited in the SEBI (Prohibition of Fraudulent and Unfair Trade
Practices relating to Securities Markets) Regulation, 2003 are as follows:

a) A wilful misrepresentation of the truth or concealment of material fact in order that another person may
act, to his detriment b) A suggestion as to a fact which is not true, by one who does not believe it to be true
c) An active concealment of a fact by a person having knowledge or belief of the fact d) A promise made
without any intention of performing it e) A representation, whether true or false, made in a reckless and
careless manner.

Publicly know information is not a unfair trade practice.

Q 36. As per SEBI rules, the chairman of the Remuneration Committee should be ______ .
 The Chairman of the Board
 A Non Executive Director
 An Executive Director
 An Independent Director

CORRECT ANSWER:
An Independent Director
Explanation:
The remuneration committee decides the remuneration of directors and senior management. Ideally, the
committee should comprise entirely of independent directors. SEBI regulation currently stipulates that all
members should be non-executive directors and the chairman of the committee should be independent
director.

Q 37. Identify which of these is important in the context of client meetings by research analysts?
 Pre-meet research done by the research analyst
 Clarity of questions asked to the management
 Unbiased attitude of the research analyst
 All of the above

CORRECT ANSWER:
All of the above

Explanation:
Communication with management requires analysts to have clarity of thoughts and good listening ability but
there are a few additional principles that analysts must keep in mind while talking to the management of a
company

Independence and Neutrality of view - During the research, analysts must have an unbiased opinion and
should always hold their independence.

Pre-meeting Research - While the management is generally open to interview with Research Analysts, they
must bear in mind that these opportunities do not come very frequently and therefore must be made full use
of whenever they come. Before going to meet a company's management, they must thoroughly learn about
the company’s products, industry and competitors.
Q 38. Analysis of industry by a research analyst will involve which of the following factors?
Regulatory environment prevalent in the industry
Competition in the industry
Consumers’ behaviour
All of the above

CORRECT ANSWER:
All of the above

Explanation:
Different industries face different challenges and opportunities. Their growth drivers could be significantly
different. Accordingly, Research Analysts need to understand thoroughly the regulatory environment
prevalent in the industry, business models, competition, operating factors, sensitivity of demand to price
changes, consumers’ behaviour etc.

Q 39. Find out the Cost of Equity if the risk free rate is 5%, the Market risk premium is 8% and the Beta is

Q 40. Earnings for an investor from the business depend on which of these factors?
Interest rate in the economy
Inflation in the economy
Market conditions
Performance of the company

CORRECT ANSWER:
Performance of the company
Explanation:
The returns to an investor from a business depends on various factors, but the most important factor is the
performance of the company.

Q 41. ________ is considered as an Economic Factor in PESTLE analysis.

Foreign Exchange Reserves
Monitory policies of the RBI
Dependence of a country on other countries for important natural resources
All of the above

CORRECT ANSWER:
All of the above

Explanation:
Political, Economic, Socio-cultural, Technological, Legal and Environmental (PESTLE) Analysis

Monitory policies of the Central Banker, country’s dependence on other countries in terms of important
natural resources such as oil, Balance of payment positions and forex reserves etc. all form a part of the
economic factors under PESTLE analysis.

Q 42. The 'Income Method' of measuring national income measures the national income as an aggregated
flow of goods and services in the economy from the different sectors: agriculture, industry and services.
State whether True or False?
True
False

CORRECT ANSWER:
False

Explanation:
National income of an economy is defined through a variety of measures such as gross domestic product
(GDP) and gross national product (GNP). Broadly stating, national income of an economy can be measured
through three methods: (i) Product Method (ii) Income Method, and (iii) Expenditure Method.

In the Product Method national income is measured as an aggregated flow of goods and services in the
economy from the different sectors: agriculture, industry and services. Economists calculate money value of
all final goods and services produced in the economy during a specified period. Final goods refer to only
those goods which are consumed by economy participants and not the ones used in further production
processes (intermediate goods).

Q 43. _________ is responsible for managing the fiscal policy of India.

Central Bank (RBI)
Central Government
Capital Market Regulator (SEBI)
EXIM Bank of India

CORRECT ANSWER:
Central Government

Explanation:
Fiscal policy is defined as the policy under which the government uses the instrument of taxation, public
spending and public borrowing to achieve various objectives of economic policy. Simply put, it is the policy
of government spending and taxation to achieve sustainable growth.

Note – The fiscal policy is managed by the Central Government and the monetary policy is managed by the
Central bank (RBI).

Q 45. _______ regulates the registered valuers in India.

Securities and Exchange Board of India (SEBI)
Registrar of Companies (ROC)
Institute of Chartered Accountants of India (ICAI)
Insolvency and Bankruptcy Board of India (IBBI)

CORRECT ANSWER:
Insolvency and Bankruptcy Board of India (IBBI)

Explanation:
Insolvency and Bankruptcy Board of India (IBBI), established under the Insolvency and Bankruptcy Code
2016, is the regulator for overseeing insolvency process as well as the insolvency professionals. It is
responsible for making and enforcing rules related to corporate insolvency resolution, corporate liquidation
and individual insolvency resolution and individual bankruptcy code.

It is also appointed as the authority for regulation and development of valuers in India.
Q 47. Sell side Analyst generally work for money managers like mutual funds, hedge funds, portfolio
managers who purchase and sell securities for their own investment accounts or on behalf of their clients.
State whether True or False.
True
False

CORRECT ANSWER:
False

Explanation:
Sell-side Analysts - They typically publish research reports in public domain on the securities of companies
or industries with specific recommendation to buy, hold, or sell the subject security. These recommendations
include the analyst’s expectations of the future earnings of the company and future price performance of the
security (“price target”). These analysts work for firms that provide investment banking, broking, advisory
services for clients.

(Buy-side Analysts - They generally work for Asset managers like mutual funds, hedge funds, pension
funds, Alternative investment funds, Foreign Portfolio investors or portfolio managers that purchase and sell
securities for their own investment accounts or on behalf of their investors/clients)

Q 48. As per SEBI (Research Analyst) Regulations, 2014, a research analyst who is an individual or are a
partnership firm will have net tangible assets of __________ .
Not less than Rs. 1 lakh
Not less than Rs. 5 lakhs
Not less than Rs. 10 lakhs
Not less than Rs. 15 lakhs
CORRECT ANSWER:
Not less than Rs. 1 lakh

Explanation:
As per the Securities and Exchange Board of India (Research Analyst) Regulations :

Regulation 8: Capital adequacy - A research analyst who is individual or partnership firm shall have net
tangible assets of value not less than one lakh rupees.

Q 49. Capital Markets in India are regulated by _______ .

Ministry of Finance
SEBI
RBI
Controller of Capital

CORRECT ANSWER:
SEBI

Explanation:
Securities and Exchange Board of India (SEBI) is the regulatory authority for the securities market in India.

SEBI stands at the forefront of regulating India's security and capital markets, with its oversight extending to
activities related to stock exchanges, brokers, portfolio managers, and mutual funds.
Q 50. Identify the bonds which can be converted into equity.
Callable Bonds
Puttable Bonds
Convertible Bonds
Zero Coupon Bonds

WRONG ANSWER

CORRET ANSWER:
Convertible Bonds
Explanation:
A convertible bond or debenture is generally issued as a debt instrument with the option to investors to
convert the amount invested into equity of the issuer company later. This security has features of both debt
and equity.

Q 1. If there is ______ in the economy, its most likely to aid the government in following expansionary
fiscal policy.
Low Fiscal Deficit
High Fiscal Deficit
Stagflation
Hyper inflation

CORRECT ANSWER:
Low Fiscal Deficit

Explanation:
When an economy is in a recession, the Government resorts to Expansionary fiscal policy by pumping in
more money in the economy to boost demand.

A low fiscal deficit means the Government has plenty of money to pump in the economy without restoring
to huge borrowings etc.

Q 2. Identify which of these is permitted under the research analyst code of conduct?
The performance rating of the Research Analyst is decided by the sales and trading team
There is a common supervisor of the sales and trading team and the Research Analyst
The employees in the sales team can give feedback to the Research Team on the research report
All of the above

CORRECT ANSWER:
The employees in the sales team can give feedback to the Research Team on the research report

Explanation:
As per SEBI (Research Analyst) Regulations, 2014 - Regulation 18: Limitations on publication of research
report, public appearance and conduct of business, etc. :

Research entity shall ensure that the individuals employed as research analyst are separate from other
employees who are performing sales trading, dealing, corporate finance advisory or any other activity that
may affect the independence of its research report: Provided that the individual employed as research analyst
by research entity can receive feedback from sales or trading personnel of brokerage division to ascertain the
impact of research report.
Q 3. Job of a research analyst involves _________ .
Collection of data and its analysis
Interacting with companies
Interacting with clients
All of the above

CORRECT ANSWER:
All of the above

Explanation:
Analysis and decision making process is a combination of understanding qualitative factors that affect
operational performance, such as efficiency of operations, competitiveness, business plans and work ethics
of the management among others and quantitative factors such as revenues, costs, profitability and risks to
these financials.

Therefore, Research Analyst's spend lot of time interacting with companies and others, accumulating data,
analysing it and arriving at a decision on whether to buy, hold or sell a particular security/stock.

Q 4. Identify which statement(s) is/are true about CAGR.

CAGR is calculated as the sum of annual returns over the holding period
CAGR does not take into account the timings of cash flows into account
CAGR means Compounded Annual Growth Rate
All the above are true

CORRECT ANSWER:
All the above are true
Explanation:
CAGR means Compounded Annual Growth Rate.

The CAGR method simply uses the beginning and ending value over a holding period. It does not take into
account the timings of cashflow.

Q 5. When an investor looks for information to prove that he/she is right, its known as ________ .
Confirmation bias
Loss-aversion bias
Gambler’s fallacy
Herd mentality

CORRECT ANSWER:
Confirmation bias

Explanation:
Confirmation bias, also called my side bias, is the tendency to search for, interpret, or prioritize information
in a way that confirms one's beliefs or hypotheses. It is a type of cognitive bias and a systematic error of
inductive reasoning.

For example, when a trader buys a stock for a reason and that reason doesn’t work out so the trader makes
up another one for owning the position. Similarly, first we make decision in mind and then find for the
information to justify that intuitive decision.
Q 6. Identify the CORRECT statement with respect to Bonus Shares.
Bonus issue can be made using all types of reserves including Revaluation Reserve
Bonus shares results in appreciation of wealth of shareholders by the proportion of bonus shares issued
Bonus shares are also called as equity dividend
All of the above

CORRECT ANSWER:
Bonus shares are also called as equity dividend

Explanation:
A bonus issue, also known as equity dividend, is an alternative to cash dividend. Bonus shares are issued to
the existing shareholders by the company without any consideration from them. The reserves lying in the
books of the company (shareholders’ money) gets transferred to another head i.e. paid-up/subscribed capital
(Except Capital reserve and revaluation reserve)

The shareholders do not pay anything for these shares and there is no change in the value of their holdings in
the pre and post-bonus stages. The issuance of bonus shares is more to influence the psychology of investors
without any economic impact.

Q 7. A house property is transferred, without adequate consideration, to the daughter-in-law by father-in-

law, and the same is let out. The rent received is taxable in the hands of _______ .
Son
Mother-in-law
Father-in-law
Daughter-in-law

CORRECT ANSWER:
Father-in-law
Explanation:
If a property is transferred to a spouse, minor child etc., without adequate compensation, it is not valid. The
transferor is the deemed owner and income from property is taxable in his hands.

As per section 64(1)(vi) of Income Tax Act, if an individual transfers his/her asset to his/ her son’s wife
otherwise than for adequate consideration, then income from such asset will be clubbed with the income of
the individual (i.e., transferor being father-in-law/mother-in-law).

Q 9. ________ is considered as a horizontal force in the Porter's Five Force model.

Bargaining Power of Suppliers
Bargaining Power of Customers
Threat of New Entrants
All of the above

CORRECT ANSWER:
Threat of New Entrants

Explanation:
Michael Porter’s Five Force Model for Industry Analysis - As the name suggests, this model analyses any
industry on the basis of five broad parameters or forces. These 5 forces are divided into 2 vertical and 3
horizontal ones.

Horizontal Forces: 1. Threat of Substitutes 2. Threat of New Entrants 3. Threat of Established Rivals
Vertical Forces: 1. Bargaining Power of Suppliers 2. Bargaining Power of Customers

Q 10. What will a good management talk about with the research analyst ?
It will talk about opportunities and challenges to its business
It will talk about how its stock will perform in future in the stock markets
It will talk about future financials to influence the analyst's sentiments
All of the above

CORRECT ANSWER:
All of the above

Explanation:
A good management will give a 360 degree view of the future prospects of the company to the research
analysts to positively influence their sentiments.

Q 11. Editing a research report includes the following EXCEPT _____ .

Checking the financial figures
Spelling checks
Correction of Grammatical Errors
Validation of conclusion

CORRECT ANSWER:
Validation of conclusion
Explanation:
Once a draft of the research report is ready it should be rechecked for financial figures, spell-checks and
grammatical errors and edited accordingly.

Q 12. Which of these will be considered as an Entry Barrier in an industry?

Strong Brands and strong distribution network
Lots of licensing required in the business
Huge investments
All of the above
CORRECT ANSWER
Explanation:
Entry barriers in an industry can be understood from following simple industry characteristics. They would
be high if:

1. There are lots of licensing required in the business 2. Patents and copyrights prevent new entrants 3.
Huge investments in specialized assets pose a challenge 4. Strong Brands, strong distribution network,
specialized execution capabilities, customers loyalty with existing products/services exist in the business

Q 13. If imports are more than exports, then country will have a _______
current account deficit
current account surplus
capital account deficit
capital account surplus

CORRECT ANSWER:
current account deficit
Explanation:
International trade refers to the total trade that a country does with all other countries in the world. Balance
of payment statement is broadly divided into two accounts namely the Current account and the Capital
account.

The current account has all the details of transactions on revenue account viz. imports and exports of goods
and services while the capital account captures all the capital flows like FDI, FII, loans, and grants etc. If
imports are more than exports, then country will have a current account deficit and if exports are more than
imports then it will have current account surplus.

Q 14. Identify the factor(s) which contribute to economic recovery from recession.
Low interest rates
Low inflation
Both low interest rates and low inflation
Nether low interest rates nor low inflation

CORRECT ANSWER:
Both low interest rates and low inflation

Explanation:
Low inflation rate enables central banks to loosen their monetary policy and extend liquidity in the market.
With relative easy availability of money and decrease in prices, consumers start buying goods and services.
This results in economic activity picking up and eventually results in return of expansionary phase.

Low interest rates motivate the industries to get funds at cheaper rates which leads to increased productivity
which leads to increased jobs and increased income which subsequently leads to economic recovery.

Q 15. In the __________ , national income is measured as an aggregated flow of goods and services in the
economy from the different sectors: agriculture, industry and services.
Income method
Product method
Expenditure method
Savings method

CORRECT ANSWER:
Product method

Explanation:
In the Product Method, national income is measured as an aggregated flow of goods and services in the
economy from the different sectors: agriculture, industry and services. Economists calculate money value of
all final goods and services produced in the economy during a specified period.

Final goods refer to only those goods which are consumed by economy participants and not the ones used in
further production processes (intermediate goods). Product method deals with the economy sector-wise. The
total output in the economy is computed as the sum of the outputs of various sectors.

Q 16. Which of these is true with respect to Regulation 16 of the Code of Conduct for Research Analysts?
Research analyst shall not deal or trade in securities that they recommends within thirty days before the
publication of a research report
Research analyst shall not deal or trade in securities that they recommends within sixty days before the
publication of a research report
Research analyst shall not deal or trade in securities that they recommends within seven days before the
publication of a research report
Research analyst shall not deal or trade in securities that they recommends within fortyfive days before the
publication of a research report

CORRECT ANSWER:
Research analyst shall not deal or trade in securities that they recommends within thirty days before the
publication of a research report

Explanation:
As per Regulation 16 of the Code of Conduct for Research Analysts :

'Independent research analysts, individuals employed as research analyst by research entity or their
associates shall not deal or trade in securities that the research analyst recommends or follows within thirty
days before and five days after the publication of a research report'.

Q 17. Which of the following will be considered as STRENGTH in SWOT analysis?

Large number of patents on products
Ease in licensing
Reduction in tax rates
All of the above

CORRECT ANSWER:
Large number of patents on products

Explanation:
Strengths, Weaknesses, Opportunities and Threats (SWOT) Analysis

Strengths in SWOT analysis refer to internal capabilities of the company that allows it to exploit external
opportunities and withstand threats. Strengths of a company include the following: - Strong financial
position - Highly valuable intellectual properties - Low customer concentration - Low cost or high margins
etc.

Form the options given above, only 'Large number of patents' is an internal strength of the company.

Q 18. If an auditor is unable to verify any part of the company's financials due to lack of data, the auditor
can provide a ________ .
Report with a disclaimer
Qualified report
Negative report
Non-confirmatory report

CORRECT ANSWER:
Report with a disclaimer

Explanation:
Auditors provide disclaimer when they are unable to verify any part of the financials on account of non-
availability of information.

Q 19. ______ risks are factored in Beta calculations.

Credit Risk
Liquidity Risk
Market Risks
All of the above

CORRECT ANSWER:
Market Risks

Explanation:
Beta measures the sensitivity of the stock’s performance to overall market performance.

Beta is a measure of the systematic risk of a security or a by comparing the volatility in the investment
relative to the market, as represented by a market index. It measures the risk of an investment that cannot be
diversified away.

Q 20. The net profit of a company for the year was Rs 300 crores. It had 4,72,60,223 outstanding equity
shares. The current price of the equity share is Rs 718. Find the P/E ratio of the share.
1.31
11.31
1.131
113.1

CORRECT ANSWER:
11.31

Explanation:
The formula for calculating PE Ratio is Market Price of the share / Earning Per Share (EPS)

We know the market price. Lets calculate the EPS

EPS = Profit / Number of shares = 300,00,00,000 / 4,72,60,223 = 63.478

PE = 718 / 63.478 = 11.311

Q 21. Which of these is a key parameter while analyzing the Telecom Sector?
Weighted average cost of capital (WACC)
Internal Rate of Return (IRR)
Average Revenue Per Unit (ARPU)
Monetary Policy by the RBI

CORRECT ANSWER:
Average Revenue Per Unit (ARPU)
Explanation:
Each industry has its own specific drivers, a study of which gives the analyst an idea of the sector as well as
the company under consideration.

A key parameter while analyzing the Telecom Sector is Average Revenue Per Unit (ARPU). It is calculated
by total revenue divided by number of subscribers and the higher it is, the better for the company.

Q 22. Why are yields on Government bonds usually lower than that of Corporate bonds?
The Government bonds carry less market risk than Corporate bonds
The Government bonds carry less credit risk than Corporate bonds
Government is a Non Profit institution so it offers lower interest rates
All of the above

CORRECT ANSWER:
The Government bonds carry less credit risk than Corporate bonds

Explanation:
Credit Risk or default risk refers to the possibility that a particular bond issuer will not be able to make
expected interest rate payments and/or principal repayment.

The Government and institutions associated with the government do not have a credit risk / default risk
associated with their borrowings because the government has the ability to raise the funds to pay the debt
through taxation etc.

Since Government bonds have less credit risk as compared to corporate bonds, they offer lower yields.
Corporates bonds have to offer higher yields to attract investors.

Q 23. In a business, Cash Inflows arise from _______ assets , _______ liabilities and _____ stockholders’s
equity.
increasing, increasing, increasing
increasing, decreasing, decreasing
decreasing, increasing, increasing
decreasing, increasing, decreasing

CORRECT ANSWER:
decreasing, increasing, increasing

Explanation:
There are cash inflows and cash outflows in every business as money comes in and money goes out.

1. Cash inflow will happen when an asset is sold - for eg. old factory machine is sold
2. Cash inflow will happen when liabilities increase - for eg. taking a loan
3. Cash inflow will happen when equity is increased - for eg. more equity shares are sold to investors in an
IPO

(Investing cash flows - Cash flows on account of assets. Buying assets is negative cash flow and selling
assets is positive cash flow.
Financing cash flows – Cash flows on account of liabilities. Borrowing money or issuing/expanding equity
is positive cash flow and redeeming debt and/or equity is negative cash flow)

Q 24. The current liabilities of a business are Rs. 60000, the inventory is Rs. 27000 and the Current Ratio
is 2.5. Calculate the Quick Ratio.
4.74
3.18
2.75
2.05

CORRECT ANSWER:
2.05
Explanation:
Current Ratio = Current Assets / Current Liabilities

2.5 = Current Assets / 60000

Current Assets = 60000 x 2.5 = 1,50,000

Quick Ratio = ( Current Assets - Inventories) / Current Liabilities

= (150000 - 27000) / 60000

= 123000 / 60000

= 2.05

Q 25. Value of Equity is calculated as _______ .

Free cash flows to the firm (FCFF) is discounted using the cost of debt
Free cash flows for equity (FCFE) is discounted using the cost of debt
Free cash flows to the firm (FCFF) is discounted using the cost of equity
Free cash flows for equity (FCFE) is discounted using the cost of equity

CORRECT ANSWER:
Free cash flows for equity (FCFE) is discounted using the cost of equity

Explanation:
To calculate the value of equity, FCFE is discounted using the cost of equity.
Q 26. Which of these is excluded from Unfair Trade Practices?
Willful misstatement
Mis-selling of units of a mutual fund scheme
Active concealment
Publicly known information

CORRECT ANSWER:
Publicly known information

Explanation:
When an information is known publicly, it cannot be misused for any unfair trade practices.

Q 27. The sales of a company was Rs 400000 and the cost of goods sold were 20% of sales. Operating
Expenses and Depreciation were Rs 96000. The Interest expenses were Rs 40000. Calculate the Net Income
if the company pays 40% of its pretax income as tax.
Rs. 89600
Rs. 149500
Rs. 241750
Rs. 110400

CORRECT ANSWER:
Rs. 110400

Explanation:
Sales = Rs 400000

Less : Cost of Goods sold (20% of Sales) - Rs 80000

Less : Op Expenses and Depreciation - Rs 96000

Less : Interest Expenses - Rs 40000

Income before Tax = Rs 184000

Less : Tax at 40% on Rs 184000 - Rs 73600

Net Profit = Rs 110400

Q 28. The main function(s) of Reserve Bank of India is/are ______ .

to be the regulator and supervisor of the financial and banking system
to be the manager of Foreign Exchange
to be the issuer of currency
All of the above

CORRECT ANSWER:
All of the above

Explanation:
Reserve Bank of India (RBI) is the central bank of the country which has the responsibility of administering
the monetary policy. Is functions include all the above options and more.

Q 29. The general state of an economy is determined by _________ .

Domestic Consumption
Quality of life
Domestic Production
All of the above
CORRECT ANSWER:
All of the above

Explanation:
Macroeconomics is the study of "the big picture" in the economy. While microeconomics focuses on
individual households and firms, macroeconomics deals with the economy as a whole.

Macroeconomics helps us understand the general state of the economy – Domestic Production, Domestic
Consumption, General Price levels, Growth, Quality of life etc.

Q 30. The process of ______ can involve exchanging debt for equity, extension in terms of payment,
reduction of notional debt and reduction of interest rates.
Loan financing
Loan restructuring
Share swap
Mergers

CORRECT ANSWER:
Loan restructuring

Explanation:
Loan or debt restructuring is a mechanism available to companies in financial distress who are unable to
meet their obligations to their lenders to restructure their debt by modifying one or more of the terms of the
loans. This may include the amount of loan, rate of interest, the mode of repayment: funds and/or equity in
the company, and the term of the loan and so that the repayment obligation is within the payment capacity of
the borrower.
Q 31. All other factors held constant, an equity share with a low P/E Ratio, when compared to its peers,
will be considered ______ .
Expensive
Cheap
Out of the Money
Very volatile

CORRECT ANSWER:
Cheap

Explanation:
Price to Earnings Ratio or the PE Ratio measures the price that the market is willing to pay for the earnings
of a company.

It is computed as: Market price per share/Earnings per share

If the PE ratio of a stock is lower as compared to its peer group companies, it is considered to be cheaply
priced.

Q 32. Identify from the following, which approach to determining the bonus for research analyst is
PROHIBITED under Regulation 17 of code of conduct for Research analyst?
Payment of bonus according the ratings given by the clients of the research analyst
Calculation of bonus based on the brokerage generated by dealing in companies the research analyst cover
Determining bonus on the number of companies researched by the analysts
Determining bonus as per the performance of the stocks the analysts have recommended

CORRECT ANSWER:
Calculation of bonus based on the brokerage generated by dealing in companies the research analyst cover
Explanation:
As per Regulation 17: Compensation of research analysts - Research entity shall not pay any bonus, salary
or other form of compensation to any individual employed as research analyst that is determined or based on
any specific merchant banking or investment banking or brokerage services transaction.

Q 33. A ________ is potentially obligated to sell an asset at a predetermined price.

Put Buyer
Put Writer
Call Buyer
Call Writer

CORRECT ANSWER:
Call Writer

Explanation:
In Options, the buyers have the RIGHT but NO OBLIGATIONS.

The writers (sellers) have the Obligations.

The Call writer has the obligation to sell / give delivery of the asset to the Call Buyer at a predetermined
price.

The Put writer has the obligation to buy / take delivery of the asset from the Put Buyer at a predetermined
price.
Q 34. Delisting of shares means the permanent removal of the shares of a company from being listed on a
stock exchange - State whether True or False?
True
False

CORRECT ANSWER:
True

Explanation:
Delisting of shares refers to the permanent removal of the shares of a company from being listed on a stock
exchange.

Delisting may be compulsory or voluntary. In a compulsory delisting, the shares are delisted on account of
non-compliance to regulations and the clauses of the listing agreement by the company. In a voluntary
delisting, the company chooses to get the shares delisted and go private.

Q 35. The average EV/EBIT ratio in an industry is 8.0x. PQR Ltd. reported an EBIT of Rs 100 crores and
it has a net cash of Rs 65 crores. Which of these is the closest to fair value of the company’s equity?
Rs. 865 crores
Rs. 735 croes
Rs. 1060 crores
Rs. 625 crores

CORRECT ANSWER:
Rs. 865 crores

Explanation:
The EV/EBIT = 8

Therefore EV = EBIT x 8

Therefore Enterprise Value EV = 100 crores x 8 = 800 crores

Enterprise Value EV is calculated as : Value of Equity + Value of Debt - Cash

(Value of debt is not given, so we consider as Nil)

800 cr = Value of Equity - 65 cr

Value of equity = 800 cr + 65 cr = Rs 865 crores

Q 36. Which legal institution manages the 'Scheme of Arrangement' between the company, its creditors
etc.?
Ministry of Finance
SEBI
The Supreme Court or High Court
National Company Law Tribunal

CORRECT ANSWER:
National Company Law Tribunal

Explanation:
Some companies may fail to fulfill its obligation to its creditors or to certain class of shareholders. Under
such conditions, company and the creditors or members may enter into a scheme of arrangement to settle the
issue.
Scheme of arrangement is a court monitored settlement process between the company and its creditors or
members. It typically involves reorganization of the share capital of the company.

Scheme of arrangement can be sought by the company or its creditors / members. The person claiming the
scheme of arrangement shall approach the National Company Law Tribunal (NCLT). The tribunal then
orders the meeting between the company, its creditors and/or members to arrive a compromise or
arrangement.

Q 37. A shoe making company reported sales revenues of Rs 1,00,000 inclusive of indirect taxes of Rs.
15000 and direct taxes of Rs. 10000. Calculate the net sales?
Rs. 1,00,000
Rs. 75,000
Rs. 85,000
Rs. 1,25,000

CORRECT ANSWER:
Rs. 85,000

Explanation:
All indirect taxes have to be deducted from the Gross Sales to get the Net Sales figure as these taxes are
collected by the business for the government and don’t belong to the business. Eg. GST

Net Sales = Sales - Indirect Taxes

= 1,00,000 - 15,000

= Rs. 85,000

(Direct taxes are Income tax, MAT etc. which do not form a part of the sales)
Q 38. As per the Boston Consulting Group (BCG) Analysis, the business segment which is fast growing
but has a low market share are known as ______ .
Question Marks
Stars
Cash Cows
Dogs

CORRECT ANSWER:
Question Marks

Explanation:
As per the BCG matrix, business segments can be classified as:

Stars: These are segments in a business where market is growing rapidly and company is having a large
market share.

Cash Cows: These are segments which require low cash infusion for investment to maintain market shares
because of low growth prospects but at the same time steadily generate cash for the company from the
established market share.

Question Marks: Business segments in a fast growing market, but having low market share.

Dogs: Business segments, which have slow growth rates and intense competition.

Q 39. An investor bought 100 shares of a company of face value of Rs. 2 at Rs 10,000. Calculate the
dividend yield on the value invested in these shares if the company declares 300% dividend.
3%
6%
1.75%
5.5%

CORRECT ANSWER:
6%

Explanation:
Dividend Yield = Dividend Received / Amount Invested x 100

300% dividend on Rs. 2 face value is Rs. 6 (2 x 300%).

Amount of dividend = Rs. 6 x 100 (No. of shares) = Rs. 600

Amount invested = Rs. 10,000

Dividend Yield = 600 / 10000 x 100 = 6%

Q 40. From the four funds mentioned below, which of these has the highest uncertainty in terms of returns?
Public Provident Funds
Mutual Funds
Venture Capital Funds
Pension Funds

CORRECT ANSWER:
Venture Capital Funds
Explanation:
A venture capital fund refers to a pooled investment vehicle like mutual fund but with mandate to invest
money in enterprises that are in the early stage of development but with the potential of long-term growth.
The longer gestation period and higher risk of failure make it difficult for such companies to access
conventional sources of finance, such as banks and the capital markets. Venture capitalists bring managerial
and technical expertise as well along with capital to their investee companies.

Since these funds invest in new and upcoming companies, the chances of failure can be high, but it the
company succeeds, the returns can also be very high. Therefore there is very high uncertainty of returns.

Q 41. The price of a product can be a key differentiating factor when ________ .
There are only a few suppliers of the product in the market
The products provided by various suppliers are homogenous in nature
The customers are ignorant about other suppliers in the market
All of the above

CORRECT ANSWER:
The products provided by various suppliers are homogenous in nature

Explanation:
Homogenous products basically means when the products are of a same / similar kind.

For eg. Commodities are basic materials or goods that are largely homogenous in nature. A 22 carat purity
gold coin offered by all jewellers will basically be the same. So here the price will be a key differentiating
factor.

Q 42. Why do Governments / Central Banks sometimes intentionally slowdown the economy?
Because the Balance of Payments are very high
Because the inflation is very high
Because the foreign exchange reserves are very high
Because the unemployment rate is very high

CORRECT ANSWER:
Because the inflation is very high

Explanation:
When economy is heated up and inflation is very high, it may need fiscal measures to slowdown.

In such a situation, a government can increase taxes to suck money out of the economy or decrease in its
spending thereby decreasing the money in circulation.

Q 43. _________ can result in reduction in fiscal deficit.

A decrease in tax collection
An increase in public expenditure
Both of the above
None of the above

CORRECT ANSWER:
None of the above

Explanation:
Budgeted excess of Government’s expenditure over its revenues in a specific year is known as fiscal deficit.
Measures to Reduce Government Deficit :

- Increased emphasis on tax-based revenues and appropriate measures to reduce tax evasion.

- Disinvestment should be done where assets are not being used effectively.

- Reduction in subsidies by the government will also help reduce the deficit.

- Decreasing public expenditure

- Borrowing from domestic sources.

- Borrowing from external sources.

- A broadened tax base to increase tax collection

Q 44. ________ are cyclical businesses.

Primary Metals
Capital Goods
Both of the above
None of the above

CORRECT ANSWER:
Both of the above

Explanation:
Economic trends can be broadly classified into secular, cyclical and seasonal trends. Cyclical trends refer to
temporary trends that affect the quantity of goods and services being consumed. For eg. Consumption
increase during boom and goes down during a economic slow down.
The primary metals (iron, copper etc) industry is a highly cyclical and reflective of overall market conditions
industry — demand increases during economic booms and plummets during global recessions.

Similarly sale of capital goods (Machinery, buildings etc.) rises during economic boom and drop
significantly during recessionary conditions.

Q 45. ________ trend is temporary but unpredictable.

Seasonal
Secular
Cyclical
None of the above

CORRECT ANSWER:
Cyclical

Explanation:
Economic trends can be broadly classified into Secular, Cyclical and Seasonal trends.

Cyclical trends refer to temporary trends that affect the quantity of goods and services being consumed.
Cyclical trends eventually reverse only to return and reverse again. For eg. - Prices of many hard
commodities tend to go up and down in cycles. During expansionary phase, commodity prices tend to go up
driven by increased demand and the prices tend to fall during recession.

Secular trends refer to long term change that is occurring in the economy or industry.

Seasonal trends are highly predictable pattern in the production and consumption of goods and services.
Q 46. Identify the important ingredient which is required for taking investment decision.
Timely information only
Relevant information only
Accurate information only
Accurate, Timely and Relevant information

CORRECT ANSWER:
Accurate, Timely and Relevant information

Explanation:
Timely and accurate information about investment products is an important ingredient for making
investment decisions.

An investor / research analyst needs to be methodical, have an enquiring mind and be discerning to know
where to find relevant information.

Q 47. There are two companies with P/E ratios of 40 and 13. But they have different growth potentials of
30% and 8 % for the next few years. Which of the companies is cheaper on the basis of PEG ratio?
The company with P/E ratio of 13
The company with P/E ratio of 40
Both are equally cheaper
Insufficient data

CORRECT ANSWER:
The company with P/E ratio of 40
Explanation:
Growth adjusted Price to Earnings Ratio (PEG) = PE ratio / Growth rate

PEG Ratio of the first company = 40 / 30 = 1.33

PEG Ratio of the second company = 13 / 8 = 1.62

The PEG ratio of the first company (with P/E of 40) is lower so its cheaper.

Q 48. Which of these is the formula to calculate Earnings Yield?

Current Stock Price + Earnings Per Share
Current Stock Price / Earnings Per Share
Earnings Per Share x Current Stock Price
Earnings Per Share / Current Stock Price

CORRECT ANSWER:
Earnings Per Share / Current Stock Price

Explanation:
Earning Yield = Earnings Per Share (EPS) / Current price of stock

Earnings yield refers to the earnings per share in a financial period, divided by the current share price. The
earnings yield helps investors know how much he has earned per share.
Q 49. When does a company usually declare its final dividend, if any ?
Any time during the financial year
At the end of financial year
On a monthly basis
On a quarterly basis

CORRECT ANSWER:
At the end of financial year

Explanation:
Final dividend is always declared at the end of the financial year.

A company may declare 'interim dividends' during the financial year and a 'final dividend' at the end of the
year.

Q 50. Mr. Ashutosh is a research analyst and he finds that one of his family member owns a stock of a
company which he is covering. What action should Mr. Ashutosh take?
He should not give any ratings or recommendation of the stock as this can lead to an increase in the price of
the stock and benefit his family member
He can give buy rating on the stock without any disclosures as the company has very good fundamentals
He can publish the research on the company but he cannot give any ratings of this stock
He can give a rating on the stock based on his genuine and objective assessment and he should also disclose
his personal and family holdings in the research report

CORRECT ANSWER:
He can give a rating on the stock based on his genuine and objective assessment and he should also disclose
his personal and family holdings in the research report
Explanation:
A research analyst or research entity shall disclose all material information about itself including its business
activity, disciplinary history, the terms and conditions on which it offers research report, details of associates
and such other information as is necessary to take an investment decision, including the following:

- Whether the research analyst or research entity or its associates or relatives, have actual/beneficial
ownership of one per cent or more securities of the subject company, at the end of the month immediately
preceding the date of publication of the research report or date of the public appearance

These regulations also state that "Analysts, if any, employed with the organization /firm while preparing
research reports of client company(s) shall disclose their shareholdings/interest in such company(s) to the
Compliance Officer and the Analysts who prepare research report of listed company shall not trade in
securities of that company for thirty days from preparation of such report.

-----------------------------------------------------------------------------------------------------------------

Q 1. Which research entities should appoint a Compliance Officer?

All types of research entities other than independent analysts should appoint a compliance officer
All types of research entities which are body corporate or limited liability partnership firm should appoint a
compliance office
All types of research analysts including independent analysts should appoint a compliance officer to monitor
the compliance process
CORRECT ANSWER
Explanation:
As per Regulation 26 of SEBI (Research Analyst) Regulations, 2014 :

Research analyst or research entity which is a body corporate or limited liability partnership firm shall
appoint a compliance officer who shall be responsible for monitoring the compliance of the provisions of the
Act, these regulations and circulars issued by the Board.

Q 2. _________ can be considered as a matured industry in India.

Oil and Gas industry
E-Commerce industry
Bio-tech industry
Fintech industry
CORRECT ANSWER:
Oil and Gas industry

Explanation:
Every industry typically goes through the following phases - Pioneering stage, Growth stage, Matured stage,
Declining stage and Reinvention and revival.

Matured stage: The industry has existed for long and most customers who can use the product are already
using it.

From the above four options, Oil and Gas industry is a matured industry as it has existed for very long.

Q 3. Identify the factors likely to have most influence in the movement of commodity prices in the near
term?
Inventory Cycle
Economic Cycle
Monetary Cycle
Secular Trend

CORRECT ANSWER:
Inventory Cycle

Explanation:
Inventory cycles are short term cycles that occur within a commodity cycle. These occur on account of
inventory adjustments by producers and customers. Customers who may have huge inventory may
temporarily reduce procurement. This would result in high inventory pile up at the suppliers’ end resulting in
fall in prices.
Similarly, during a downturn, cautious customers may significantly reduce their procurement. However, if
demand for their products improves marginally, they may not have adequate inventory and will have to go
for immediate procurement. This can result in prices increasing.

Q 4. Code of internal conduct has to be framed by ________ .

Self Regulatory Organisations (SRO)
Asset Management Companies (AMC)
Trustees of mutual funds
All of the above

CORRECT ANSWER:
All of the above

Explanation:
Under the SEBI (Prohibition of Insider Trading) Regulations, all the above entities have to have strict
internal code of conduct as they deal with price sensitive information.

Q 5. In India, the Department of Revenue exercises control over matters relating to _______ .
All direct and indirect taxes of Indian Government
Utilization of proceeds of disinvestment
Both of the above
None of the above

CORRECT ANSWER:
All direct and indirect taxes of Indian Government

Explanation:
Department of Revenue: This department handles the matters relating to all the Direct and Indirect Taxes
through two statutory Boards namely, the Central Board of Direct Taxes (CBDT) and the Central Board of
Excise and Customs (CBEC).

(Department of Disinvestments: The department is concerned with the financial policy relating to the
utilization of proceeds of disinvestment)

Q 6. What helps companies create value proposition for their customers ?

Differentiating its products in terms of functionality
Differentiating its products in terms of quality
Both of the above

CORRECT ANSWER:
Both of the above

Explanation:
One way in which a company can out do its competition is by incorporating better features in products that
would appeal to its target customer group. The differentiating feature can be in terms of product quality or
its functionality.

This would help them create value proposition for their customers and is likely to help the company attract
more customers than its competitors.
Q 7. The Market Capitalisation of a company is Rs 8,00,000. Its Price to Book value ratio is 10 and the
Book Value is Rs. 14. Calculate the Net Worth of the company.
Rs. 40,000
Rs. 50,000
Rs. 60,000
Rs. 80,000

CORRECT ANSWER:
Rs. 80,000

Explanation:
Price to book value ratio = Market capitalization/ Net-worth

10 = 8,00,000/Net-worth

Net-worth = 800000/10 = 80000

Q 8. Study of ________ is essential to understand the income, investments and employment in an

economy.
Capital Markets
Foreign Direct Investment (FDI) inflows
Microeconomics
Macroeconomics
CORRECT ANSWER:
Macroeconomics

Explanation:
Macroeconomics is the study of "the big picture" in the economy. While microeconomics focuses on
individual households and firms, macroeconomics deals with the economy as a whole.

Macroeconomics helps us understand the general state of the economy – Domestic Production, Domestic
Consumption, General Price levels, Growth, Quality of life etc.

It also helps us understand drivers of income, savings, investments and employment in an economy.

Q 9. According to which Act / Regulation are Treasury Bills, Bonds and Shares included in the definition
of term 'securities' ?
Securities and Exchange Board of India Act
SEBI (Fraudulent and Unfair Trade Practices relating to securities market) regulation
SEBI (Prohibition of insider trading) Regulations
Securities Contract (Regulation) Act

CORRECT ANSWER:
Securities Contract (Regulation) Act

Explanation:
The term “securities” has been defined in the Section 2(h) of Securities Contracts (Regulation) Act,
1956(SCRA).

‘Securities’ include: Shares, scrips, stocks, bonds, debentures, Government securities, derivatives etc.
Q 10. When do businesses plan to increase capacity?
In the 'Slow Down' phase of economic cycle
In the 'Boom' phase of economic cycle
In the 'Recession' phase of economic cycle
In the 'Depression' phase of economic cycle

CORRECT ANSWER:
In the 'Boom' phase of economic cycle

Explanation:
Expansion / Boom phase of Economic Cycle : The expansion is characterized by increased consumption of
goods and services driven by higher income, lower interest rates and high level of consumer confidence.
High demand for products results in higher production and higher employment which in turn keeps the
momentum on the consumption high.

Booming economy increases consumer and business confidence. Thus, businesses plan capacity expansion
and consumers plan to acquire long term assets.

Q 11. Which of these is a good source of information for investment analysis?

Movement of stock prices for the last 3 years
Research Report from Credit Rating Companies
Media reports of the company
News about the company in social media

CORRECT ANSWER:
Research Report from Credit Rating Companies

Explanation:
From the above four options, only Research Report from Credit Rating Companies can be considered as a
reliable source of information for investment analysis.

Q 12. Which of these can lead to failure of a research report?

Complicated language
Inconsistent views
Unnecessary details
All of the above

CORRECT ANSWER:
All of the above

Explanation:
A few reasons for failure of a research report are :

- Unnecessary details

- Long sentences

- No proper structure

- Inconsistent views

- Complex language
Q 13. Which of these can be considered as 'Threat' in SWOT analysis of a company?
The patents held by the company are expiring
Financial position of the company is very weak
No succession planning in the company
Pressure on Government to ban the company's products

CORRECT ANSWER:
Pressure on Government to ban the company's products

Explanation:
Strengths, Weaknesses, Opportunities and Threats (SWOT) Analysis

In SWOT analysis of a company, 'Threats' are essentially risk that comes from external environment.
( 'Weaknesses' are something which are internal to the company)

For the above four options, the pressure on Government to ban the company's products is a threat to the
company as its from an external source. The other three are internal weaknesses.

Q 14. The EBIT % of a business is 50% with EBIT levels of Rs 200000. The Net Profit margin of this
company is 20%. No. of shares outstanding are 20000. The Retention Ratio is 60%. Calculate the Dividend
Per Share.
Rs. 3.50
Rs 0.50
Rs 2
Rs 1.60

CORRECT ANSWER:
Rs 1.60
Explanation:
The EBIT is Rs 200000 and this is 50% of the business ie. 50% of sales.

So Sales = Rs 400000 (200000 / 50 x 100)

Net Profit margin is 20% ie 20% of Sales Rs 400000

20% of Rs 400000 = 80000

EPS = Net Profit / No. of Shares

= 80000 / 20000 = 4

Retention Ratio is 60% which means the Dividend Payout Ration is 40% ( 100 - 60 )

40% dividend is paid from the earnings.

40% of EPS ie. 40% of 4 = Rs 1.60 is the Dividend Paid per share

Q 15. Identify the action which SEBI is NOT empowered to take?

To appoint directors of Financial Intelligence Unit
To suspend an office bearer of a SEBI registered intermediary
To suspend trading in a security listed on a stock exchange
Impound and retain the proceeds or securities in respect of any transaction which is in violation or prima
facie in violation of SEBI regulations

CORRECT ANSWER:
To appoint directors of Financial Intelligence Unit
Explanation:
Financial Intelligence Unit – India (FIU-IND) was set by the Government of India in 2004 as the central
national agency responsible for receiving, processing, analyzing and disseminating information relating to
suspect financial transactions.

The directors of FIU are appointed by the Central Government and not by SEBI.

Q 16. Which of these is the most suitable inference in technical analysis, if the share price breaks its
resistance level?
When the price breaks the resistance level, its likely to stay there for some months
When the price breaks the resistance level, its likely to fall down rapidly
When the price breaks the resistance level, its likely to rise to the next resistance level
When the price breaks the resistance level, its likely to decline slowly

CORRECT ANSWER:
When the price breaks the resistance level, its likely to rise to the next resistance level

Explanation:
Resistance is something which stops the price from rising further. The resistance level is a price point on the
chart where traders expect maximum supply.

So if a share breaks the resistance level with good volumes, its likely to rise much higher, probably to the
next higher resistance level.

Q 17. Which of these can be considered as STRENGTH in SWOT analysis?

Strong financial position of the company
Booming economy
Low interest rates
All of the above
CORRECT ANSWER:
Strong financial position of the company

Explanation:
Strengths, Weaknesses, Opportunities and Threats (SWOT) Analysis :

Strengths refer to internal capabilities of the company that allows it to exploit external opportunities and
withstand threats. Here, the strong financial position is the internal strength of the company. Booming
economy and low interest rates are external factors.

Q 18. _______ gives a review of company's sources and uses of cash over the year.
Balance Sheet
Cash Flow Statement
Income Statement
Working Capital Statement

CORRECT ANSWER:
Cash Flow Statement

Explanation:
Cash flow statement provides a summary of the various sources and uses of cash.

Q 19. Which of this information can be considered as Insider Information?

A manager mentioning the number of employees of the company who are working from home
The Managing Director mentioning about an acquisition proposal not yet disclosed to the public
The information that factory is working on additional shifts. This has been announced to the public but not
published in the annual report
All of the above

CORRECT ANSWER:
The Managing Director mentioning about an acquisition proposal not yet disclosed to the public

Explanation:
Insider information is a material non-public information that when published would immediately affect an
investor’s decision to buy or sell the security. Whether an information can be considered insider depends on
the source of the information (how reliable it is), its impact and its certainty.

From the three options given above, the Managing Director mentioning about an acquisition proposal not yet
disclosed to the public, will be considered as an insider information.

Q 20. Which of these investment most probably has the highest uncertainty in terms of return?
Mutual Fund
Pension Fund
Venture Capital Fund
Provident Fund

CORRECT ANSWER:
Venture Capital Fund

Explanation:
A venture capital fund refers to a pooled investment vehicle like mutual fund but with mandate to invest
money in enterprises that are in the early stage of development but with the potential of long-term growth.
Since these funds invest in new and upcoming companies, the chances of failure can be high, but it the
company succeeds, the returns can also be very high. Therefore there is very high uncertainty of returns.

Q 21. Which of the following options do investors look for in their investments?
Beat inflation
Give adequate returns
The principal amount invested should be safe
All of the above

CORRECT ANSWER:
All of the above

Q 22. Equity is said to available cheap when ______ .

equity yields are higher than bond yields
equity yields are lower than bond yields
the PE ratio of Nifty is above 21
None of the above

CORRECT ANSWER:
equity yields are higher than bond yields

Explanation:
If equity yields are in general higher than bond yields, clearly equity is available cheap. This is typically true
when markets are down. On the other hand, during bull markets, equity yields are quite lower than the bond
yields.
Q 23. The Net Profits of a company are Rs. 650000 and the market capitalisation is Rs. 3000000. Calculate
the Earning Per Share (EPS).
Rs. 4.61
Rs. 0.21
Rs. 6.5
Data is insufficient for solving this problem

CORRECT ANSWER:
Data is insufficient for solving this problem

Explanation:
For calculating the EPS, one has to know the number of shares ( EPS = Net Profit / No. of Shares)

This data is not available nor can it be derived from the give data.

Q 24. Which of the below options is NOT a component of the current account of a country?
Imports
Exports
Loans
All of the above

CORRECT ANSWER:
Loans

Explanation:
Balance of payment statement is broadly divided into two accounts namely the current account and the
capital account. The current account has all the details of transactions on revenue account viz. imports and
exports of goods and services while the capital account captures all the capital flows like FDI, FII, loans,
and grants etc.
So Loans is not a component of Current Account. It is a component of Capital Account.

Q 25. Which model explains the analysis of industries through industry structure , its conduct and
performance?
Boston Consulting Group (BCG) Analysis
Structure Conduct Performance (SCP) Analysis
Porter’s five force model
PESTLE analysis

CORRECT ANSWER:
Structure Conduct Performance (SCP) Analysis

Explanation:
A method of analyzing industries is to look at the industry structure (monopoly, oligopoly), its conduct
(commoditized or specialized, seasonal or round the year, cyclical or noncyclical etc.) and finally its
performance (RoE, RoIC, WACC, etc.).

Structure, Conduct, Performance (SCP) analysis approaches the industry evaluation exactly with this
categorization.

Q 26. The Pradhan Mantri Jan Dhan Yojana (2014) was started and is being run by which department?
Department of Financial Services
Department of Commerce
Department of Revenue
Department of Disinvestment

CORRECT ANSWER:
Department of Financial Services
Explanation:
The Department of Financial Services (Ministry of Finance) covers Banks, Insurance and Financial Services
provided by various government agencies and private corporations. It also covers pension reforms and
Industrial Finance and Micro, Small and Medium Enterprise. It started the Pradhan Mantri Jan Dhan Yojana.

Q 27. The profit before tax of a company is Rs. 200000. The P/E ratio is 2.5 and the current market price of
the company's shares is Rs. 200. The number of shares outstanding are 2000. Calculate the approximate tax
rate for this company.
20%
30%
35%
40%

CORRECT ANSWER:
20%

Explanation:
Price Earning (P/E) Ratio = Market Price of share / Earning Per Share EPS

2.5 = 200 / EPS

EPS = 200 / 2.5 = 80

EPS = Net Profit / No. of Shares

80 = Net Profit / 2000

So Net Profit = 2000 x 80 = 160000

The Profit before tax (Gross Profit) is Rs. 200000

The Net Profit (ie. Profit after tax) = Rs. 160000

So the tax paid is Rs 40000 on a profit of Rs. 200000

So the tax rate is 20% ( 40000 / 200000 x 100)

Q 28. Price to earnings ratio (P/E) of a business is 8, Price to book value ratio of this business is 4, Book
value per share is Rs. 10 and outstanding number of shares are 10,000. Calculate the Net Profit of this
business.
Rs. 50000
Rs. 52500
Rs. 55000
Rs. 57500

CORRECT ANSWER:
Rs. 50000

Explanation:
Price to Book Value = Stock Price / Book Value

So Stock Price = Price to Book Value X Book Value

Stock Price = 4 X 10 = Rs 40.

PE = Stock Price / EPS

So EPS = Stock Price / PE

EPS = 40 / 8 = 5

EPS is calculated as : Net Profit / No. of Shares

So Net Profit = EPS X No. of Shares

Net Profit = 5 X 10000 = Rs. 50000

Q 29. ______ is the right ratio which measures the effectiveness of management in generating returns to
common share holders with its available assets.
Return on Assets
Return on Equity
PE ratio
Current Ratio

CORRECT ANSWER:
Return on Equity

Explanation:
Return on Equity is the single most important parameter for an investor to know more about a company. It
communicates how a business allocates its capital and generates return. An efficient allocator of capital
would have high Return on Equity and a poor quality of business would have low Return on Equity.

Q 30. Which of these is / are Unsystematic Risks?

Business risk
Liquidity risks
Credit risk
All of the above
CORRECT ANSWER:
All of the above

Explanation:
Unsystematic risk is the risk specific to individual securities or a small class of investments. Hence it can be
diversified away by including other assets in the portfolio. Unsystematic risk is also known as diversifiable
risk. Credit risk, business risk, and liquidity risks are unsystematic risks.

Q 31. Calculate the Net Profit margin in the business with the given data - The Sales are 200% of
Operating Profits and the Operating Profit is 400% of Net Profit.
10%
12.5%
15%
20%

CORRECT ANSWER:
12.5%

Explanation:
Lets assume that the Operating Profit is Rs. 100

Sales are 200% of Operating Profit. So Sales will be Rs. 200 ( 100 x 200%)

Operating Profit is 400% of Net Profit. So Net Profit is 1/4 of Rs. 100 = Rs. 25

On a Sale of Rs. 200, the Net Profit is Rs. 25

So the Net Profit margin is 12.5% ( 25/200 x 100)

Q 32. Calculate the SALES of a business if - EBITDA % of a business is 40%. Net profit is 20% of
EBITDA. Dividend per share is Rs.2 and the dividend payout ratio is 40%. The number of outstanding
shares are 10000.
Rs. 480000
Rs. 574000
Rs. 625000
Rs. 755000

CORRECT ANSWER:
Rs. 625000

Explanation:
Dividend paid per share is Rs. 2 and the number of outstanding shares are 10,000.

So the total dividend paid is Rs. 2 X 10,000 = Rs.20,000

The Dividend Payout ratio is 40%. This means Rs 20000 paid as divided is 40% of the Net Profit.

So the Net Profit is Rs. 50000 ( 20000 / 40 x 100 )

The Net Profit is 20% of EBITDA.

Rs 50000 is the Net Profit, So the EBITDA will be 50000 / 20 X 100 = 250000

EBITDA is 40% of the business ie Sales.

EBITDA is 250000. So Sales will be 250000 / 40 X 100 = 625000

Q 33. The Market Capitalisation of a firm is Rs 1 lakh and it has a total debt of Rs 30,000. The cash in
hand is Rs 5000. What is the Enterprise Value of the firm ?
Rs. 1,00,000
Rs. 1,35,000
Rs. 1,25,000
Rs. 65,000

CORRECT ANSWER:
Rs. 1,25,000

Explanation:
Enterprise value (EV) = Market value of equity (Market capitalization) + Market value of debt – cash and
cash equivalents

EV = 1,00,000 + 30,000 - 5000

= Rs. 1,25,000

Q 34. A fundamental research analyst will study which of these factors?

Macro economic fundamentals
Trends and patterns in the historical prices
History of price movement in the share
Historical trend in share trading volumes

CORRECT ANSWER:
Macro economic fundamentals

Explanation:
A fundamental research analyst researches the economy, the industry and the company.
A technical research analyst focuses on forecasting the direction of prices through the study of patterns in
historical prices and volume.

Macroeconomic fundamentals are topics that affect an economy at-large, including statistics regarding
unemployment, supply and demand, growth, and inflation, as well as considerations for monetary or fiscal
policy and international trade. These will be studied by the fundamental analysts.

Q 35. As per the SEBI standards of corporate governance, independent directors should constitute at least
______ of the board if the chairman is a NON EXECUTIVE director.
At least 33%
At least 50%
At least 25%
At least 60%

CORRECT ANSWER:
At least 33%

Explanation:
As per SEBI standards of corporate governance on Board composition: The directors of a company can
include independent directors, non-executive directors (who are not part of management but not
independent, either), and executive directors.

For the sake of strong corporate governance standards, majority of the board should comprise of
independent directors. Currently, SEBI regulation stipulates that independent directors should constitute at
least 50% of the board if the chairman is an executive director. In all other cases, it requires 1/3rd (33%) of
the board to be comprised of independent directors.

Q 36. If the price of an asset is more than its fair value, then the asset is ________ .
Over priced
Under priced
Can give higher returns
Fairly priced

CORRECT ANSWER:
Over priced

Explanation:
The fair value of an asset can be calculated using various ratios etc. If the price of this asset is more than the
fair value, its considered as over priced.

Q 37. The Paid up capital of a company is Rs 5,00,000 with face value of Rs 10 per shares. The book value
per share is Rs. 20 and the Dividend per share of the business is Rs 5. What is the Return on Capital
Employed in the business?
25%
20%
50%
33.33%

CORRECT ANSWER:
25%

Explanation:
Return on Capital Employed is similar to Return on Equity.

Return on Equity = (Return Per Share / Book Value) x 100

= 5 / 20 x 100 = 25%

Q 38. In ______ bias, investors look for evidence of some other investors buying specific securities.
Loss-aversion bias
Herd mentality
Confirmation bias
Gambler’s fallacy

CORRECT ANSWER:
Herd mentality

Explanation:
Herd mentality: This is a common behaviour disorder in investing community. This bias is an outcome of
uncertainty and a belief that others may have better information, which leads investors to follow the
investment choices that others make.

Small investors keep watching other participants for confirmation and then end up entering when the
markets are over heated and poised for correction.

Q 39. Generally, during expansion of economies the unemployment rate _______ .

Falls
Rises
remains constant
CORRECT ANSWER:
Falls

Explanation:
Unemployment rate refers to the eligible and willing to work unemployed population of the country in
percentage terms.

During a slowdown in economies, unemployment rate rises and during an expansion phase, the
unemployment rate falls as more jobs are created as production goes up.

Q 40. FMCG is an example of seasonal business in the context of Structural Conduct Performance (SCP)
analysis - State whether True or False?
True
False

CORRECT ANSWER:
False

Explanation:
As per SCP analysis, FMCG is a round-the-year business and not a seasonal business.

Structure Conduct Performance (SCP) Analysis looks at the industry structure (monopoly, oligopoly), its
conduct (commoditized or specialized, seasonal or round the year, cyclical or noncyclical etc.) and finally its
performance (RoE, RoIC, WACC, etc.).

The structure of the industry, as described above, will define the conduct of the businesses on aspects such
as pricing and product innovation. Each industry will have its peculiar behaviour. Umbrellas and raincoats
would be seasonal businesses and FMCG (Fast Moving Consumer Goods like soaps etc) and Pharma would
be round-the-year ones.

Q 41. Which department of the Ministry of Finance is also involved with matters such as financial
assistance to states and borrowings by states ?
Department of Expenditure
Department of Economic Affairs
Department of Financial Services
Department of Revenue

CORRECT ANSWER:
Department of Expenditure

Explanation:
Department of Expenditure oversees the expenditure management of Government of India.

It is concerned with, among other things, the administration of various financial rules and regulations
including service conditions of all Central Government employees.

The department is also involved with matters such as financial assistance to states and borrowings by states.

Q 42. Describe 'Employee Stock Option Plan' (ESOP).

ESOP is the option given by a company to its employees to buy the shares of company immediately at a
discounted price
ESOP are shares issued to an employee in exchange for their service
ESOP is plan in which the company funds the purchase of stock option by the employee from an external
market
ESOP are instruments given by a company to its employees which gives them an option to buy the shares of
the company at pre-determined price after a period of time (vesting date)

CORRECT ANSWER:
ESOP are instruments given by a company to its employees which gives them an option to buy the shares of
the company at pre-determined price after a period of time (vesting date)

Explanation:
ESOPs are instruments given by a company to its employees that give them an option to buy the shares of
the company at pre-determined price after a period of time (referred as vesting period).

The objective of issuing ESOPs is to motivate employees to work in the interest of the company.

Q 43. Calculate the Earnings Per Share (EPS) from the following data : - Sale of a company Rs. 200000 -
Cost of goods sold was 20% of sales - Operating expense including depreciation Rs. 75000 - Interest
Expenses Rs. 20000 - Tax at 30% of pre-tax income - Outstanding Shares 5000
Rs. 12.75
Rs. 9.10
Rs. 7.90
Rs. 12

CORRECT ANSWER:
Rs. 9.10

Explanation:
Lets first calculate the Pre-Tax income
Sales = 200000

Less : Cost of Goods sold (20% of 200000) = 40000

Less : Operating Exps n Dep 75000

Less : Interest exps 20000

Pre Tax income = 200000 - 40000 - 75000 - 20000 = 65000

Less : 30% Tax on Pre tax income of 65000 = 19500

Net Profit = 65000 - 19500 = 45500

EPS = Net Profit / [Link] shares

= 45500 / 5000 = 9.1

Q 44. If the price of a stock breaks its RESISTANCE LEVEL, it is __________ .

most likely to rise till the next resistance level is reached
most likely to stay at the same price for next few days
most likely to slowly decline
most likely to decline at a fast pace

CORRECT ANSWER:
most likely to rise till the next resistance level is reached

Explanation:
Resistance is something which stops the price from rising further. The resistance level is a price point on the
chart where traders expect maximum supply.

So if a share breaks the resistance level with good volumes, its likely to rise much higher, probably to the
next higher resistance level.

Q 45. The ________ section of a research report will contain the analysis of competition landscape.
Industry Analysis
Company Analysis
Valuation Analysis
All of the above

CORRECT ANSWER:
Industry Analysis

Explanation:
Industry analysis : Different industries face different challenges and opportunities. Their growth drivers
could be significantly different. Accordingly, Research Analysts need to understand thoroughly the
regulatory environment prevalent in the industry, business models, competition, operating factors, sensitivity
of demand to price changes, consumers’ behaviour etc.

Q 46. When a central bank of a country follows contractionary monetary policy, the result can be _______ .
A decrease in rates of interest
An fast increase in the money supply
A decrease in the flow of credit to borrowers
All of the above

CORRECT ANSWER:
A decrease in the flow of credit to borrowers

Explanation:
Contractionary fiscal policy – Fiscal measures when government’s spending is lower than its income.
Government uses excess income to repay its debts/obligations or acquire assets

Contractionary policy is intended to cool down the heated up economy through reduction in the money
supply or slow increase in money supply and increase in the interest rates.

Q 47. Amaze Industries Ltd. is a listed company and has a market cap of Rs. 22 crores. The market index
has a PE ratio of 20x and PB ratio of 3x. Under which of the following circumstances it will be put under
Graded Surveillance Mechanism?
Amaze Industries Ltd.'s PE ratio is 25 x and PB ratio is 6x
Amaze Industries Ltd.'s PE ratio is negative and PB ratio is 3x
Amaze Industries Ltd.'s PE ratio is 45x and PB ratio is 2.5x
Amaze Industries Ltd.'s PE ratio is 25x and PB ratio is negative

CORRECT ANSWER:
Amaze Industries Ltd.'s PE ratio is 45x and PB ratio is 2.5x

Explanation:
One of the criteria for putting a security under Graded Surveillance Mechanism (GSM) is :
Companies with market cap below Rs 25 crores but trading at 1) PE ratio that is greater than 2x the PE of
benchmark index or 2) Is trading at negative PE ratio with P/B ratio that is negative or 2x the P/B of the
benchmark index.

Among the four options given above, only the option in which the PE ratio is 45x and PB ratio is 2.5x meets
the criteria.

Q 48. When someone is doing a valuation of a business, he/she will be required to forecast the cash flows
expected in the future. This can be done by _______ .
looking at the internal determinants of growth in a company
applying a rate estimated by the analysts based on their information and analysis
applying the historical growth rate exhibited by company
All of the above

CORRECT ANSWER:
All of the above

Explanation:
Business Valuation requires forecast of the cash flows expected in the future. A basic forecast can be derived
by extrapolating historical growth rates experienced by the company.

However, analysts often use their judgement to refine their forecast by taking into consideration several
factors including the internal determinants of growth, namely, the proportion of earnings ploughed back into
the business and the return on equity that it is expected to earn.

Q 49. Which analysis is not concerned about whether a stock is trading at its fair price with respect to its
intrinsic value or not?
Fundamental Analysis
Technical Analysis
Quantitative Analysis
All of the above

CORRECT ANSWER:
Technical Analysis

Explanation:
Intrinsic value is the estimated value per equity share, based on the future earning potential of a company. A
fundamental analyst will focus on arriving at the intrinsic value of a share based on the company / industry
etc. data.

In technical analysis, analysts instead of studying the value of a stock, focuses on the underlying and
historical price data. They study the relationship between the price up moves and down moves, the volume
and other parameters to gauge the direction of stock prices.

Quantitative approach can be used for both technical analysis and fundamental analysis.

Q 50. Identify the correct statement with respect to GST collected by a vendor.
GST vendors can claim credit of GST paid on their input goods and then will have to remit the balance to
the account of the Government
GST vendors will have to deposit the entire GST collected with the Government
GST vendors can keep the GST collected with themselves as its a part of their income
None of the above

CORRECT ANSWER:
GST vendors can claim credit of GST paid on their input goods and then will have to remit the balance to
the account of the Government
Explanation:
Goods and Service Tax (GST) is a tax that is charged at the time of sale of goods or services. These are
calculated as a percentage of the invoice value and sellers charge this to the customer. Sellers then remit this
amount to the government.

In order to avoid double taxation, sellers are allowed tax credit (i.e. deduct) the GST they paid to their
suppliers and they only have to remit the balance to the government.

LAST DAY REVISON

Q 1. Which type of risk applies to all types of securities issued in a nation?

Re-Investment Risk
Country Risk
Political Risk
All of the above

WRONG ANSWER

CORRET ANSWER:
Country Risk
Explanation:
Country Risk: Country risk refers to the risk related to a country as a whole. There is a possibility that it will
not be able to honour its financial commitments. When a country defaults on its obligations, this can affect
the performance of all other securities in that country as well as other countries it has relations with. Country
risk applies to all types of securities issued in that country.

Q 2. A _______ is potentially obligated to sell an asset at predetermined price.

Call Writer
Call Buyer
Put Writer
Put Buyer

CORRECT ANSWER:
Call Writer

Explanation:
In Options, the buyers have the RIGHT but NO OBLIGATIONS.

The Writers (sellers) have the Obligations.

The Call writer has the obligation to sell / give delivery of the asset to the Call Buyer at a predetermined
price.

The Put writer has the obligation to buy / take delivery of the asset from the Put Buyer at a predetermined
price.

Call gives the buyer the right, but not the obligation, to buy a given quantity of the underlying asset, at a
given price on or before a given future date.

Put gives the buyer the right, but not the obligation, to sell a given quantity of the underlying asset at a given
price on or before a given date.

Q 3. Cost of equity is 11% and the cost of debt is 8%. The weight of equity is 60% . Calculate the
weighted average cost of capital using this data.
8.9%
10.7%
9.8%
10.1%
CORRECT ANSWER:
9.8%

Explanation:
The Weighted Average Cost of Capital of the firm (WACC) is then calculated as under:

WACC = [Ke * We] + [Kd * (1-Tax)*Wd]

Where Ke = Cost of Equity, We = Weight of Equity, Kd = Cost of Debt, Wd = Weight of Debt

(As Tax is not mentioned, we ignore (1-Tax))

Weight of equity is 60%, the weight of debt will be 100 - 60 = 40%

WACC = [Ke * We] + [Kd *Wd]

(0.11 * 60) + (0.08 * 40)

6.6 + 3.2 = 9.8%

Q 4. The EBITDA of a company is Rs. 275 crores and the EV/EBITDA ratio is 6x . The company has a
net debt of Rs 520 crores. Calculate the value of its equity.
Rs. 895 crores
Rs. 1275 crores
Rs. 960 crores
Rs. 1130 crores

CORRECT ANSWER:
Rs. 1130 crores

Explanation:
It is given that EV/EBITDA = 6

EBITDA is given as Rs. 275 crores

Therefore EV / 275 crores = 6

EV (Enterprise Value) = 275 x 6 = 1650 crores

Enterprise Value = Value of Equity + Value of Debt

1650 crores = Value of Equity + 520 crores

Value of Equity = 1650 - 520 = Rs. 1130 crores

Q 5. The Net Profit of a company was Rs 20 crores. The company's equity capital stood at Rs
3,44,81,540. The company has not issued any preference shares. The face value of its shares is Rs 10.
Calculate the Earning Per Share (EPS) of the company.
Rs. 63.74
Rs. 58
Rs. 47.22
Rs. 79.51

CORRECT ANSWER:
Rs. 58
Explanation:
EPS = Net Profit / No. of Shares

First let's calculate the number of shares.

Number of Shares = Equity Capital / Face Value

= 3,44,81,540 / 10

= 34,48,154

EPS = Net Profit / No. of Shares

= 20,00,00,000 / 34,48,154

= 58.00

Q 6. Which element provides important inputs on the underlying strength of the trend in technical
analysis?
Volume of trading
Market Capitalisation
Historical Prices
Enterprise Value

CORRECT ANSWER:
Volume of trading

Explanation:
According to technical analysis, there are three essential elements in understanding the price behaviour:

1. The history of past prices provides indications of the underlying trend and its direction. 2. The volume of
trading that accompanies price movements provides important inputs on the underlying strength of the trend.
3. The time span over which price and volume are observed factors in the impact of long term factors that
influence prices over a period of time.

Q 7. Identify the risk which is associated to a falling interest rate scenario which will lead to a decline in
cash flow from an investment when it's principal and interest payments are reinvested at lower interest rates.
Credit Risk
Interest Rate Risk
Re-Investment Risk
Political Risk

CORRECT ANSWER:
Re-Investment Risk

Explanation:
Re-investment risk arises from the probability that income flows received from an investment may not be
able to earn the same interest as the original interest rate. The risk is that intermediate cash flows may be
reinvested at a lower return as compared to the original investment.

The rate at which the re-investment of these periodic cash flows is made will affect the total returns from the
investment. The reinvestment rates can be high or low, depending on the levels of interest rate at the time
when the coupon income is received.

Q 8. Why are most businesses price takers and not price makers?
Because the margin on sales is less
Because they have low bargaining power with their suppliers
Because products have to be priced as per the competition in market
Because of low manufacturing cost

CORRECT ANSWER:
Because products have to be priced as per the competition in market

Explanation:
In any competitive industry, pricing command is virtually missing. If a competitor reduces prices, others will
have to follow to remain in the market. So the companies in a competitive market are price takers and not
price makers.

Q 9. Identify which of these is defined by IRDAI for regulating the insurance sector?
Capital requirements for insurance companies
Modalities for investment of funds by insurance companies
Rules and regulations for distribution of insurance products
All of the above

CORRECT ANSWER:
All of the above

Explanation:
Insurance Regulatory and Development Authority of India (IRDAI) regulates the insurance sector in India in
accordance with the terms of the IRDA Act, 1999.
It regulates the distribution of insurance products by laying down the qualification and training requirements
of intermediaries and the payment of commission to distributors. IRDAI supervises the functioning of the
Tariff Advisory Committee that determines the rates for general insurance products. It also lays down the
modalities for investment of funds by insurance companies.

Q 10. Who can be a part of committee reviewing salaries of research analyst as per Regulation 17 - Code of
conduct for Research Analyst?
Head of research division
Head of investment banking division
Head of the brokerage division
Any one of the above as per the decision of the MD of the company

CORRECT ANSWER:
Head of research division

Explanation:
Regulation 17: Compensation of research analysts

The compensation of all individuals employed as research analyst shall be reviewed, documented and
approved annually by board of directors/committee appointed by board of directors of the research entity,
which does not consist of representation from its merchant banking or investment banking or brokerage
services divisions.

From the above given three options, Head of the brokerage division and Head of investment banking
division cannot review the salaries of research analyst. Therefore, Head of research division is the right
answer.

Q 11. _________ is an unique parameter for evaluation of banks.

Foot falls in the bank branches
Net Interest Margin
Its promoter group
The history of profits / losses

CORRECT ANSWER:
Net Interest Margin

Explanation:
Each sector has its own unique parameters for evaluation.

For eg - for Banking it is Net Interest Income (NII)/ Net Interest Margin (NIM) whereas for the retail sector,
foot falls and same store sales are important parameters.

Q 12. Which of these items is included in an Income Statement?

Depreciation and Amortisation
Accounts receivable
Long term debt
Current assets and Current liabilities

CORRECT ANSWER:
Depreciation and Amortisation

Explanation:
All type of expenses are included in the Income or the Profit and Loss Statement. Depreciation and
amortisation are expenses of a company.
Depreciation refers to gradual and permanent reduction in value of assets on account of ageing, use and
obsolescence. Amortisation refers to gradual write-off of intangible assets over the period of its life.

Accounts receivable, Long term debt, Current assets and Current liabilities are all included in the Balance
Sheet of the company.

Q 13. _________ may generate both capital appreciation and also recurring income.
Bonds
Gold
Equities
Both Bonds and Equities

CORRECT ANSWER:
Equities

Explanation:
Equities may produce recurring earnings in the form of dividends and then capital apprecaition on sale if
there is a profit.

Bonds do not provide capital appreciation.

Q 14. Which of these risks should be discussed in a good research report?

Business Risk
Risks in investments
Political Risk
All of the above
CORRECT ANSWER:
All of the above

Explanation:
A good research report will cover the effects of all types of risks to the industry / company to arrive at a
sound conclusion.

Q 15. ________ has to be used as a discount rate for calculating the Free Cash Flows to Firm.
Risk Free interest rate
RBI reference rate
Weighted average cost of capital
Cost of debt

CORRECT ANSWER:
Weighted average cost of capital

Explanation:
Under the Free cash flow to firm model (FCFF) model, the value of the business is derived by discounting
the FCFF.

Since FCFF is the cash flow available to all sources of capital, discount rate is taken as the weighted average
cost of capital that factors all sources of capital and investors’ expected return on the same.

Q 16. What is the meaning of Pricing Power?

It means that the manufacturing costs of the company are low
It means the suppliers have high bargaining powers
It means that the customers have a high purchasing power
It means that the company has the ability to increase the prices of its products without affecting the demand

CORRECT ANSWER:
It means that the company has the ability to increase the prices of its products without affecting the demand

Explanation:
Pricing power refers to a company’s ability to independently determine and charge the price of its products.
Companies with strong pricing power would be able to pass on any escalation in input cost to its customers.
They can also increase their prices when demand is strong and thus grow their margins.

Q 17. _______ can be considered as an Entry Barrier to a new entrant in a business.

Complex licensing required
Special competence / skills required
Capital required
All of the above

CORRECT ANSWER:
All of the above

Explanation:
Entry barriers in an industry would be high if:

1. There are lots of licensing required in the business 2. Patents and copyrights prevent new entrants 3.
Huge investments in specialized assets pose a challenge 4. Strong Brands, strong distribution network,
specialized execution capabilities, customers loyalty with existing products/services exist in the business.
Q 18. All else held constant, a stock with a relatively low PE is considered as ____ stock.
Over valued / Expensive
Under valued / Cheap
More volatile
Less volatile

CORRECT ANSWER:
Under valued / Cheap

Explanation:
The PE ratio indicates the amount of money an investor needs to invest to receive 1 unit of profit. It is
calculated using the current market price and the EPS.

All else held constant, a stock with higher PE ratio compared to the peer group numbers is considered to be
expensive stock. Similarly, a stock with a relatively low PE is considered as undervalued stock.

Q 19. What is insider information?

Knowledge about the number of employees working in an organisation
Details of all unpublished information about the organisation
Its the price sensitive information about the company which is not available to the general public
Its the personal intellectual property of the organisation and is not available to outsiders

CORRECT ANSWER:
Its the price sensitive information about the company which is not available to the general public

Explanation:
As per SEBI (Prohibition of Insider Trading) Regulations, “insider” is any person who is a connected person
or one in possession of or having access to unpublished price sensitive information.

The regulations define unpublished price sensitive information that affect the company or its securities as
those that is not generally available and which can materially affect the price of the securities.

Q 20. Which of these factors will be studied by a fundamental research analyst?

History of price movement in the share
Trends and patterns in the historical prices
Macro economic fundamentals
Historical trends in the volume of share trading

CORRECT ANSWER:
Macro economic fundamentals

Explanation:
A fundamental research analyst researches the economy, the industry and the company.

A technical research analyst focuses on forecasting the direction of prices through the study of patterns in
historical prices and volume.

Macroeconomic fundamentals are topics that affect an economy at-large, including statistics regarding
unemployment, supply and demand, growth, and inflation, as well as considerations for monetary or fiscal
policy and international trade. These will be studied by the fundamental analysts.
Q 21. Which is the nodal agency of the Central Government to formulate and monitor India’s
macroeconomic policies, covering monetary and fiscal policy as well as the functioning of the Capital
Market including stock exchanges?
Department of Revenue
Department of Economic Affairs
Department of Expenditure
Department of Financial Services

CORRECT ANSWER:
Department of Economic Affairs

Explanation:
Department of Economic Affairs is the nodal agency of the Central Government to formulate and monitor
India’s macroeconomic policies, covering monetary and fiscal policy as well as the functioning of the
Capital Market including stock exchanges.

Q 22. Usually, when is the valuation of business / assets etc. done?

When a company is buying a business as part of investment exercise
When a company is selling a business as part of disinvestment exercise
For Accounting, taxation and other regulatory and legal requirements
All of the above

CORRECT ANSWER:
All of the above

Explanation:
While purpose of carrying out valuation could vary from person to person, some of the reasons for carrying
out valuations of assets/businesses/liabilities are as follows:
- Buying a business as part of investment exercise
- Selling a business as part of disinvestment exercise
- Mergers and Acquisitions
- General sense of value of business to owners
- Fair treatment to different set of stake holders in case of equity swap
- Accounting, taxation and other regulatory and legal requirements

Q 23. ________ is an act of purchase or sale of an asset in the expectation of a gain from changes in the
price of that asset over a short period of time.
Arbitrage
Speculation
Hedging
Investing

CORRECT ANSWER:
Speculation

Explanation:
Trading or speculating is an act of purchase or sale of an asset in the expectation of a gain from changes in
the price of that asset over a short period of time. Traders or speculators seek to benefit from acting on
information which bring about changes in prices.

Q 24. There are two companies with P/E ratios of 9 and 27. But they have different growth potentials of
8% and 32 % for the next few years. Which of the companies is cheaper on the basis of PEG ratio ?
The company with P/E ratio of 9
The company with P/E ratio of 27
Both the companies are very expensive
From PEG ratio, one cannot judge the valuation of a company

CORRECT ANSWER:
The company with P/E ratio of 27
Explanation:
Price to Earnings Ratio (PEG) = PE / Growth Rate
PEG Ratio of the first company = 9 / 8 = 1.12

PEG Ratio of the second company = 27 / 32 = 0.84

The PEG ratio of the second company (P/E of 27) is lower so its cheaper

(Lower the PEG Ratio, cheaper the valuations)

Q 25. _______ is responsible for regulating the functioning of the Corporate Sector as per the law.
Commerce Ministry
Ministry of Finance
Ministry of Corporate Affairs
RBI

CORRECT ANSWER:
Ministry of Corporate Affairs

Explanation:
The Ministry of Corporate Affairs is primarily concerned with administration of the Companies Act and
other allied Acts, rules and regulations framed there-under mainly for regulating the functioning of the
corporate sector in accordance with law.

Q 26. _________ analysis is NOT concerned whether the stock is trading at a fair price with respect to its
intrinsic value.
Technical
Fundamental

CORRECT ANSWER:
Technical

Explanation:
Fundamental analysts maintain that market may misprice securities in the short run but in the long run,
prices would merge with the securities’ fair value or intrinsic value.

technical analysts do not care to analyze the fundamentals of the business. Instead, the approach is to
forecast the direction of prices through the study of patterns in historical market data - price and volume.
Unlike fundamental analysis, technical analysis is not concerned if the stock is trading at a fair price relative
to its intrinsic value.

Q 27. In which bias does an investor feels that what he owns is the most valuable than everything else?
Winner’s curse
Anchoring
Gambler’s fallacy
Ownership bias

CORRECT ANSWER:
Ownership bias

Explanation:
Ownership bias: Things owned by us appear most valuable to us. Sometimes known as the endowment
effect, it reflects the tendency to place a higher value on a position than others would. It can cause investors
to hold positions they would themselves not buy at the current level.
Q 28. ________ are additional shares are given to the shareholders, without any consideration.
Rights issue
Cash dividend
Stock dividend
Interim dividend

CORRECT ANSWER:
Stock dividend

Explanation:
Stock dividend or Bonus shares are additional shares are given to the shareholders, without any
consideration, in proportion of their holdings by capitalization of revenue reserves.

Q 29. A job of a Research Analyst involves doing which of the following ?

Collection of data and its analysis
Interacting with clients
Interacting with companies
All of the above

CORRECT ANSWER:
All of the above

Explanation:
Research Analysts collect data/information from various sources, analyze the collected data/information and
make their recommendations. Job of analysts also involves close interaction with companies and clients.
Q 30. How is the Free Cash Flows for EQUITY calculated ?
Interest payment on equity is subtracted from Free cash flows to the firm and net borrowings are deducted
from it
Interest payment on debt is added to Free cash flows to the firm and net borrowings are deducted from it
Interest payment on debt is subtracted from Free cash flows to the firm and net borrowings added to it
Interest payment on equity is subtracted from Free cash flows to the firm and net borrowings added to it

CORRECT ANSWER:
Interest payment on debt is subtracted from Free cash flows to the firm and net borrowings added to it

Explanation:
Free Cash Flow for Equity = Free cash flows to the firm (FCFF) - Interest payment on debt + Net
borrowings

Q 31. Which of these information would constitute as an insider information?

Number of employees working from home
The Managing Director mentioning about an acquisition proposal not yet disclosed to the public
The information that factory is working on additional shifts. This has been announced to the public but not
published in the annual report
All of the above

CORRECT ANSWER:
The Managing Director mentioning about an acquisition proposal not yet disclosed to the public

Explanation:
Insider information is a material non-public information that when published would immediately affect an
investor’s decision to buy or sell the security. Whether an information can be considered insider depends on
the source of the information (how reliable it is), its impact and its certainty.
From the three options given above, the Managing Director mentioning about an acquisition proposal not yet
disclosed to the public, will be considered as an insider information.

Q 32. How is per capita income of a country calculated?

National Income / Total population
Total population X National Income
Total population / National Income
National Income X Total population

CORRECT ANSWER:
National Income / Total population

Explanation:
Per Capita Income is the average income earned by each individual in the economy and is calculated as :
National Income / Total population

Q 33. Recession in the economy is likely to affect the ______ industry the most.
Health care and FMCG
Pharmaceuticals
Food and Beverages
Airlines

CORRECT ANSWER:
Airlines

Explanation:
In recession, their is unemployment, decrease in income levels and in turn decrease in consumption.

During such times, the number of people who can afford travelling by planes fall down considerably and
their by negatively affecting the profitability of the airlines industry.

Q 34. A Rights Issue is open for subscription for a MAXIMUM period of _____ days.
10
15
20
30

CORRECT ANSWER:
30

Explanation:
A rights issue is open for subscription for a minimum period of 15 days and a maximum period of 30 days.

Q 35. The Department of _________ administers government policies relating to public sector banks, life
and general insurance and pension reforms.
The Department of Revenue
The Department of Expenditure
The Department of Economic Affairs
The Department of Financial Services

CORRECT ANSWER:
The Department of Financial Services

Explanation:
The Ministry of Finance (MoF) handles issues related to taxation, financial legislation, financial institutions,
capital markets, state finances and the Union Budget.

Under the MoF, the Department of Financial Services covers Banks, Insurance, Financial Services provided
by various government agencies and private corporations, pension reforms and Industrial Finance and
Micro, Small and Medium Enterprise.

Q 36. As per Technical Analysis, if the price of a share has broken its support level, then ______ .
the price is likely to rise quickly
the price is likely to fall more till it reaches the next level of support
the price is likely to remain at this level for some weeks before making the next move
the price is likely to rise but at a slow pace

CORRECT ANSWER:
the price is likely to fall more till it reaches the next level of support

Explanation:
Technical analysis integrates three elements into price charts - points of support, points of resistance in
charts and price trends.
Support level is that price point at which there is a buying support from investors because in the past, prices
have risen from these levels. In case this support level is broken due to high selling, the price of the asset is
likely to fall more till it reaches the next support level.

Q 37. The share price of a company is Rs. 35 and currently it has 10 million shares trading. The company
has assets worth Rs. 120 million and liabilities worth Rs. 40 million. Calculate the Price to Book Ratio.
5.63x
4.37x
5.99x
3.84x

CORRECT ANSWER:
4.37x

Explanation:
Market Cap = No. of shares x Market price of shares = 10 million x 35 = 350 million

Net worth = Assets - Liabilites = 120 million - 40 million = 80 million

Price to book value ratio = Market capitalization/ Net worth

= 350 million / 80 million

= 4.37x
Q 38. Identify the statement which truly reflects the provisions of Regulation 16 of Code of Conduct for
Research Analyst?
Research analyst cannot invest in the stocks they recommend
The personal wealth of a Research analyst can be invested in any manner they see fit as work life and
personal life are different
Research analyst can freely trade in securities as long as they completely disclose the transactions
Research analyst shall not trade in the stocks that he has reviewed in a manner contrary to his
recommendations

CORRECT ANSWER:
Research analyst shall not trade in the stocks that he has reviewed in a manner contrary to his
recommendations

Explanation:
As per Regulation 16, one of the limitations on trading by research analysts is -

Independent research analysts, individuals employed as research analysts by research entity or their
associates shall not deal or trade directly or indirectly in securities that he reviews in a manner contrary to
his given recommendation.

Q 39. Identify the statement which exactly describes passive investing?

Passive Investing means investing in alternate asset classes like Real Estate, Bitcoins, Art etc.
Passive Investing means investing in broad set of securities that represent an asset class
Passive Investing means buying and holding some good equity shares for the long term
Passive Investing means investing in matured businesses which are not affected by market volatility

CORRECT ANSWER:
Passive Investing means investing in broad set of securities that represent an asset class

Explanation:
Passive investing involves investing in a broad set of securities that fairly represent the asset class the
investor needs to invest. Typically, passive investing strategy follows indexing strategy where an investor
buys all securities that are part of an index. The objective of a passive investor is to earn the rate of return
that the select asset class provides.

A passive investor does not decide upon individual securities to buy or sell but rather their analysis is limited
to the broader asset class.

Q 40. What is the relationship between Interest Rates and Bond prices?
They move in the same direction
They move in opposite direction
Some times they move in same direction and some times in opposite directions depending on the duration of
the bond
There is no relationship between them

CORRECT ANSWER:
They move in opposite direction

Explanation:
When interest rates rise, bond holders experience a fall in the price of bonds they hold as these bonds are
paying a lower interest as compared to new bonds.

Similarly, when rates fall, the old bonds with high coupon rates would become attractive and their prices
would rise.
Q 41. When an investor takes a loan against securities, it is known as _______ .
Reverse Mortgage
Hedging
Pledge of shares
Arbitration

CORRECT ANSWER:
Pledge of shares

Explanation:
Pledge is an act of taking loan against securities by the investor. The investor is called as ‘pledgor’ and the
entity who is giving the loan against the securities is called as ‘pledgee’.

Pledged securities can be unpledged, once the obligations under pledge are fulfilled. In case of default, the
pledgee can invoke the pledge.

Q 42. Identify the TRUE statement with respect to Board Composition and Corporate Governance.
If a company wants strong corporate governance, then it should ensure that majority of the board comprises
of independent directors
If a company wants strong corporate governance, then it should ensure that the entire board comprises of
executive directors who are also part of management
If a company wants strong corporate governance, then it should ensure that board comprises of very few
independent directors
If a company wants strong corporate governance, then it should ensure that the full board comprises of
members of the promoter group
CORRECT ANSWER:
If a company wants strong corporate governance, then it should ensure that majority of the board comprises
of independent directors

Explanation:
A company's board of directors can include independent directors, non-executive directors and executive
directors.

For the sake of strong corporate governance standards, majority of the board should comprise of
independent directors. Currently, SEBI regulation stipulates that independent directors should constitute at
least 50% of the board if the chairman is an executive director. In all other cases, it requires 1/3rd of the
board to be comprised of independent directors.

Q 43. Identify the correct statement with respect to High Industry Rivalry. A. Similar products/services
being offered by participants with little or no differentiation B. Switching cost for customers from one
product/service to another is very high C. Many companies exist in the business segment
A and B only
B and C only
A and C only
A, B and C

CORRECT ANSWER:
A and C only

Explanation:
Industry rivalry would be high if:

1. Many companies exist in the business segment

2. Similar products/services being offered by participants with little or no differentiation

3. Every industry participant tries to attract customers with similar strategies – lower prices or longer credits

4. Switching cost for customers from one product/service to another is low or nil.

Q 44. When Free Cash Flows to firm are discounted by the appropriate discount rate, we arrive at the
_________ of the firm.
Enterprise Value (EV)
Present Value (PV)
Discounted Value (DV)
Future Value (FV)

CORRECT ANSWER:
Enterprise Value (EV)

Explanation:
Cost of equity is generally computed with help of Capital Asset Pricing Model (CAPM)

The free cash flows are then discounted at the appropriate discount rate to arrive at the Enterprise Value
(EV) of the firm or the value of equity.

Q 45. The Quick Ratio of a business is 3. The Current Assets are of Rs. 75000 and the Inventory is of Rs.
15000. Calculate the Current Ratio of the business.
4.79
3.75
4.00
3.50

CORRECT ANSWER:
3.75

Explanation:
Quick Ratio = (Current Assets – Inventories) / Current liabilities

3 = 75000 - 15000 / Current liabilities

3 = 60000 / Current liabilities

Current liabilities = 60000 / 3 = 20000

Current Ratio = Current Assets / Current liabilities

= 75000 / 20000

= 3.75

Q 46. Identify the CORRECT statement with respect to Insider Trading.

Its matter of grave concern if company insiders sell shares
Company insiders may sell shares for a variety of reasons and the analyst should try and understand the
reasons for these sales
Its illegal for company insiders to sell shares
An equity analyst should not consider any insider trading of the company management
CORRECT ANSWER:
Company insiders may sell shares for a variety of reasons and the analyst should try and understand the
reasons for these sales

Explanation:
Insiders can sell shares for a variety of reasons and its not illegal to sell shares by them.

Key managerial personnel or insiders are allowed to trade, provided they are not in possession of
unpublished price sensitive information(UPSI). The Securities and Exchange Board of India(Sebi) has
proposed to ease insider trading norms for senior management to trade in company shares.

Q 47. Identify the TRUE statement with respect to 'Holding period return of securities'.
Holding period return is much more accurate than CAGR
Holding period return considers the time value of money
Holding period return is a very effective measure of return over the holding period of securities
Holding period return is not a very effective measure of return as it does not annualize the return over the
holding period of securities

CORRECT ANSWER:
Holding period return is not a very effective measure of return as it does not annualize the return over the
holding period of securities

Explanation:
Holding Period Return (HPR) is the return earned on an investment during a specific period when it was
bought and held by the investor.

HPR is not effective as its a single period return and does not annualize the return to the investors.
Q 48. An analyst is studying the 'financial aspect' of an industry. This comes under which category of the
Structure Conduct Performance (SCP) analysis?
Conduct
Structure
Performance
All of the above

CORRECT ANSWER:
Performance

Explanation:
Structure Conduct Performance (SCP) Analysis method of analysing industries is to look at the industry
structure (monopoly, oligopoly), its conduct (commoditized or specialized, seasonal or round the year,
cyclical or non-cyclical etc.) and finally its performance (RoE, RoIC, WACC, etc.)

Performance analysis: While analyzing performance of an industry, analysts will also look at the financial
aspects like numerical ratios etc.

Q 49. ____________ will be considered as a THREAT for oil and gas industry in SWOT analysis.
Unpredictability about the results of new oil field explorations
Increased promotion and adoption of renewable energy
Both of the above
None of the above
CORRECT ANSWER:
Both of the above

Explanation:
As per SWOT analysis, threats are essentially risk that comes from external environment.

For Oil and Gas industry :

As renewable energy becomes widely generated and more affordable, it will slowly replace oil and gas.

Discovering large new oil and gas fields is proving difficult and the world is already staring at depletion of
this natural resource.

Q 50. Which of these can be described as 'Pricing Power' of a company?

When a company has low manufacturing cost
When the customers of the company have high purchasing power
When the company can increase the prices of its products without affecting the demand
When the suppliers of the company have high bargaining powers

CORRECT ANSWER:
When the company can increase the prices of its products without affecting the demand

Explanation:
A key factor to look while studying the business of a company is its pricing power as that would help a
company maintain and grow its profit margin.
Pricing power refers to a company’s ability to independently determine and charge the price of its products.
Companies with strong pricing power would be able to pass on any escalation in input cost to its customers.
They can also increase their prices when demand is strong and thus grow their margins.

Q 51. _________ contains policy measures of the Government which deal with governments’ revenues and
expenses.
Fiscal Policy
Monetary policy
Foreign Exchange Policy
Annual Budget

CORRECT ANSWER:
Fiscal Policy

Explanation:
Fiscal policy contains policy measures of the Government which deal with governments’ revenues and
expenses

Actions of the Central bank (RBI) are known collectively as Monetary policy.

Q 52. In a decreasing interest rate scenario, callable bonds are a safer option for the issuers - State True or
False ?
True
False
CORRECT ANSWER:
True

Explanation:
Callable bonds allow the issuer to redeem / buyback the bonds prior to their original maturity date.

So when interest rates fall, the issuer can raise the same amount of loan, at a lower interest rate.

It is to the advantage of the issuer to redeem the existing high-cost bond before
maturity and replace it with a new low cost bond.

Q 53. _________ is/are the important parameters to observe by an analyst in the IT (Information
Technology) and related sectors.
Concentration of geographies of clients
USDINR rate
Attrition rate among employees
All of the above

CORRECT ANSWER:
All of the above

Explanation:
USDINR rate, attrition rate among employees, concentration of revenues with selected clients, concentration
of geographies etc. are important parameters to watch out for in IT and related sectors.
Q 54. To be eligible for a share buyback, a company should not have defaulted on ___________ .
its payment of interest or principal on debentures
redemption of preference shares
payment of dividend declared
All of the above

CORRECT ANSWER:
All of the above

Q 55. The qualitative aspect of a business is important while investing because 'Great Quality' will lead to
'Great ______ ' sooner or later.
Satisfaction
Profits
Management
All of the above

CORRECT ANSWER:
Profits

Explanation:
Great earnings and assets make a business valuable; and, earnings and assets are determined by the
qualitative aspects of businesses. Sooner or later, ‘Great Quality’ would reflect into ‘Great Profits’ for
investors.

Q 56. When is Innovation and Customer service in an business very necessary ?

When there is no Industry Rivalry
When there is low Industry Rivalry
When there is intense Industry Rivalry
None of the above

CORRECT ANSWER:
When there is intense Industry Rivalry

Explanation:
An industry where rivalry is high, like the aviation and telecom space, the end result will be lower pricing
power and lower incomes for the industry participants.

Innovation in products and customer service and engagement initiatives become essential in such an
industry.

Q 57. The most important priority for an investor would be ______ .

Capital Appreciation
Return on capital
Safety of capital
None of the above

CORRECT ANSWER:
Safety of capital

Explanation:
All Investment decisions are evaluated on the basis of risk and return.
The preservation or safety of the capital invested is the most important parameter in evaluating an
investment. The investor should be assured that he will atleast get his principal back. Then comes the
matters of returns and capital appreciation.

Q 58. An asset is said to be ________ , if the price is greater than its value.
Under Priced
Over Priced
Fairly Priced
None of the above

CORRECT ANSWER:
Over Priced

Explanation:
Valuation exercise is undertaken to compare the price with value to arrive at whether a business is
overpriced, under-priced or fairly priced by the market.

If the price is higher than the value than the asset is over priced.

Q 59. As per Boston Consulting Group (BCG) Analysis, _______ can be considered as a CASH COW.
Cera Sanitary
Colgate
Bajaj Pulsar
Tata Nano

CORRECT ANSWER:
Colgate

Explanation:
In a Cash Cow the industry grows at a predictable and steady rate each year.

There is a strong brand name, well penetrated distribution channel, ready market, and strong balance sheet,
Colgate is one such example.

Q 60. Portfolio Investment wrt. to Foreign Investors means __________ .

Investment in Financial Markets with management participation
Investment in Financial Markets without any management participation
Both 1 and 2
None of the above

CORRECT ANSWER:
Investment in Financial Markets without any management participation

Explanation:
Foreign capital flows to a country can be in :

1 Foreign Direct Investment (FDI) - investing entities participate in decision making and drive the
businesses

2. Foreign Portfolio Investment (FPI) - investment in markets – equity or bonds by the Foreign Portfolio
Investors without any management participation.

Q 61. Earning Per Share is calculated as _______ .

Net Profit / Number of shares outstanding
EBIT / Number of shares outstanding
EBDITA / Number of shares outstanding
PE Ratio / Number of shares outstanding

CORRECT ANSWER:
Net Profit / Number of shares outstanding

Explanation:
EPS = Net Profit / Number of shares outstanding

Net profits of the company belong to the shareholders. Earnings per share is the net profit divided by the
number of shares. It indicates the amount of profit that company has earned, for every share it has issued.

Q 62. Some companies perform very well in an industry as compared to others because of their _______ .
unique ways of mitigating risks and maximizing returns
unique Value Proposition
unique Selling Points
All of the above

CORRECT ANSWER:
All of the above

Q 63. In Technical Analysis, there are three essential elements in understanding price behaviour. Two of
them are Price and Volume. Which is the third essential element ?
Inflation Rate
Time span
Cash Flows
Interest Rate

CORRECT ANSWER:
Time span

Explanation:
There are three essential elements in understanding price behaviour:

1. The history of past prices provides indications of the underlying trend and its direction.

2. The volume of trading that accompanies price movements provides important inputs on the underlying
strength of the trend.

3. The time span over which price and volume are observed factors in the impact of long term factors that
influence prices over a period of time.

Q 64. The Depository Receipts which are issued in India and listed on an Indian Stock Exchange with
foreign stocks as underlying shares are known as _______.
American Depository Receipts (ADRs)
Global Depository Receipts (GDRs)
Indian Depository Receipts (IDRs)
None of the Above

CORRECT ANSWER:
Indian Depository Receipts (IDRs)
Explanation:
An IDR is in Indian rupees and is created by a domestic depository (custodian of securities registered with
SEBI (Securities and Exchange Board of India). It is issued against the underlying equity of the company to
enable foreign companies to raise funds from the Indian securities Markets. As foreign companies are not
allowed to list on Indian equity markets, IDR is a way to own shares of those companies.

Q 65. A trader is expecting the interest rates to fall in the near future. Which strategy he should use to
benefit if his view turns out to be correct ?
Buy long dated low coupon bonds
Buy long dated high coupon bonds
Buy short dated low coupon bonds
Buy short dated high coupon bonds

CORRECT ANSWER:
Buy long dated high coupon bonds

Explanation:
When interest rates fall, bond holders experience a rise in the price of bonds as there is an inverse
relationship between bond prices and interest rates.

As the trader is not sure when the fall in interest rates will be announce, he should buy the long dated high
coupon bonds.

Q 66. Who is the manager of Indian Government's debt borrowings ?

RBI
Ministry of Corporate Affairs
Ministry of Finance
Department of Revenue

CORRECT ANSWER:
RBI

Explanation:
Reserve Bank of India is the Government's debt manager.

Q 67. ___________ helps us understand drivers of income, savings, investments and employment in an
economy.
Macroeconomics
Microeconomics
Situation of Stock Markets
All of the above

CORRECT ANSWER:
Macroeconomics

Explanation:
Macroeconomics is the study of "the big picture" in the economy. While microeconomics focuses on
individual households and firms, macroeconomics deals with the economy as a whole.

Macroeconomics helps us understand the general state of the economy – Domestic Production, Domestic
Consumption, General Price levels, Growth, Quality of life etc.

It also helps us understand drivers of income, savings, investments and employment in an economy.
Q 68. The P/E ratio of a company is 7 and the EPS is Rs 5. The paid up capital of the company is Rs
800000 with face value of Rs 5 per share. Calculate the Enterprise Value of the company if it has zero debt
and Rs 10 lakhs as cash equivalents.
Rs 1600000
Rs 4600000
Rs 1800000
Rs 5800000

CORRECT ANSWER:
Rs 4600000

Explanation:
No of Shares = Paidup Capital / Face Value

No of Shares = 800000 / 5 = 160000

PE ratio = Market Price / EPS

7 = Market Price / 5

So the Market Price = 7 x 5 = 35

Market capitalisation = No. of shares x Market Price

= 160000 x 35 = 56,00,000

Enterprise value = Market capitalization + Market value of debt – cash and cash equivalents

= 5600000 + 0 - 1000000 = 4600000

Q 69. __________ method of yield calculation does not take into account future cash flows coming from
the bond, which is the biggest drawback of this method
Holding Period Returns (HPR)
Yield to Maturity (YTM)
Current Yield
None of the above

CORRECT ANSWER:
Current Yield

Explanation:
Current Yield Method - This is a simple method of calculating return on a debt security in which the coupon
is divided with the current market price of the bond and the result is expressed as percentage.

This method does not take into account future cash flows coming from the bond, which is the biggest
drawback of this method.

Q 70. Research Analysts who are individuals or partnership firms shall have net tangible assets of value not
less than Rs. _____ .
Rs 1 lakh
Rs 2 lakhs
Rs 5 lakhs
Rs 10 lakhs

CORRECT ANSWER:
Rs 1 lakh

Explanation:
A research analyst who is individual or partnership firm shall have net tangible assets of value not less than
one lakh rupees.

Q 71. A good businessmen would always have cognizance of the risks in the business and its implications.
State True or False ?
True
False

CORRECT ANSWER:
True

Q 72. Companies Act requires that a company which wants to raise further capital through an issue of
shares must first offer them to the existing shareholders and such an offer of shares is known as ______.
Preference Issue
Bonus Issue
Public Issue
Rights Issue

CORRECT ANSWER:
Rights Issue

Explanation:
When a company needs additional equity capital, it has two choices – ask more money from existing
shareholders or go for fresh set of investors.
Companies Act requires that a company which wants to raise more capital through an issue of shares must
first offer them to the existing shareholders and such an offer of shares is called a rights issue.

Q 73. The Net Profit Margin of a business is 25%. The sales is 300% of EBIT. What is the EBIT % of Net
Profit ?
100%
133.33%
125%
147.99%

CORRECT ANSWER:
133.33%

Explanation:
Lets assume the Sales = 100

The sales are 300% of EBIT which means Sales = EBIT X 3

100 = EBIT X 3

EBIT = 100 / 3 = 33.33

Net Profit will be 25 ( As its 25% of Sales )

Now we have to calculate the EBIT as a percentage of Net Profit

= 33.333 / 25 x 100 = 133.33%

Q 74. The job of an Research Analyst involves ________ .
Taking investment decisions
Convincing the investors to buy securities
Data collection and its analysis
All of the above

CORRECT ANSWER:
Data collection and its analysis

Explanation:
For a Research Analyst there is Research - collection of information from various sources and then Analysis
- processing of data to take decisions.

The main job of a Research Analyst is to help their clients take investment decisions by providing them
relevant information. The Research Analyst themselves will not take the decision.

Q 75. Bonds which have embedded call option in them are known as Callable Bonds. State True or False.
True
False

CORRECT ANSWER:
True

Explanation:
Callable bonds allow the issuer to redeem the bonds prior to their original maturity date.

This feature poses a risk for investors but is beneficial for the issuers.
For eg - An issuer issues a callable bond at 11% coupon rate. After 2 years the interest rates fall down in the
economy to 8%. The issuer will call back these bonds (11%) and issue new bonds (8%) at lower interest
rates if required.

Q 76. 'Tom' trades are the trades where settlement occurs on ______ day(s)
T+0
T+1
T+2
T+3

CORRECT ANSWER:
T+1

Explanation:
Tom trades are the trades where settlement (payment and delivery) occurs on the day next to the trading day
ie T + 1.

Cash trades are the trades where settlement occurs on the same trading day ie.T+0.

Q 77. Research Analysts facilitates the decision making by the investors in both investments and
disinvestment's - State True or False ?
True
False

CORRECT ANSWER:
True
Explanation:
Research Analyst provide indepth knowledge on the status of a company / industry etc by studying various
Macro/Micro factors and financial ratios. Based on these, the investors can take decisions on buying and
selling the stocks etc.

Q 78. 'Whether company has stable and growing 5 years dividend track record' is a parameter to be
considered in ___________ .
Qualitative Parameters
Quantitative Parameters
Valuation Parameters
Final Decision Parameters

CORRECT ANSWER:
Quantitative Parameters

Explanation:
Research reports are generally divided into three broad` sections – Qualitative aspects, Quantitative aspects
and then Valuation parameters.

Qualitative parameters take care of aspects like business/revenue model, SWOT analysis, competition in the
industry, technology aspects etc.

Quantitative parameters would consist of financial aspects such as ratio analysis, analysis of cash flows ,
dividend history etc.

Valuation parameters would consist of intrinsic value, P/E, P/BV, margin of safety aspects.
Q 79. The method of analyzing industries by looking at the industry structure, its conduct and its
performance is know as __________.
DELTA analysis
PESTLE analysis
BCG Analysis
SCP Analysis

CORRECT ANSWER:
SCP Analysis

Explanation:
Structure Conduct Performance (SCP) Analysis look at the industry structure (monopoly, oligopoly), its
conduct (commoditized or specialized, seasonal or round the year.) and its performance (RoE, RoIC, etc.).

Q 80. _________ maintains the ownership records of securities in a book entry form.
Stock Exchanges
Stock Brokers
Banks
Depositories

CORRECT ANSWER:
Depositories

Explanation:
Depositories hold securities of investors in electronic form and maintains the owernship records.
Q 81. In which bias, investors lose even after having won a trade ?
Gambler’s fallacy
Winner’s curse
Projection bias
Herd mentality

CORRECT ANSWER:
Winner’s curse

Explanation:
Winner’s curse is the tendency to make sure that a competitive bid is won even after overpaying for the
asset.

While behaviourally it is a win, financially, it may be a loss.

Q 82. The part of risk that affects the entire financial market or a wide range of investments is known as
Unsystematic Risk.
True
False

CORRECT ANSWER:
False

Explanation:
Systematic risk or market risk refers to those risks that are applicable to the entire financial market or a wide
range of investments.
Q 83. The unique parameters for evaluation of Retail Sector is ______ .
Average Revenue Per User
Financial results of the last 5 years
Footfalls and same store sales
All of the above

CORRECT ANSWER:
Footfalls and same store sales

Explanation:
Each sector has its own unique parameters for evaluation. For the retail sector, foot falls and same store sales
(SSS) are important parameters, whereas for banking it is Net Interest Income (NII)/ Net Interest Margin
(NIM). For telecom, it is Average Revenue Per User (ARPU) and for hotels, it is average room tariffs etc.

Q 84. Foreign Direct Investment (FDI) is welcomed by all the developing economies as it ___________ .
brings in new products and services
brings in new managerial skills
access to traditional technologies
both 1 and 2

CORRECT ANSWER:
both 1 and 2
Explanation:
FDI brings in new and latest technologies and not traditional technologies.

Q 85. The sales of M/s. XYZ ltd. is Rs 10,00,000, its Equity Capital is Rs. 4,00,000 and the return on
equity is 18%. Find the Net Profit Margin of this company.
18%
12.78%
7.2%
3.5%

CORRECT ANSWER:
7.2%

Explanation:
Net Profit Margin = Net Profit / Sales

Net Profit of XYZ Ltd is 18% of its Equity Capital

18% of 400000 = 72000

So Net Profit Margin = 72000 / 1000000

= 0.072 ie. 7.2%

Q 86. Macroeconomics helps understand the general state of the economy which in turn is determined by
_________ .
General Price levels
Domestic Consumption
Domestic Production
All of the above

CORRECT ANSWER:
All of the above

Explanation:
Macroeconomics helps us understand the general state of the economy – Domestic Production, Domestic
Consumption, General Price levels, Growth, Quality of life etc.

Q 87. Most of the businesses are price takers and not price makers, Why ?
As the margin on sales is low
As there is stiff competition and one has to match the competitors prices
As customers have low purchasing powers
All of the above

CORRECT ANSWER:
As there is stiff competition and one has to match the competitors prices

Explanation:
In any competitive industry, pricing command is virtually missing. If a competitor reduces prices, others will
have to follow to remain in the market. So the companies in a competitive market are price takers and not
price makers.

Q 88. The job of an Research Analyst is to ________ .

Collect and Analyse the data
Take investment decisions
Manage the investments
All of the above

CORRECT ANSWER:
Collect and Analyse the data

Explanation:
Research Analyst do extensive Research (collection of information from various sources) and then Analysis
(processing of data to take decisions)

They do not take the investment decisions but help their clients take investment decisions.

Q 89. What was the role of Forward Markets Commission (FMC) which has now been merged with SEBI?
To oversees the futures and forward trading in securities in India
To oversees the futures and forward trading in currencies in India
To oversees the futures and forward trading in swaps in India
To oversees the futures and forward trading in commodities in India

CORRECT ANSWER:
To oversees the futures and forward trading in commodities in India

Explanation:
SEBI merged with the Forward Markets Commission (FMC) and took over its role and now regulates the
commodities markets in India. It is the regulatory body that oversees regulating and promoting forward and
futures trading in commodities.
Q 90. The major difference(s) between a great organisation and an ordinary one is/are _______ .
The accounting policies
The Quality of Management
The Organisation Structure
All of the above

CORRECT ANSWER:
The Quality of Management

Explanation:
The oragnisation structure and accounting policies can be same in many organisations but what is most
important is the quality and integrity of the management.

Q 91. Mrs. Reeta purchases MF units at NAV Rs 13. After 500 days , she redeems it at NAV Rs 15.70.
What is the compounded rate of return ?
10.88%
14.7%
12.3%
9.63%

CORRECT ANSWER:
14.7%

Explanation:
The formula to find the CAGR - Compounded Annual Growth Rate holding period return is :

[ ( End Price / Begin Price) ^ (1/n) ] -1

End Price = 15.70

Begin Price = 13

n = time. We have to find yearly return so 500 / 365 = 1.369

So [( 15.70/13 )^ 1/1.369] - 1

= (1.207 ^ 0.73) - 1

On the scientific calculator of your computer type 1.207 then use x^y key and then type 0.73 = 1.147

1.147 - 1 = .147 x 100 = 14.7 %

Q 92. Code of ethics for a Research Analyst does NOT include _______ .
Non Compliance
Honesty and fairness
Insider Trading or front running
Confidentiality

CORRECT ANSWER:
Non Compliance

Explanation:
Code of Conduct/Ethics for Research Analysts includes Compliance which means - Research Analyst
including its employees shall comply with all regulatory requirements applicable to the conduct of its
business activities so as to promote the best interests of clients and the integrity of the market.
Code of Conduct for Research Analysts includes :

1. Honesty and Good Faith , 2. Diligence, 3. Conflict of Interest , 4. Insider trading or front running, 5.
Confidentiality , 6. Professional Standard, 7. Compliance and 8. Responsibility of senior management.

Q 93. Over pricing of securities by the market is favourable to the investors - State True or False ?
True
False

CORRECT ANSWER:
False

Explanation:
Markets usually give a fair pricing to the securities.

So when a security is under priced, an investor can buy it and sell it when its fairly priced.

If a security is over priced, the only way to benefit from it is to sell it and buy it back when its fairly priced.
But this is Short Selling which speculators indulge in and not investors.

Q 94. The Sale and Purchase of new issued shares happen in _______ .
Primary Market
Secondary Market
Money Market
Currency market
CORRECT ANSWER:
Secondary Market

Explanation:
While the primary market is used by issuers for raising fresh capital from the investors through issue of
securities, the secondary market provides liquidity to these instruments.

The secondary market facilitates trades in already-issued securities, thereby enabling investors to exit from
an investment or new investors to buy the already existing securities.

Q 95. Inflation risk represents the risk that the money received on an investment may be worth more when
adjusted for inflation - State True or False ?
True
False

CORRECT ANSWER:
False

Explanation:
Inflation risk represents the risk that the money received on an investment may
be worth LESS when adjusted for inflation.

For eg - If the inflation is 9% and the investment are earning 8%, such investments are exposed to inflation
risk.

Q 96. Companies appoint Compliance Officers because _______ .

by regulation, having a compliance officer in the company is a must
for efficient management of investor complaints
for smooth channelisation of information to regulatory bodies
All of the above

CORRECT ANSWER:
All of the above

Q 97. When companies give new shares to their existing shareholders without any consideration, it is
known as _________.
Interim dividend
Special dividend
Cash dividend
Stock dividend

CORRECT ANSWER:
Stock dividend

Explanation:
Stock dividend or Bonus shares are additional shares are given to the shareholders, without any
consideration, in proportion of their holdings by capitalization of revenue reserves.

Q 98. In a research report, visuals are used to make it simple for the reader to understand it. Which of the
below options is NOT a visual ?
charts
exhibits
formulas
graphs

CORRECT ANSWER:
formulas

Explanation:
A good report always comprises of visuals and exhibits like charts and graphs to make it simple for readers
to understand the contents.

Formulas are not considered as visuals.

Q 99. The Corporate Action of __________ will lead to change in the per share data (earning per share,
book value per share, market price per share etc.)
Stock Split
Bonus Issue
Stock Consolidation
All of the above

CORRECT ANSWER:
All of the above

Explanation:
In case of Bonus Shares, per share data (earning per share, book value per share, market price per share etc.)
will witnesses immediate deterioration as total number of shares go up without any economic change in the
profit and loss statement or balance sheet.

Same is the case with Stock Split.

In Stock Consolidation. as total no. of shares go down without any economic change in the Profit and Loss
account or Balance Sheet, per share data (earning per share, book value per share, market price per share
etc.) witnesses immediate improvement.

Q 100. Warrants are options that entitle an investor to buy _______ of the issuer company after a relatively
_____ period of time at a given price.
bonds , long
common stock , long
bonds , short
common stock , short
CORRECT ANSWER
Explanation:
Warrants are options that entitle an investor to buy equity shares of the issuer company after a specified time
period at a given price. These are usually long term instruments.

LDR 2

Q 1. An industry which has few substitutes, very less competition and less bargaining power of buyers
will have strong pricing power and ______ .
Low profit margins
High profit margins
Nil profit margins

WRONG ANSWER

CORRET ANSWER:
High profit margins
Explanation:
If an industry has the following features, it would have strong pricing power and high profit margins -

1. Low competition
2. High barriers to entry
3. Weak suppliers’ bargaining power
4. Weak buyers’ bargaining power
5. Few substitutes

Q 2. What is the meaning of "Final Goods'?

Final Goods are the goods which are used in further production processing
Final Goods are the goods which are consumed by economic participants
Final Goods are basically raw materials
None of the above

CORRECT ANSWER:
Final Goods are the goods which are consumed by economic participants

Explanation:
National income of an economy can be measured through three methods: (i) Product Method (ii) Income
Method, and (iii) Expenditure Method.

In the Product Method - National income is measured as an aggregated flow of goods and services in the
economy from the different sectors: agriculture, industry and services. Economists calculate money value of
all final goods and services produced in the economy during a specified period. Final goods refer to only
those goods which are consumed by economy participants and not the ones used in further production
processes (intermediate goods).

Q 3. Identify the correct statement with respect to Quantitative Analysis.

Quantitative analysis is useful only for technical analysis
Quantitative analysis is useful only for traders but not for investors
Quantitative analysis is useful for both traders and investors
Quantitative analysis is more useful for long term investors than short term investors

CORRECT ANSWER:
Quantitative analysis is useful for both traders and investors

Explanation:
Quantitative analysis (QA) with reference to financial research is collecting, evaluating and assessing data to
understand patterns in the past, present and future. Understanding more about quantitative analysis can help
you better use and interpret data.

In this, analysts try to understand the balance sheets and profit and loss statements of last few years, cash
flows, assets and liabilities and so on. Quantitative approach can be used for both technical analysis and
fundamental analysis and can be used by both traders and investors.

Q 4. As per the data collected by a research analyst, the indicators are showing that prices of a equity
share could go down. However, the research analyst has a very strong intuition that the share prices could go
up. What should the analyst recommend to his clients?
Intuitions usually come true and the analyst should recommend a buy or hold rating
As the analyst is in two minds, he should not recommend anything on that equity share
The analyst can give two recommendations - one based on intuition and other on indicators
The analyst should recommend a sell rating on that equity share as this is what the data and indicators are
pointing to

CORRECT ANSWER:
The analyst should recommend a sell rating on that equity share as this is what the data and indicators are
pointing to

Explanation:
As per the Code of Conduct for Research Analyst : Regulation 15 – Research analyst or research entity shall
have written internal policies and control procedures governing the dealing and trading by any research
analyst for promoting objective and reliable research that reflects the unbiased view of research analyst.

Q 5. In India, excise duty is levied on _______ .

Alcoholic beverages
Plastic products
Detergents
All of the above

CORRECT ANSWER:
Alcoholic beverages

Explanation:
Excise duty is tax on production. With the introduction of GST, excise duty has been removed for most of
the goods. However, excise duty is still applied on liquor, petrol and diesel as these products do not come
under GST.

Q 6. ____________ is likely to be included in Other Comprehensive Income.

Mark to market gain in the value of equity investment in a foreign company
Mark to market gain on derivative contracts purchased for trading purpose only
Gain/(losses) arises on account of translation of financial statement of foreign operations
All of the above
CORRECT ANSWER:
Gain/(losses) arises on account of translation of financial statement of foreign operations

Explanation:
Other comprehensive income (OCI): Other comprehensive income refers to income or expense that are
required or permitted to by-pass profit and loss account. It mostly comprises of change in value of assets and
liabilities on account of non-operating factors.

They include the following: - Changes in revaluation surplus - Re-measurement gain/(loss) on defined
benefit plans - Gain/(losses) arises on account of translation of financial statement of foreign operations -
Changes in fair value of financial assets or liabilities that are accounted through OCI - Gain/(loss) on
account of derivative contracts that effectively hedge risk.

Q 7. Identify which is the correct interpretation for this statement - 'The weekly VaR (1 percent) of a
Portfolio is Rs. 10 lakhs'
There is 99% chance that the loss in the portfolio in one week will not exceed Rs. 10 lakhs
There is 1% chance that the variance in the value of portfolio will be less than rupees 10 lakh
There is 1% chance that the weekly loss in the portfolio will exceed Rs.1 lakh
There is 99% chance that the variance in the value of portfolio would be Rs. 10 lakhs

CORRECT ANSWER:
There is 99% chance that the loss in the portfolio in one week will not exceed Rs. 10 lakhs

Explanation:
VaR is a commonly used probability based risk metric which stands for 'Value at Risk'.

It measures the maximum loss one may suffer, given a particular level of confidence. For the above instance
if VaR (1%) of a portfolio is Rs. 10 Lakhs, it indicates that there is 99% ( = 100% - 1% ) chance the loss in
the portfolio would not exceed Rs. 10 Lakhs. In other words, there is 1% probability that loss would exceed
Rs. 10 Lakhs. The loss here can be defined in either Percentage or Absolute terms.

Q 8. M/s. CORE INDUSTRIES has a debt of Rs. 3500 crores. The interest payable on this is at 8% p.a.
Calculate the Interest Coverage Ratio if the expected EBIT is Rs. 320 crores.
2.70
1.14
2.23
1.77

CORRECT ANSWER:
1.14

Explanation:
Interest Coverage Ratio = EBIT / Interest Expense

Interest expenses are 8% of 3500 cr = 280 cr

Interest Coverage Ratio = 320 cr / 280 cr = 1.14

Q 9. Identify the benefit(s) of foreign direct Investments (FDIs). A. New managerial skills B. Job creation
C. Accessibility to traditional technology
Only A
Only C
Both A and B
Both B and C

CORRECT ANSWER:
Both A and B

Explanation:
FDI is welcomed by all the developing economies and has multiple benefits in addition to bring in capital to
the country: • Job creation • New technologies • New managerial skills • New products and services.

(FDI gets new techonologies and not traditional technologies)

Q 10. In which way are the Over-The-Counter (OTC) market transactions settled?
OTC transactions are settled through Stock Exchanges
OTC transactions are settled directly between the parties
OTC transactions are settled through clearing and settlement corporations
None of the above

CORRECT ANSWER:
OTC transactions are settled directly between the parties

Explanation:
OTC markets are the markets where trades are directly negotiated between two or more counterparties.
There is no Stock Exchange or any other Exchange involved.

In this type of market, the securities, commodities etc. are traded and settled among the counterparties
directly.
For eg - An Exporter selling US Dollars to a Bank.

Q 11. Which of these is a Current Asset?

Goodwill
Inventory
Intangible assets under development
Plant and Equipment

CORRECT ANSWER:
Inventory

Explanation:
Current asset represents assets that are likely to benefit the organization within one operating cycle. Non-
current asset represents assets that are likely to give benefits over the long term.

Eg of Current Assets - Inventory, Current Financial assets like Bank balance, cash, investments etc.

Eg of Non Current Assets - Property, Plant and Equipment, Capital work in progress, Goodwill, Intangible
assets etc.

Q 12. In Structure Conduct Performance (SCP) Analysis, industry structure refers to ______ .
The market size
The growth rate of the industry
The relationship among the players in the industry
All of the above

CORRECT ANSWER:
All of the above

Explanation:
Industry structure in SCP refers to the competitive intensity in the industry (number of players),
concentration of business in industry, relationship among the various players, market size, its growth rate,
etc.

Q 13. Additional surveillance measures by stock exchanges is not required for securities on which
derivative products are available - State whether True or False ?
True
False

CORRECT ANSWER:
True

Explanation:
Additional surveillance measures is not applicable for the following securities :

- Securities that already under Graded surveillance measures

- Securities that are placed under trade for trade segment

- Securities on which derivative products are available

- Public sector units

Q 14. What is the advantage of Merger and Acquisition activity?

Diversification
Synergy
Taxation benefits
All of the above

CORRECT ANSWER:
All of the above

Explanation:
Some of the motives behind Merger and Acquisition activities are :

Synergy - Each company may have distinct efficiencies that when combined together may result in greater
economic benefits

Increased revenue and market share - If two competitors go through M&A, it would result in increased
revenue and market share for the acquiring entity

Geographical or other diversification - Acquiring Company in different geography or complimentary

business space may offer significant competitive advantage to the acquirer

Taxation - A profitable company can buy a loss making company to enjoy tax shield against the losses of the
target company

Q 15. Which of these items is included in an Income Statement ?

Cost of goods sold
Fixed Assets
Accounts receivables
Long term debt

CORRECT ANSWER:
Cost of goods sold
Explanation:
The cost of goods sold is how much it costs to produce your products.

An income statement also includes all types of expenses. In a manufacturing company, it will include the
cost of raw materials which are used to make finished goods.

So the 'Cost of goods sold ' will be a part of the Income Statement.

Accounts receivable, Long term debt and Fixed assetsare all included in the Balance Sheet of the company.

Q 16. Identify the approach to determine the bonus payable to a research analyst and is allowed as per
regulation 17 of Code of conduct for research analyst.
Bonus can be determined based on the brokerage revenue generated by dealing in stock they cover
Bonus can be determined based on the performance of the stocks they have recommended
Bonus can be determined based on the investment banking revenue for transactions recommended by the
research analyst
Bonus can be determined based on the overall revenue of the brokerage division irrespective of the
sector/stocks covered

CORRECT ANSWER:
Bonus can be determined based on the overall revenue of the brokerage division irrespective of the
sector/stocks covered

Explanation:
As per Regulation 17 - Research entity shall not pay any bonus, salary or other form of compensation to any
individual employed as research analyst that is determined or based on any specific merchant banking or
investment banking or brokerage services transaction.
This means the bonus can be payable to a research analyst irrespective of his/her recommendations and
performance.

Q 17. Which of these financial instruments do not have a default risk?

Investment Grade Corporate Bonds
Equity Shares
Foreign Currency Bonds
High Yield Corporate Bonds

CORRECT ANSWER:
Equity Shares

Explanation:
Credit Risk or default risk refers to the possibility that a particular bond issuer will not be able to make
expected interest rate payments and/or principal repayment.

Debt instruments are subject to default risk as they have pre-committed pay outs. Equity shares do not have
any default risk as the issuer is not required to repay the amount.

Q 18. As per a research analyst, the fair value of a share is significantly lower than its current price. Which
of these options will be the most appropriate way to express it in a research report?
Recommendation - Not to consider buying this share as its over valued
Recommendation - The investor should sell this share at the earliest
Underweight rating is assigned to this stock
All of the above

CORRECT ANSWER:
Underweight rating is assigned to this stock

Explanation:
Consider an example. The fair value of ABC Ltd. share according to a research analyst is Rs 100 and the
current market price is Rs 120.

In such a case, where the share is over priced, the analyst will recommend selling the share in case an
investor is holding it or not to buy these shares for a new investor. An 'Underweight' rating will be assigned.

(An ‘overweight’ rating indicates the expectation that the stock will perform better than the market, while
‘underweight’ indicates a relatively poor performance)

Q 19. As per the rules of SEBI, the chairman of the Remuneration Committee should be _______ .
An Independent director
An Executive director
The Chairman of the Board
A Non Executive director

CORRECT ANSWER:
An Independent director

Explanation:
The remuneration committee decides the remuneration of directors and senior management. Ideally, the
committee should comprise entirely of independent directors.

SEBI regulation currently stipulates that all members should be non-executive directors and the chairman of
the committee should be independent director.
Q 20. identify the possible outcomes from a 'Scheme of Arrangement'?
The creditors convert their full debt into equity
The creditors convert their part debt into equity
The existing shareholders surrender their entire equity
All of the above

CORRECT ANSWER:
All of the above

Explanation:
Some companies may fail to fulfill its obligation to its creditors or to certain class of shareholders. Under
such conditions, company and the creditors or members may enter into a scheme of arrangement to settle the
issue.

Scheme of arrangement is a court monitored settlement process between the company and its creditors or
members. It typically involves reorganization of the share capital of the company. It may involve the
existing shareholder’s relinquishing full / part of their ownership in favor of the creditors or consolidation or
division of class of shares.

Q 21. Corporate action such as _______ affect the company’s share price in various ways.
dividends
bonuses
splits
All of the above

CORRECT ANSWER:
All of the above

Explanation:
All the above corporate actions have a effect on the share prices and the ex-price (ie. price after the action is
over) is usually quiet different. For example, if a company announces a 1: 1 bonus and the share price is Rs.
200, the ex-bonus price will be closer to Rs. 100.

Q 22. An analysis of an industry will consider which of the following factors?

Consumers’ behaviour
Competition in the industry
Regulatory environment prevalent in the industry
All of the above

CORRECT ANSWER:
All of the above

Explanation:
Different industries face different challenges and opportunities. Their growth drivers could be significantly
different. Accordingly, Research Analysts need to understand thoroughly the regulatory environment
prevalent in the industry, business models, competition, operating factors, sensitivity of demand to price
changes, consumers’ behaviour etc.

Q 23. When the intrinsic value of a stock is greater than its market price, it can be reasonably concluded
that ______ .
The stock is over priced
The stock is under priced
The stock is perfectly priced
The stock is quiet volatile

CORRECT ANSWER:
The stock is under priced
Explanation:
If the intrinsic value is perceived to be more than market value, the scrip is said to be undervalued.

If intrinsic value is perceived to be less than market value, the scrip is said to be overvalued.

Q 24. Which of the following is NOT included in fundamental analysis?

Investors behaviour analysis
Company analysis
Economic analysis
Industry analysis

CORRECT ANSWER:
Investors behaviour analysis

Explanation:
Fundamental analysis includes following:

1. Economic analysis
2. Industry analysis
3. Company analysis

It does not include analysis of investors behaviour.

Q 25. Which of these factors are useful for making companies strong and successful?
Ethical management
Monopoly/ large market share
Presence of great brands
All of the above
CORRECT ANSWER:
All of the above

Explanation:
Presence of great brands, existence over long periods of time, history of clean and ethical management,
aggressive takeovers and buyouts, monopoly/ large market share, great execution capabilities, great
distribution network, great customer loyalty etc. are some of the qualitative aspects which differentiate
companies from one another and makes them strong and successful.

Q 26. A company has a Net-worth of Rs. 300000 and a debt of Rs. 200000. The market capitalization is of
Rs. 600000 and the ROCE is of 35%. Calculate the Price to Book Value Ratio?
1
2
3.5
5

CORRECT ANSWER:
2

Explanation:
Price to book value ratio = Market capitalization/ Net-worth

= 600000 / 300000 = 2

Q 27. Miss. Megha purchases MF units at NAV Rs 11. After 400 days , she redeems it at NAV Rs 12.50.
What is his compounded annual rate of return ?
9.68 percent
10.12 percent
11.87 percent
12.36 percent

CORRECT ANSWER:
12.36 percent

Explanation:
The formula to find the CAGR - Compounded Annual Growth Rate holding period return is :

[ ( End Price / Begin Price) ^ (1/n) ] -1

End Price = 12.50

Begin Price = 11

n = time. We have to find yearly return so 400 / 365 = 1.0958

So [( 12.50/11 )^ 1/1.0958] - 1

= (1.1363 ^ 0.9125) - 1

On the scientific calculator of your computer, type 1.1363 then use x^y key and then type 0.9125 = 1.1236

1.1236 - 1 = .1236x 100 = 12.36 %

Q 28. What type of risk will be created if FIIs pull out their money from an economy?
Unsystematic risk
Systematic risk
Credit risk
Interest rate risk
CORRECT ANSWER:
Systematic risk

Explanation:
Systematic risk refers to those risks whose impact is felt across investment categories. These risks are
undiversifiable risks, because they cannot be eliminated through diversification.

When Foreign Financial Institutions (FIIs) pull out their money from a economy/market, the entire spectrum
of investments tend to fall. This is a Systematic risk which cannot be diversified.

Systematic risk is caused due to factors that may affect the economy/markets as a whole, such as changes in
government policy, external factors, wars or natural calamities. Inflation risk, exchange rate risk, interest
rate risk and reinvestment risk are systematic risks.

Q 29. Which of the following measures the ability of the company to satisfy its short term obligations as
and when they come due?
Current Ratio
High ROE (Return on Equity)
Inventory Turnover Ratio
High ROCE (Return On Capital Employed)

CORRECT ANSWER:
Current Ratio

Explanation:
Current Ratio: This ratio measures the company’s liquidity situation by comparing its current assets with its
current liabilities. A ratio of more than 1 means that the company has current assets more than its current
liabilities.

This ratio measures the ability of the company to meet its short-term liabilities.
Q 30. Which of the following statements is wrong with respect to Debentures?
Debentures cannot be secured
Debentures are used to raise long term debts
Debentures can be partly convertible
Debentures can be redeemable

CORRECT ANSWER:
Debentures cannot be secured

Explanation:
Debentures are instruments for raising long term debt. Debentures are either unsecured or secured (backed
by collateral support) in nature.

There are variety of debentures/bonds such as fully convertible, non-convertible and partly convertible
debentures.3

Non-Convertible Debentures are pure debt instruments without a feature of conversion. They are
repayable/redeemable on maturity.

Q 31. Which method measures national income as the aggregate income of individuals in the economy ?
Income Method
Product Method
Expenditure Method
None of the above

CORRECT ANSWER:
Income Method

Explanation:
National income of an economy can be measured through three methods: (i) Product Method (ii) Income
Method, and (iii) Expenditure Method.

In the Income method, national income is measured as the aggregate income of individuals in the economy.

Q 32. Which of these items can be found in an income statement?

Accounts Receivables
Fixed Assets
Cost of goods sold
Long term debt

CORRECT ANSWER:
Cost of goods sold

Explanation:
The cost of goods sold is how much it costs to produce your products.

An income statement also includes all types of expenses. In a manufacturing company, it will include the
cost of raw materials which are used to make finished goods.

So the 'Cost of goods sold ' will be a part of the Income Statement.

Accounts receivable, Long term debt and Fixed assets are all included in the Balance Sheet of the company.
Q 33. Which condition is most likely to help a government in following expansionary fiscal policy?
Stagflation
Low Fiscal Deficit
High Fiscal Deficit
Hyper Inflation

CORRECT ANSWER:
Low Fiscal Deficit

Explanation:
When an economy is in a recession, the Government resorts to Expansionary fiscal policy by pumping in
more money in the economy to boost demand.

A low fiscal deficit means the Government has plenty of money to pump in the economy without restoring
to huge borrowings etc.

Q 34. The Price to earnings ratio of a company is 7. The EPS is Rs. 5 and the market capitalisation is Rs
7,00,000. The book value per share is Rs 24. What is the networth of the company?
Rs. 4,80,000
Rs. 5,25,000
Rs. 7,85,600
Rs. 6,15,000

CORRECT ANSWER:
Rs. 4,80,000

Explanation:
Price to Earnings Ratio = Market Price of the share / EPS

7 = Market Price of the share / 5

Market Price of the share = 7 x 5 = Rs. 35

Number of shares = Market Capitalisation / Market Price of share

Number of shares = 700000 / 35 = 20,000

Networth = Book Value x Number of shares

= 24 x 20,000 = Rs. 4,80,000

Q 35. As per SEBI (Research Analyst) Regulations -Regulation 8, corporate entities desiring to get
registered with SEBI as Research Analysts shall have a minimum net worth of _____ .
Rs. 10 Lakhs
Rs. 25 Lakhs
Rs. 50 Lakhs
Rs. 1 crore

CORRECT ANSWER:
Rs. 25 Lakhs
Explanation:
Regulation 8: Capital adequacy

(1) A research analyst who is individual or partnership firm shall have net tangible assets of value not less
than one lakh rupees.

(2) A research analyst who is body corporate or limited liability partnership firm shall have a networth of not
less than twenty five lakh rupees.

Q 36. What is the portion of earnings paid to the shareholders by companies called?
Special Incentive
Stock Dividend
Cash Dividend
Bonus Issue

CORRECT ANSWER:
Cash Dividend

Explanation:
Dividends can be both cash and stock dividend. When a company announces a dividend, cash dividends are
given to shareholders in cash (ie. bank transfer).

Stock dividend or Bonus shares are additional shares are given to the shareholders in proportion of their
holdings by capitalization of revenue reserves.

Q 37. To know the amount of funds that a company has borrowed during the preceding financial year,
which of these sections will provide the best source within the statement of cash flows?
Operating cash flows
Total net cash flows
Financing cash flows
Investment cash flows

CORRECT ANSWER:
Financing cash flows

Explanation:
There are cash inflows and cash outflows in every business as money comes in and money goes out. For
simplicity and understanding purpose, cash flows are broadly divided into following three categories:

: Operating cash flows – Cash flows from business operations (P/L items). Incoming cash is positive and
outgoing cash is negative. The net profit of a company can be converted into the operating cash flow number
by adding back non-cash expenditures such as depreciation and amortization and changes in account
receivables and payables.

: Investing cash flows - Cash flows on account of assets (B/S items). Buying assets is negative cash flow and
selling assets is positive cash flow.

: Financing cash flows – Cash flows on account of liabilities (B/S items). Borrowing money or
issuing/expanding equity is positive cash flow and redeeming debt and/or equity is negative cash flow

Q 38. Which of these factors can hamper the work of a research analyst?
Contradiction in data from multiple sources
Heap of unnecessary information
Inaccessibility of information
All of the above

CORRECT ANSWER:
All of the above

Explanation:
Sometimes a research analyst receives a lot of data which is irrelevant or contradicting. Going through this
for getting the right information is a time consuming task and many a times unproductive.

On the other hand, sometimes, there can be a lack of available data which will delay the research work.

Q 39. The bargaining power of the SUPPLIERS will be high when ______ .
Number of suppliers are limited and buyers are many
Switching cost for the customers is high
Suppliers supply some critical inputs to buyers
All of the above

CORRECT ANSWER:
All of the above

Explanation:
Under the Michael Porter’s Five Force Model for Industry Analysis :

Suppliers’ bargaining power can be understood from following simple industry characteristics. It would be
high if:

1. The number of suppliers are limited and buyers are many 2. Suppliers supply some critical inputs to
buyers 3. Competitive intensity in the industry is low with differentiation in products and services. 4.
Products/services do not have threat of substitutes 5. Switching cost for the customers is high
Q 40. Which of these is used as the discount rate while calculating the Free Cash Flow to Equity?
Cost of Equity
Cost of Debt
Risk Free Rate
Weighted average cost of capital

CORRECT ANSWER:
Cost of Equity

Explanation:
To calculate the value of equity, Free Cash Flow to Equity (FCFE) is discounted using the cost of equity.

To calculate the value of the firm, the FCFF is discounted by the weighted average cost of capital (WACC)
that considers both debt and equity.

Q 41. Which of the following intermediaries is supposed to frame a code of internal conduct ?
Asset Management Companies (AMCs)
Trustees of Mutual Funds
Self Regulatory Organisations (SROs)
All of the above
CORRECT ANSWER:
All of the above

Explanation:
Under the SEBI (Prohibition of Insider Trading) Regulations, all the above entities have to have strict
internal code of conduct as they deal with price sensitive information.

Q 42. SEBI has given guidelines for Research Analyst with the main intention of _________ .
Research Analyst to follow all compliance rules
Investors never lose money in the market
building confidence among the investors
Both for building confidence and investors never losing their money

CORRECT ANSWER:
building confidence among the investors

Explanation:
The prime objective of these regulations is to protect investors and enhance confidence in the market.
However investors not losing money can never be guaranteed due to movements of the markets.

Q 43. What does the Consumer Price Index (CPI) indicate?

CPI is a basket of products based on general consumption in the economy and compute its prices based on
retail prices
CPI is a basket of products based on general consumption in the economy and compute its prices based on
wholesale prices
CPI is a basket of products based on general consumption in the economy and compute its prices based on
both wholesale and retail prices
None of the above

CORRECT ANSWER:
CPI is a basket of products based on general consumption in the economy and compute its prices based on
retail prices

Explanation:
Generally, inflation is measured in two ways - at wholesale level in terms of Wholesale Price Index (WPI)
and retail level in terms of Consumer Price Index (CPI).

Typically, economists define a basket of products based on general consumption in the economy and
compute its prices based on wholesale prices defining WPI and retail prices defining CPI.

Q 44. Identify the statement which is correct about investors?

The focus on investor is on the potential of increase in the assets value over a long term period
The focus on investor is to use the arbitrage opportunities in the markets and profit from them
Trading and Investing are basically the same
All of the above

CORRECT ANSWER:
The focus on investor is on the potential of increase in the assets value over a long term period

Explanation:
Investors focus on assets with high growth potential. The goal is to profit from capital appreciation as the
asset's value increases over time.
Q 45. The order in which a company will pay off its obligations on liquidation is _______ .
Debenture holders - Preference shareholders - Common shareholders
Debenture holders - Common shareholders - Preference shareholders
Preference shareholders - Debenture holders - Common shareholders
Preference shareholders - Common shareholders - Debenture holders

CORRECT ANSWER:
Debenture holders - Preference shareholders - Common shareholders

Explanation:
Debentures have a charge on the assets of a company. They are secured creditors of the company. So they
will be paid first.

The Preference share holders get priority over common share holders. So they will be paid next.

Q 46. ABC Ltd. had a revenue of Rs. 580 lakhs and expenses (excluding tax) were of Rs. 320 lakhs. These
included finance cost of Rs. 18 lakhs and depreciation of Rs. 63 lakhs. Calculate the EBITDA of ABC Ltd.
Rs. 383 Lakhs
Rs. 341 Lakhs
Rs. 290 Lakhs
Rs. 225 Lakhs

CORRECT ANSWER:
Rs. 341 Lakhs
Explanation:
'EBITDA' means Earnings before Interest Tax Depreciation and Amortization

Earnings = Rs 580 Lakhs

Less Expenses of Rs. 320 Lakhs

= 260 Lakhs

To get EBITDA, we will have to add the Depreciation cost and Finance cost (Interest)

260 Lakhs + 63 Lakhs + 18 Lakhs

= Rs. 341 Lakhs

Q 47. Which cycle should a research analyst study to forecast the near term demand and prices for the
input - output of a business?
Commodity Cycle
Inventory Cycle
Economic Cycle
None of the above

CORRECT ANSWER:
Inventory Cycle

Explanation:
Inventory cycles are short term cycles that occur within a commodity cycle. These occur on account of
inventory adjustments by producers and customers.

Customers who may have huge inventory may temporarily reduce procurement. This would result in high
inventory pile up at the suppliers’ end resulting in fall in prices. Similarly, during a downturn, cautious
customers may significantly reduce their procurement. However, if demand for their products improves
marginally, they may not have adequate inventory and will have to go for immediate procurement. This can
result in prices increasing

Understanding the inventory cycle helps an analyst forecast near term demand and prices for the input and /
or output of a business.

Q 48. ___________ can have a negative impact on the banking industry.

An economic boom
Increase in interest rates
Increase in the sale of house properties
All of the above

CORRECT ANSWER:
Increase in interest rates

Explanation:
Rising rates are a risk for banks, even though many benefit by collecting higher interest rates from
borrowers while keeping deposit rates low. Loan losses may also increase as both consumers and businesses
now face higher borrowing costs—especially if they lose jobs or business revenues

Q 49. The Earnings Per Share (EPS) of M/s. PQR Ltd. is Rs. 7 and book value per share is Rs 35. The paid
up capital is Rs. 14,00,000. Calculate the Return on Equity of M/s. PQR Ltd.
20%
100%
10%
Insufficient Data

CORRECT ANSWER:
20%

Explanation:
Return on Equity = (Earning Per Share / Book Value) x 100

= 7 / 35 x 100

= 0.2 x 100

= 20 %

Q 50. All other things remaining same, if a stock has a high PE ratio as compared to its peer group
companies, it is considered as _______ .
Cheap
Expensive
Highly volatile
Low Beta

CORRECT ANSWER:
Expensive
Explanation:
Price to Earnings Ratio or the PE Ratio measures the price that the market is willing to pay for the earnings
of a company.

It is computed as: Market price per share/Earnings per share

If the PE ratio of a stock is higher as compared to its peer group companies, it is considered to be
expensively priced.

Q 51. What is/are the important quality(ies) one must look out for in a good money manager ?
philosophy of life
performance track record
qualification
Both 2 and 3

CORRECT ANSWER:
Both 2 and 3

Explanation:
Then qualities one must look for in a money manager are qualification, experience, performance track
record, systems and support facilities, integrity, philosophy of investing and other relevant factors.

Q 52. Investors prefer businesses with low entry barriers - State True or False ?
True
False
CORRECT ANSWER:
False

Explanation:
Investors looks for businesses with HIGH entry barriers because such businesses will have good pricing
power and can sell the products at a premium without fear of losing customers.

Q 53. In a Rights Issue, the shares are offered at _________ market price.
a premium
a discount
same price
None of the above

CORRECT ANSWER:
a discount

Explanation:
Shares under rights issues are generally offered at a discount to the prevailing market prices.

(If price under a rights issue is higher than market price of stock, investors would
be better off buying shares from the market without subscribing to the issue)

Q 54. When one invests in Equity Shares, which of the below options is certain ?
Quantum of cash flow is known
Timing of cash flow is known
Amount of Capital Appreciation is known
None of the above

CORRECT ANSWER:
None of the above

Explanation:
When one invests in Equity Shares, whether he will make a profit or loss is uncertain. So one can never
predict the quantum or timings of cash flows.

Q 55. Inflation will lead to _________ in price levels in the economy.

Decrease
Increase
no change
None of the above

CORRECT ANSWER:
Increase

Explanation:
Inflation is defined as the general increase in price levels of goods and services in the economy leading to an
erosion of purchasing power of money.

Q 56. ________ gives summary of assets and liabilities at a point in time.

Profit and loss statement
Balance sheet
Cash flow statement
None of the above

CORRECT ANSWER:
Balance sheet

Q 57. The P/E ratio of a company is 20 and the price of its stock is Rs 340 per share. The company has
declared a dividend of Rs 20. Calculate the EPS of this company.
Rs 20
Rs 17
Rs 16
Cannot be calculated as insufficient data

CORRECT ANSWER:
Rs 17

Explanation:
P/E ratio = Market Price of Stock / EPS

Therefore EPS = Market Price of Stock / PE ratio

= 340 / 20

= 17

(Dividend need not be considered, the current market price is relevant)

Q 58. Which of the following options is NOT true with respect to Equity Capital ?
Equity shareholders get voting rights
The company has no obligation to pay any dividend
The Equity share holders have the first right of claim on the company's assets in case of liquidation
Equity is perpetual

CORRECT ANSWER:
The Equity share holders have the first right of claim on the company's assets in case of liquidation

Explanation:
The Equity share holders have one of the LAST claim on the company's assets in case of liquidation.

Q 59. Expenditure is funded by the Government through _______ .

Taxation
Sale of assets
Borrowings
All of the above

CORRECT ANSWER:
All of the above

Explanation:
Expenditure is funded by the Government through multiple ways viz, : Taxation, interest, dividend income,
Borrowing and Sale of assets etc.
Q 60. ______ has an obligation to sell an asset at a predetermined price.
Call Buyer
Put Buyer
Call Writer
Put Writer

CORRECT ANSWER:
Call Writer

Explanation:
In Options, the buyers have the RIGHT but NO OBLIGATIONS.

The writers (sellers) have the Obligations.

The Call writer has the obligation to sell / give delivery of the asset to the Call Buyer at a predetermined
price.

The Put writer has the obligation to buy / take delivery of the asset from the Put Buyer at a predetermined
price.

Q 61. The Price to Book Value Ratio of a company is 12 and the Book Value is 7. The Market
Capitalisation is Rs 2100000 . Find the number of shares outstanding.
12500
25000
32600
39500

CORRECT ANSWER:
25000
Explanation:
Price to book value ratio (P/BV) = Market price per share/ Book value per share (BV)

So Market Price = P/BV x BV

= 12 x 7 = 84

Market Cap = No. of Shares outsatnding x Market Price of a share

No. of shares Outstanding = Market Cap / Market Price

= 2100000 / 84 = 25000

Q 62. The Market Capitalisation of a company is calculated as _________ .

Book Value of the Share X The No. of shares outstanding
Market Price of the Share X The No. of shares outstanding
EPS of the Share X The No. of shares outstanding
Face Value of the Share X The No. of shares outstanding

CORRECT ANSWER:
Market Price of the Share X The No. of shares outstanding

Explanation:
Market Capitalisation is arrived at by multiplying the market price with the number of outstanding equity
shares.

Q 63. Expansionary monetary policy is used to push the economy up by ________ .

reduction in the money supply
increasing the money supply
reduction in the interest rates
Both 2 and 3

CORRECT ANSWER:
Both 2 and 3

Explanation:
Expansionary monetary policy is used to push the economy up by increasing the money supply steeply and
reduction in the interest rates.

Contractionary policy is intended to cool down the heated up economy through reduction in the money
supply and increase in the interest rates.

Q 64. Which of the following options is not a valuation parameter of a company listed on a stock
exchange ?
The demand and supply of its securities in the stock exchange
The P/BV Ratio
The P/E Ratio
The Intrinsic Value

CORRECT ANSWER:
The demand and supply of its securities in the stock exchange

Q 65. _________ is always issued at a discount.

Amortization Bonds
Puttable bond
Callable bond
Zero-Coupon Bond

CORRECT ANSWER:
Zero-Coupon Bond

Explanation:
Zero coupon bonds are issued at a discount to their face values and are redeemed at par.

Therefore, the return on these bonds is not in the form of interest but in the form of difference between the
issue price and redemption value.

Q 66. A stock which has a low ______ may be judged as a undervalued or cheap stock.
EPS
Current Ratio
Beta
PE Ratio

CORRECT ANSWER:
PE Ratio

Explanation:
Price to Earnings Ratio ( PE Ratio ) measures the price that the market is willing to pay for the earnings of a
company.

The PE multiple moves high when prices run ahead of the earnings numbers and the market is willing to pay
more and more per rupee of earnings.
When markets correct and uncertainty about future earnings increases, the PE multiple also drops. A value
investor, who would like to pick up stocks when they are cheap, may be interested to purchase when PE is
low.

Q 67. The bond prices and Interest rates usually move in _______ .
Opposite Direction
Same Direction
No link in interest rate movements and bond prices
Some times same and some times opposite direction

CORRECT ANSWER:
Opposite Direction

Explanation:
When interest rates rise, bond holders experience a fall in the price of bonds they hold as these bonds are
paying a lower interest as compared to new bonds.

Similarly, when rates fall, the old bonds with high coupon rates would become attractive and their prices
would rise.

Q 68. While preparing a research report, which is the key element for an analyst ?
The quality of data organisation
Way the analyst interprets the data
The clarity of communication
All of the above
CORRECT ANSWER:
All of the above

Q 69. The formula for calculating the Book Value per share of a company is ______ .
Net Worth of the Co / Number of Outstanding Shares
Net Profit / Equity
Equity plus Reserves
Equity less Debts

CORRECT ANSWER:
Net Worth of the Co / Number of Outstanding Shares

Explanation:
Book value per share means the theoretical amount of money each share would get in case the company was
to wind up.

To compute book value per share, net-worth of the company is divided by the number of outstanding shares.

Q 70. What is the earnings yield, if the price of a stock is Rs. 540 and EPS is Rs. 32 ?
5.92%
0.0592%
16.87%
0.1687%

CORRECT ANSWER:
5.92%

Explanation:
Earning Yield is the reverse of P/E Ratio.

Earning Yield = Earnings Per Share (EPS)/Current price of stock

= 32 / 540

= 0.0592 = 5.92 %

Q 71. An industry which does not face the threat of new competitors coming in would be an attractive
industry for investors/owners - State True or False ?
True
False

CORRECT ANSWER:
True

Explanation:
Less competition means freedom in pricing etc. leading to more profits. Such industry is an attractive
proposition for investors.

Q 72. The Government announces huge investments in infrastructure sector. Based on this news and further
analysis, a research analyst advocates investments in Infrastructure Companies - Which type of approach is
this ?
Top Down Approach
Bottom-up Approach
Independent Research
Technical Approach

CORRECT ANSWER:
Top Down Approach

Explanation:
Top Down approach starts with economic analysis, moves to industry analysis and then finally to selection
of companies in an Industry.

Q 73. Initial margin charged by the Clearing Corporation is a percentage of transaction value arrived at
based on concept of “Value At Risk” philosophy -State True or False ?
True
False

CORRECT ANSWER:
True

Q 74. The regulators in the Indian Financial Market ensure that _______ .
the market participants behave in a responsible manner
securities market becomes a major source of finance for corporate and government
the interest of investors is protected
All of the above

CORRECT ANSWER:
All of the above

Explanation:
The regulators in the Indian Financial Market ensure that the market participants behave in a responsible
manner so that securities market continues to be a major source of finance for corporate and government and
the interest of investors is protected.

Q 75. Which of the following is not included in ‘Unfair Trade Practice’ ?

Misleading Advertisement
Publicly known information
Manipulation
Publishing Falsehood

CORRECT ANSWER:
Publicly known information

Explanation:
Some of the instances of unfair trade practices cited in the SEBI (Prohibition of Fraudulent and Unfair Trade
Practices relating to Securities Markets) Regulation, 2003 are as follows:

a) A wilful misrepresentation of the truth or concealment of material fact in order that another person may
act, to his detriment b) A suggestion as to a fact which is not true, by one who does not believe it to be true
c) An active concealment of a fact by a person having knowledge or belief of the fact d) A promise made
without any intention of performing it e) A representation, whether true or false, made in a reckless and
careless manner.

Publicly know information is not a unfair trade practice.

Q 76. The risk of a company unable to honour its debt obligation is known as _____ .
Liquidity Risk
Call Risk
Business Risk
Credit Risk

CORRECT ANSWER:
Credit Risk

Explanation:
The risk of loss of principal or loss of a financial reward stemming from a borrower's failure to repay a loan
or otherwise meet a contractual obligation is known as Credit Risk.

Q 77. In Structure Conduct Performance (SCP) Analysis, while analysing CONDUCT of an industry,
analysts will look at several numerical ratios like ROE and ROCE - State True or False ?
True
False

CORRECT ANSWER:
False

Explanation:
In SCP analysis, While analyzing PERFORMANCE of an industry, analysts will look at several numerical
ratios.
Q 78. Corporate Governance basically takes into account the efficiency aspect of the management - State
True or False ?
True
False

CORRECT ANSWER:
False

Explanation:
Corporate Governance basically takes into account the integrity and transparency aspect of the management.

Q 79. Securities prices go away from their fair values either upside or downside because of the fear and
greed of the market participants - State True or False ?
True
False

CORRECT ANSWER:
True

Q 80. Fair valuation of an asset can be arrived using _______ .

professional judgment
knowledge
experience
All of the above

CORRECT ANSWER:
All of the above
Q 81. The Net Profit of a company is Rs 50000 and the Market Capitalisation is Rs 600000. Calculate the
Earnings Yield.
12%
10.55%
8.33%
13.87%

CORRECT ANSWER:
8.33%

Explanation:
IMP - Earning Yield is the reverse of P/E Ratio.

There are two ways to calculate the P/E ratio :

1) PE = Market Price of the share / EPS

2) PE = Market Capitalisation / Net Profit

Here we use the second method.

So Earning Yield = Net Profit / Market Cap x 100

= 50000 / 600000 x 100

= 0.083 x 100 = 8.33%

Q 82. When shares are compulsory delisted on a stock exchange, such delisting is basically due to
__________ .
non-compliance to regulations of the stock exchange
regulatory reporting complexities
mergers and acquisitions
have freedom to execute a changed strategy

CORRECT ANSWER:
non-compliance to regulations of the stock exchange

Explanation:
Delisting of shares means the permanent removal of the shares of a company from being listed on a stock
exchange. Delisting may be compulsory or voluntary.

In a compulsory delisting, the shares are delisted on account of non-compliance to regulations and the
clauses of the listing agreement by the company.

Q 83. __________ is also concerned with the financial policy relating to the utilization of proceeds of
disinvestment.
Department of Financial Services
Department of Expenditure
Department of Disinvestments
Department of Revenue
CORRECT ANSWER:
Department of Disinvestments

Explanation:
The Department of Disinvestments is responsible for systematic policy approach to disinvestment and
privatization of Public Sector undertakings. The department is also concerned with the financial policy
relating to the utilization of proceeds of disinvestment.

Q 84. M/s ABC Ltd has a P/E Ratio of 12 with a growth potential of 10% and M/s XYZ Ltd has a P/E
Ratio of 28 with a growth potential of 35% for the next few years. Based on Growth Adjusted Price to
Earnings Ratio (PEG Ratio), which one is cheaper ?
XYZ Ltd
ABC Ltd
PEG Ratio cannot determine the valuation
Insufficient data

CORRECT ANSWER:
XYZ Ltd

Explanation:
PEG Ratio = P/E Ratio / Growth Rate

PEG for ABC Ltd = 12 / 10 = 1.2

PEG for XYZ Ltd = 28 / 35 = 0.8

The company with lower PEG ratio is cheaper ie. XYZ Ltd
Q 85. In Boston Consulting Group (BCG) Analysis, the segment in which the business is growing at a fast
pace and the company has a large market share is known as ______.
Stars
Cash Cows
Question Marks
Dogs

CORRECT ANSWER:
Stars

Explanation:
As per the BCG matrix, business segments can be classified as:

Stars: These are segments in a business where market is growing rapidly and company is having a large
market share.

Cash Cows: These are segments which require low cash infusion for investment to maintain market shares
because of low growth prospects but at the same time steadily generate cash for the company from the
established market share.

Question Marks: Business segments in a fast growing market, but having low market share.

Dogs: Business segments, which have slow growth rates and intense competition.

Q 86. The mispricing which is favourable to investors is _______ .

Under pricing
Over pricing
both 1 and 2
None of the above
CORRECT ANSWER:
Under pricing

Explanation:
Markets usually give a fair pricing to the securities. Fundamental analysts maintain that market may
misprice securities in the short run but in the long run, prices would merge with the securities’ fair value or
intrinsic value.

So when a security is under priced, an investor can buy it and sell it when its fairly priced.

Q 87. In the SCP Analysis, 'Performance' includes which of the following ?

Return on Capital Employed
Return on Equity
dependence of the business on government policies
Both 1 and 2

CORRECT ANSWER:
Both 1 and 2

Explanation:
Businesses with High return on capital/equity are the ones which create wealth for shareholders/owners in
the long run. While analyzing performance of an industry, analysts will look at these financial and other
ratios.

Q 88. National income of an economy can be measured through which of the following methods?
Income Method
Product Method
Expenditure Method
All of the above

CORRECT ANSWER:
All of the above

Explanation:
National income of an economy is defined through a variety of measures such as gross domestic product
(GDP) and gross national product (GNP).

Computation of these numbers is a humongous task in terms of data-collection and its processing.

Broadly stating, national income of an economy can be measured through three methods: (i) Product Method
(ii) Income Method, and (iii) Expenditure Method.

Q 89. A company increases the prices of its products yet the demand does not fall. This could be due to
________ .
pricing power of the business
brand loyalty of the customers
addiction of the consumers on the company's products
All of the above

CORRECT ANSWER:
All of the above
Q 90. A study of which of the following factor(s) is done in Macroeconomics ?
overall price levels
investment rate
gross domestic product (GDP)
All of the above

CORRECT ANSWER:
All of the above

Explanation:
The focus of macroeconomics is on factors that influence aggregate supply and demand in an economy such
as unemployment rates, gross domestic product (GDP), overall price levels, inflation, savings rate,
investment rate etc.

Q 91. The Non Performing Assets (NPAs) are typically low when ________ .
Interest rates are low
Interest rates are high
Inflation is high
None of the above

CORRECT ANSWER:
Interest rates are low

Explanation:
NPAs are typically low when interest rates are low as defaults become less due to affordability of Equated
Monthly Installments (EMIs).

Q 92. __________ bonds can be changed into Equity.

Deep Discount bonds
Callable bonds
Puttable bonds
Convertible bonds

CORRECT ANSWER:
Convertible bonds

Explanation:
A convertible bond or debenture is generally issued as a debt instrument with the option to investors to
convert the amount invested into equity of the issuer company later.

Q 93. SEBI can take which of the following action against an intermediary?
Issue a warning or censure
Suspend the registration of the intermediary
Cancel the registration of the intermediary
All of the above

CORRECT ANSWER:
All of the above
Q 94. Some investors look for information to prove that they are right - Which behavioural bias is this ?
Ownership bias
Herd mentality
Confirmation bias
Anchoring

CORRECT ANSWER:
Confirmation bias

Explanation:
Confirmation bias, which is also called 'my side bias', is the tendency to search for or

interpret information in a way that confirms one's beliefs.

For example, when a trader buys a stock for a reason and that reason doesn’t work out so the trader makes
up another one for owning the position.

Q 95. The Current Ratio of a company is 2 and the Quick Ratio is 1.5. Calculate the Current Assets if the
inventory is of Rs 8000.
Rs 16000
Rs 32000
Rs 12000
Rs 8000

CORRECT ANSWER:
Rs 32000
Explanation:
Current ratio = Current Assets / Current Liabilities

2 = Current Assets / Current Liabilities

So Current Assets = 2 Current Liabilities

Quick Ratio = (Current Assets – Inventories)/ Current liabilities

1.5 = (Current Assets – 8000)/ Current liabilities

[Replacing Current Assets with Current Liabilities]

1.5 = 2 Current Liabilities - 8000 / Current Liabilities

1.5 Current Liabilities = 2 Current Liabilities - 8000

1.5 Current Liabilities - 2 Current Liabilities = - 8000

0.5 Current Liabilities = 8000

So Current Liabilities = 8000 / 0.5 = 16000

As Current Assets = 2 Current Liabilities

We get Current Assets = 2 x 16000 = 32000

Q 96. The formula for calculating Price to book value ratio is ________ .
Market price per share/ Book value per share
Market capitalization/ Book value of equity or net-worth
Both 1 and 2
None of the above

CORRECT ANSWER:
Both 1 and 2

Explanation:
Price to book value ratio can be calculated by both these formulas.

Q 97. Market Capitalisation is calculated by __________.

Adding the Market Price of the share to the Number of Outstanding Shares
Subtracting the Market Price of the share from the Number of Outstanding Shares
Dividing the Market Price of the share with the Number of Outstanding Shares
Multiplying the Market Price of the share with the Number of Outstanding Shares

CORRECT ANSWER:
Multiplying the Market Price of the share with the Number of Outstanding Shares

Explanation:
Market Capitalisation or Market Cap is the total money market value of the shares outstanding of a publicly
traded company.

Its equal to the share price multiplied by the number of shares outstanding.

Q 98. When does the per share data (earning per share, book value per share, market price per share etc.)
witnesses immediate deterioration.
In case of a Bonus Issue
In case of a Stock Split
In case of Stock Consolidation
Both 1 and 2

CORRECT ANSWER:
Both 1 and 2

Explanation:
In case of Bonus Shares, per share data (earning per share, book value per share, market price per share etc.)
will witnesses immediate deterioration as total number of shares go up without any economic change in the
profit and loss statement or balance sheet.

Same is the case with Stock Split.

In Stock Consolidation. as total no. of shares go down without any economic change in the Profit and Loss
account or Balance Sheet, per share data (earning per share, book value per share, market price per share
etc.) witnesses immediate improvement.

Q 99. The distribution channel of a multi national company is not happy selling the products. Can this
product be sold effectively ?
Yes
No
CORRECT ANSWER:
No

Explanation:
A company may have a good product, good marketing etc. but to make the product reach the consumers, it
needs a good distribution network. If the distributors , retailers etc. are not happy (due to any reason) , this
product may not reach the consumers.

Q 100. The Current Ratio of a company is 2.5 and the Quick Ratio is 1.5. The total current assets are Rs
1,00,000. Calculate the Inventory of this company ?
Rs 25000
Rs 40000
Rs 150000
Rs 250000

CORRECT ANSWER:
Rs 40000

Explanation:
We will use the following formulas to solve this problem :

1) Current Ratio = Current Assets/ Current Liabilities

2) Quick Ratio = (Current Assets – Inventories)/ current liabilities

==============

Current Ratio = Current Assets/ Current Liabilities

So 2.5 = 100000 / Current Liabilities

So Current Liabilities = 100000 / 2.5 = 40000

Quick Ratio = (Current Assets – Inventories)/ Current liabilities

1.5 = ( 100000 - Inventories ) / 40000

( 100000 - Inventories ) = 40000 X 1.5

( 100000 - Inventories ) = 60000

Inventories = 100000 - 60000 = 40000.

Q 1. _______ bonds give the right to issuers to call the bonds back.
Callable
Puttable
Convertible
Zero-coupon
CORRECT ANSWER
Explanation:
'Callable bonds' allow the issuer to redeem the bonds prior to their original maturity date.

This feature poses a risk for investors but is beneficial for the issuers.

For eg - An issuer issues a callable bond at 9% coupon rate. After 2 years the interest rates fall down in the
economy to 7%. The issuer will call back these bonds (9%) and issue new bonds (7%) at lower interest rates
if required.

Q 2. What is the Depository Receipt known as which is issued in India and listed on an Indian Stock
Exchange with foreign stocks as underlying shares ?
Indian Depository Receipts (IDR)
Global Depository Receipts (GDR)
Hybrid Depository Receipts (HDR)
American Depository Receipts (ADR)

CORRECT ANSWER:
Indian Depository Receipts (IDR)

Explanation:
An IDR is in Indian rupees and is created by a domestic depository (custodian of securities registered with
SEBI). It is issued against the underlying equity of the company to enable foreign companies to raise funds
from the Indian securities Markets. As foreign companies are not allowed to list on Indian equity markets,
IDR is a way to own shares of those companies.

Depositary receipts of Standard Chartered Bank are traded in the Indian stock market in the form of IDR.

Q 3. What will be the result of Central banks following expansionary monetary policies? A. More credit
flow to borrowers B. Increase in money supply C. Decrease in interest rates
Only A
Only B
Both A and B
All A, B and C

CORRECT ANSWER:
All A, B and C

Explanation:
Expansionary fiscal policy is usually undertaken during recessions/slow moving economy.

Expansionary monetary policy is used to push the economy up by increasing the money supply steeply and
reduction in the interest rates. With an increase in money supply, borrowers get more money for business or
spending.

Q 4. __________ is NOT an objective of a research report.

To provide market perspective
To provide brief company analysis
To provide investment opportunities
All of the above

CORRECT ANSWER:
To provide brief company analysis

Explanation:
A research report should provide a detailed company analysis and not a brief analysis.

It should include details of company’s business model, competitive advantage of the company, opportunities
and threats, company management competency, vision etc. etc.

Q 5. The EV/EBITDA ratio of a company is 4. The company has reported an EBITDA of Rs. 180 crores.
What is the value of equity if the net debt of the company is Rs. 310 crores.
Rs. 310 crores
Rs. 410 crores
Rs. 180 crores
Rs. 490 crores

CORRECT ANSWER:
Rs. 410 crores

Explanation:
It is given that EV/EBITDA = 4

EBITDA is given as Rs. 180 crores

Therefore EV / 180 crores = 4

EV (Enterprise Value) = 180 x 4 = 720 crores

Enterprise Value = Value of Equity + Value of Debt

720 crores = Value of Equity + 310 crores

Value of Equity = 720 - 310 = Rs. 410 crores

Q 6. As per the SEBI (Research analyst) Regulations 2014, who is not qualified to be registered as a
research analyst ?
Graduate
Post-Graduate
Chartered Accountant
Company Secretary

CORRECT ANSWER:
Company Secretary

Explanation:
As per rules, a professional qualification or post-graduate degree or post graduate diploma in finance,
accountancy, business management, commerce, economics, capital market, financial services or markets is
required to become a Research Analyst.

Company Secretary is not a professional qualification in the fields mentioned above.

A graduate in any discipline with an experience of at least five years in activities relating to financial
products or markets or securities or fund or asset or portfolio management is also considered as valid
qualification.

Q 7. Which instruments are issued by SEBI registered foreign institutional investors to overseas investors
who want to invest in Indian stock markets but without registering with SEBI?
Treasury Bills
Commercial Papers
P-Notes
None of the above

CORRECT ANSWER:
P-Notes

Explanation:
Participatory Notes (P-Notes or PNs) are instruments issued by SEBI registered foreign portfolio investors
to overseas investors, who wish to invest in the Indian stock markets without registering themselves with the
market regulator SEBI. P-Notes provide access of Indian securities to these investors.
Q 8. Efficient Market Hypothesis proclaims that _________ .
Share prices incorporate and reflect all relevant information
Share prices follow trends and patterns
An smart and efficient investor will always get an opportunity to exploit discrepancy in the price of shares
Future prices of shares can be determined by past past trends in market prices

CORRECT ANSWER:
Share prices incorporate and reflect all relevant information

Explanation:
The Efficient market hypothesis (EMH) states that share prices reflect all information. The EMH
hypothesizes that stocks always trade at their fair market value on exchanges.

Opponents of EMH believe that it is possible to beat the market and that stocks can deviate from their fair
market values.

Q 9. Under the discounted cash flow based valuation, what will be the impact on value of shares if risk
free rate goes up ?
The fair value of shares would go down
The fair value of shares would go up
Risk free rate would have no impact on share prices

CORRECT ANSWER:
The fair value of shares would go down
Explanation:
In valuing a business, the cash flows (outflows and inflows) at various stages over its expected life is
considered. A rational way to find the value of a business may be to first find the inflows over outflows
(called Free Cash Flows – FCFs) at different points in time and then bringing them to today (find present
Value – PV) at an appropriate rate of return (Discount Rate - DR). This is called Discounted Cash Flow
(DCF) method to value a project or a business/firm. The two principal factors that drive the valuation of a
firm using DCF are estimating the expected cash flows and the second is the determination of the rate used
to discount these cash flows.

In case the risk free rate goes up, the Overall Cost of equity increases which in turn reduces the value of the
firm. resulting in decrease in value of shares.

Q 10. What can be easily calculated if a company's Total Assets and Total Debts are known?
Depreciation on assets
Inventory as on Balance sheet day
Total Equity
Return on assets

CORRECT ANSWER:
Total Equity

Explanation:
The total equity of a business is derived by subtracting its liabilities from its assets

Equity is the residual value of a company after all its assets are liquidated and all liabilities to its creditors
paid. The formula for equity is: Total Equity = Total Assets - Total Liabilities
Q 11. Increased medical insurance cover will be considered as _______ for Healthcare industry in SWOT
analysis.
Strength
Weakness
Opportunity
Threats

CORRECT ANSWER:
Opportunity

Explanation:
Opportunities are created through external environment.

Increased medical insurance will lead more people getting better medical treatment in hospitals as cost will
not be a concern due to medical insurance.

Therefore industries involved in healthcare like hospitals, pharma etc. will benefit from it. Increased medical
insurance will provide a good growth opportunity to them.

Q 12. For _________ industries it is more suitable to use EV/EBITDA over EV/EBIT as a valuation
metric.
Start-Ups
Matured
Labour intensive
Capital intensive

CORRECT ANSWER:
Capital intensive

Explanation:
In the case of capital-intensive industries, the difference in the historical cost of asset and choice of
depreciation method can cause major discrepancy in the method of depreciation. Therefore, for such
industries it is preferable to use EV/EBITDA. For other industries, EV/EBIT is preferable.

Q 13. Fiscal Deficit of a country can be reduced by ______ . A. Reducing public expenditure B. Sale of
assets by disinvestment C. Increasing tax collections
Only C
Only A and B
Only A and C
All A, B and C

CORRECT ANSWER:
All A, B and C

Explanation:
Budgeted excess of Government’s expenditure over its revenues in a specific year is known as fiscal deficit.

Measures to Reduce Government Deficit :

- Increased emphasis on tax-based revenues and appropriate measures to reduce tax evasion.

- Disinvestment should be done where assets are not being used effectively.

- Reduction in subsidies by the government will also help reduce the deficit.
- Try and avoid unplanned expenditures.

- Borrowing from domestic sources.

- Borrowing from external sources.

- A broadened tax base may also help in reducing the government deficit.

Q 14. If the government of a country changes its expansionary fiscal policy to contractionary fiscal policy,
the equity markets are likely to go ______ .
Up
Down
Fiscal policies have no impact on equity markets
None of the above

CORRECT ANSWER:
Down

Explanation:
Contractionary policy is intended to cool down the heated up economy through reduction in the money
supply or slow increase in money supply and increase in the interest rates.

When economy is heated up, it may need fiscal measures to slowdown. In such a situation, a government
can increase taxes to suck money out of the economy or decrease in its spending thereby decreasing the
money in circulation. However, possible negative effects of such a policy in the long run could be a slow
moving economy and high unemployment levels which will lead to a negative impact on the equity
markets..
Q 15. Which factors usually have the most influence in the movement of commodity prices in the near
term?
Secular trends
Inventory Cycle
Economic Cycle
Monetary Policy

CORRECT ANSWER:
Inventory Cycle

Explanation:
Inventory cycles are short term cycles that occur within a commodity cycle. These occur on account of
inventory adjustments by producers and customers. Customers who may have huge inventory may
temporarily reduce procurement. This would result in high inventory pile up at the suppliers’ end resulting in
fall in prices.

Similarly, during a downturn, cautious customers may significantly reduce their procurement. However, if
demand for their products improves marginally, they may not have adequate inventory and will have to go
for immediate procurement. This can result in prices increasing.

Q 16. ______ regulates the money market segment of securities market and is also the manager of Indian
Government's borrowing program.
Ministry of Finance
RBI
SEBI
Commerce Ministry
CORRECT ANSWER:
RBI

Explanation:
Reserve Bank of India (RBI) is the central bank of the country which has the responsibility of administering
the monetary policy.

It regulates the money markets and is the manager of Government's borrowing programs.

Q 17. The Risk Free rate is 6% and the Market Risk Premium is 8%. The Beta is 0.70. From this data
calculate the Cost of Equity.
11.60%
7.40%
9.50%
13.25%

CORRECT ANSWER:
11.60%

Explanation:
Cost of Equity = Risk Free Rate + Beta (Expected Rate - Risk free rate)

'Expected Rate - Risk Free rate' is also known as Market Risk Premium

= 6 + 0.70 (8)

= 6 + 5.6 = 11.6%
Q 18. What is Passive Investing?
Passive Investing means investing in matured businesses which are not affected by market volatility
Passive Investing means buying and holding some good equity shares for the long term
Passive Investing means investing in broad set of securities that represent an asset class
Passive Investing means investing in alternate asset classes like Real Estate, Bitcoins, Art etc.

CORRECT ANSWER:
Passive Investing means investing in broad set of securities that represent an asset class

Explanation:
Passive investing involves investing in a broad set of securities that fairly represent the asset class the
investor needs to invest. Typically, passive investing strategy follows indexing strategy where an investor
buys all securities that are part of an index. The objective of a passive investor is to earn the rate of return
that the select asset class provides.

A passive investor does not decide upon individual securities to buy or sell but rather their analysis is limited
to the broader asset class.

Q 19. Which institution has to be approached for a Scheme of Arrangement?

Supreme Court
State High Court
National Company Law Tribunal
SEBI

CORRECT ANSWER:
National Company Law Tribunal
Explanation:
Scheme of arrangement is a court monitored settlement process between the company and its creditors or
members. The person claiming the scheme of arrangement shall approach the National Company Law
Tribunal (NCLT).

The tribunal then orders the meeting between the company, its creditors and/or members to arrive a
compromise or arrangement.

Q 20. The views mentioned in a research report should be consistent with the _____ .
views of individual research analyst publishing the report
views of the research entity chief person
views of the research entity
views of the compliance team

CORRECT ANSWER:
views of individual research analyst publishing the report

Explanation:
As per SEBI (Research Analyst) Regulation 18: Limitations on publication of research report, public
appearance and conduct of business, etc. -

'Research analyst or research entity shall not issue a research report that is not consistent with the views of
the individuals employed as research analyst regarding a subject company'.
Q 21. A company has 14 million shares, currently trading at Rs 20. The company has assets worth Rs 100
million and liabilities of Rs 30 million. Calculate the Price to Book value ratio.
2.5
3
4
4.8

CORRECT ANSWER:
4

Explanation:
Price to book value ratio = Market capitalization/ Net-worth

The market capitalisation of the company is No. of shares X Market price = 14 million X Rs 20 = Rs 280
million

The Net worth = Assets - Liabilities = 100 million - 30 million = Rs 70 million

Price to book value ratio = 280 million / 70 million = 4

Q 22. A Depository Participant (DP) is an agent of _______ .

Clearing Corporation
Depository
SEBI
Stock Exchange

CORRECT ANSWER:
Depository
Explanation:
Depositories are institutions that hold securities of investors in electronic form. Investors open an account
with the depository through a registered Depository Participant.

A Depository Participant (DP) is an agent of the depository through which it interfaces with the investors
and provides depository services.

Q 23. Identify which condition is most likely to aid the central bank to follow expansionary monetary
policy?
High inflation
Low inflation
High fiscal deficit
High digitalisation

CORRECT ANSWER:
Low inflation

Explanation:
Low inflation rate enables central banks to loosen their monetary policy and extend liquidity in the market.
With relative easy availability of money and decrease in prices, consumers start buying goods and services.
This results in economic activity picking up and eventually results in return of expansionary phase.

Q 24. A foreign investor has invested in the existing financial instruments of a country. This is known as
______ .
Foreign Direct Investment
Foreign Portfolio Investment
Foreign Aid
Foreign Financial Participation
CORRECT ANSWER:
Foreign Portfolio Investment

Explanation:
Foreign capital flows to a country can be either in active form known as Foreign Direct Investment (FDI) or
passive form known as Foreign Portfolio Investment (FPI).

In case of FDIs, investing entities participate in decision making and drive the businesses. However,
Portfolio Investment, as name indicates is investment in the existing financial instruments – equity or bonds
by the Foreign Portfolio Investors (FPIs) without any management participation.

Q 25. What is 'KEY MAN RISK'?

Its the risk of conflict between two key persons in an organization for eg. CEO and Chairman
Its the risk of dependency on a key individual for business operations
It is the risk of the security personnel not performing their duties
Its the risk of key responsibilities given to individuals rather than a group

CORRECT ANSWER:
Its the risk of dependency on a key individual for business operations

Explanation:
In a organisation, if the decision-making process is well delegated and is fairly broad based, it can ensure
continuity even when there is churn in top management. On the other hand, if the decision making is highly
concentrated then it creates keyman risk as churn in top management can derail the decision-making
process.

Q 26. Rahul invests Rs. 75000 at the rate of 6% p.a. Calculate the future value of his investments after 10
years.
Rs. 98,540
Rs. 1,34,313
Rs. 1,12,500
Rs. 1,48,650

CORRECT ANSWER:
Rs. 1,34,313

Explanation:
The formula for calculating Future Value is FV=PV( 1+r )n

PV = Present Value ; r = yearly interest rate (6% = .06) ; n = number of years

Substituting :

FV = 75000 (1 + .06) ^ 10

FV = 75000 (1.06) ^ 10

On the Scientific Calculator of your computer press 1.06, X^Y, 10 = 1.790847

FV = 75000 x 1.79 = 1,34,313

Q 27. The bargaining power of the buyer will be high when ______ .
Competitive intensity in the industry is strong
Close substitutes of the products exist and switching can be done easily
Products are standardized with little differentiation
All of the above
CORRECT ANSWER:
All of the above

Explanation:
Buyers can exert a lot of pressure and dictate prices, if there are a large number of sellers with similar
products/services.

Buyers’ bargaining power would be high if:

1. Competitive intensity in the industry is strong

2. Products/Services are standardized with little or no differentiation.

3. Close substitutes of the products/services exist and switching cost for customers is low or nil.

Q 28. Which of these industries is most likely to be negatively affected by a recession in the economy?
Pharmaceutical
Airlines
Food and Beverage
Healthcare

CORRECT ANSWER:
Airlines

Explanation:
In recession, their is unemployment, decrease in income levels and in turn decrease in consumption. During
such times, the number of people who can afford travelling by planes fall down considerably and their by
negatively affecting the profitability of the airlines industry.

Q 29. Additional surveillance measures are NOT applicable to which of these securities?
Securities not under Graded surveillance measures
Securities which are included in an index
Securities on which derivative products are available
Large cap companies

CORRECT ANSWER:
Securities on which derivative products are available

Explanation:
Additional surveillance measures is not applicable for the following securities :

- Securities that already under Graded surveillance measures

- Securities that are placed under trade for trade segment

- Securities on which derivative products are available

- Public sector units

Q 30. If the price of a equity share is more than the fair value, then the share is considered as ______ .
a generator of higher returns
fairly priced
under priced
over priced

CORRECT ANSWER:
over priced

Explanation:
The fair value of a share can be calculated using various ratios etc. If the market price of this share is more
than the fair value, its considered as over priced.

Q 31. A company has a paid up capital of Rs. 20,000,00 and the face value of its shares is Rs. 10. The
profit before dividend is Rs.18,000,00. The dividend per share is Rs. 6 and the book value per share is Rs.
15. Calculate the Return on Equity.
15%
20%
22.5%
Insufficient data

CORRECT ANSWER:
20%

Explanation:
Paid Up Capital of the Company is Rs. 20,000,00 and the face value of shares is Rs. 10

Total number of shares = 2000000 / 10 = 2,00,000

Dividend is Rs 6 per share. So total dividend is Rs 6 X 200000 shares = Rs.12,000,00

Net Income = Income before dividend - Dividend

= 1800000 - 1200000 = Rs. 6,00,000

Total Book value of the company = Book value per share x Number of shares

= 15 X 200000 = 30,000,00

Return on Equity = Net Income / Book Value x 100

= 600000 / 3000000 x 100

= 20%

Q 32. Reasons of market mispricing and likelihood of correction are which type of parameters of business
analysis?
Valuation Parameters
Quantitative Parameters
Qualitative Parameters
All of the above

CORRECT ANSWER:
Valuation Parameters

Explanation:
There are various valuation parameters of a business like What is Valuation/intrinsic value of the business ;
Is business cheap relative to itself and peers ; Reasons of market mispricing and likelihood of correction etc.

Q 33. In Technical Analysis, _________ provides important inputs on the underlying strength of the trend.
enterprise value
pivot points
volume of trading
market capitalisation

CORRECT ANSWER:
volume of trading

Explanation:
As per Technical Analysis, there are three essential elements in understanding price behaviour:

1. The history of past prices provides indications of the underlying trend and its direction.
2. The volume of trading that accompanies price movements provides important inputs on the underlying
strength of the trend.
3. The time span over which price and volume are observed factors in the impact of long term factors that
influence prices over a period of time.

Q 34. A quick sense of quality of a business can be judged from ______ .

Historical financials
Future financial projections
Environmental care
Micro economic factors

CORRECT ANSWER:
Historical financials

Explanation:
Historical financials give us great sense of qualitative aspects of business. If financials are great, hopefully,
quality of business is great.
Looking into historical financials and understanding the ratios would give a great sense on how is the
business organized and what are the drivers of the business.

Q 35. Research Analysts, while meeting the management of companies, can seek information which is still
confidential and not in public domain - State True or False ?
True
False

CORRECT ANSWER:
False

Explanation:
One basic principles of interaction with Companies/Clients is that during the research, analysts must have an
unbiased opinion and should always hold their independence. Their analysis should be based on factual
information and not led by personal inclinations. Also, they must make it clear with the management to not
reveal any information which is not available in the public domain.

Q 36. The interest of Commodity Linked Debentures is based on the returns of the underlying _________ .
Equity asset
Farm produce
Commodity asset
Debt securities

CORRECT ANSWER:
Commodity asset
Explanation:
Commodity Linked Debentures (CLDs) are floating rate debt instruments whose interest is based on the
returns of the underlying commodity asset. While the returns can be linked to any commodity, most of
these papers globally are linked to precious metals – Gold and Silver.

Q 37. A Research Analyst gives his views and recommendations on a company based on ______ .
Personal Understanding of the business
Personal Understanding of the industry
Communication with management
All of the above

CORRECT ANSWER:
All of the above

Explanation:
Source of information for a Research Analyst : Communication with management, Personal Understanding
of the business and industry.

Q 38. Which of the below options is/are considered as Price Sensitive information?
Takeover plans
Amalgamation plans
Merger plans
All of the above

CORRECT ANSWER:
All of the above

Explanation:
Price sensitive information includes the following:
1. Periodical financial results of the company
2. Intended declaration of dividends, both interim and final
3. Issue of securities, or buyback of securities and other change in capital structure
4. Mergers, acquisition (takeover), demergers, delisting, disposal of business, amalgamation.
5. Any change in key personnel
6. Material events as defined under the listing agreement

Q 39. As per the Structure Conduct Performance (SCP) analysis, FMCG is an example of which type of
business?
Round the year
Seasonal
Festive
Cyclical

CORRECT ANSWER:
Round the year

Explanation:
Structure Conduct Performance (SCP) Analysis looks at the industry structure (monopoly, oligopoly), its
conduct (commoditized or specialized, seasonal or round the year, cyclical or noncyclical etc.) and finally its
performance (RoE, RoIC, WACC, etc.).

The structure of the industry, as described above, will define the conduct of the businesses on aspects such
as pricing and product innovation. Each industry will have its peculiar behaviour. Umbrellas and raincoats
would be seasonal businesses and FMCG (Fast Moving Consumer Goods like soaps etc) and Pharma would
be round-the-year ones.

Q 40. What is the general increase in price levels of goods and services in the economy known as ?
Inflation
Deflation
Stagflation
Recession

CORRECT ANSWER:
Inflation

Explanation:
Inflation is defined as the general increase in price levels of goods and services in the economy leading to an
erosion of purchasing power of money.

When one says - “things have become very expensive over a period of time”. How do things become
expensive? What explains the rise in the price of general goods and services? Answer to that question is
“Inflation”

Q 41. On-line businesses are dependent on internet penetration and changing habits of people on shopping
- State True or False ?
True
False

CORRECT ANSWER:
True

Explanation:
Each industry/sector has a specific set of factors which affect its profitability and prospects. For example -
On-line businesses are dependent on internet penetration and changing habits of people on shopping
Q 42. An industry will be very attractive to invest in, if it has ______ .
Few substitutes
Weak suppliers’ bargaining power
High barriers to entry
All of the above

CORRECT ANSWER:
All of the above

Explanation:
An attractive Industry from shareholders’ perspective is one that has one or more the following salient
features that create a profitable atmosphere for the business:
1. Low competition
2. High barriers to entry
3. Weak suppliers’ bargaining power
4. Weak buyers’ bargaining power
5. Few substitutes

If an industry is having these features, it would have strong pricing power and high profit margins and
attract investors.

Q 43. As per the BCG matrix, which of these is a Question Mark that succeeded?
Bajaj Pulsar
Tata Nano
Navneet publication
None of the above

CORRECT ANSWER:
Bajaj Pulsar
Explanation:
As per the Boston Consulting Group (BCG) Analysis - Question Marks are business segments in a fast
growing market, but having low market share. The right strategies and investments can help the market
share of the business grow, but they also run the risk of consuming cash in the process of increasing market
share and in the end turning out to be not enough cash generating. Tata Nano can be considered as an
example of a question mark, which did not succeed; whereas, Bajaj Pulsar may be considered as an example
of a question mark product which succeeded.

Q 44. Securities Contract (Regulation) Act 1956 covers which of the following issues?
Corporatization and demutualization of stock exchanges
Power to suspend business of recognized stock exchanges
Power to prohibit undesirable speculation
All of the above

CORRECT ANSWER:
All of the above

Explanation:
The Securities Contracts (Regulation) Act, 1956 covers a variety of issues like -

1. Granting recognition to stock exchanges

2. Corporatization and demutualization of stock exchanges
3. The power of the Central Government to call for periodical returns from stock exchanges
4. The power of SEBI to make or amend bye-laws of recognized stock exchanges
5. The power of the Central Government (exercisable by SEBI also) to supersede the governing body of a
recognized stock exchange
6. The power to suspend business of recognized stock exchanges
7. The power to prohibit undesirable speculation

Q 45. A company has declared 60% dividend. The face value of the share is Rs 5 and the dividend payout
ratio is 50%. The current market price of the share is Rs. 180. Calculate the Earning Yield.
5%
4.5%
3.3%
2.75%

CORRECT ANSWER:
3.3%

Explanation:
The company has declared 60% dividend on Rs. 5 face value. So the dividend is Rs. 3 (60% of 5)

Dividend Payout ratio = Dividend Per Share / EPS

50% = 3 / EPS

EPS = 3 / 0.5

EPS (Earning Per Share) = 6

Earning Yield % = EPS / Stock Price x 100

= 6 / 180 x 100

= .033 x 100 = 3.3

Q 46. The Debt to Equity Ratio of a company is 2 : 1. The total size of its Balance Sheet is Rs. 51,00,000.
Calculate the Debt of the company.
Rs. 4100000
Rs. 3800000
Rs. 3400000
Rs. 2900000
CORRECT ANSWER:
Rs. 3400000

Explanation:
Size of a Balance Sheet includes Equity + Debt.

Therefore Rs. 51,00,000 includes Debts & Equity in the ratio 2 : 1 (Total of 2+1 = 3)

So 5100000 / 3 x 2 = Rs. 3400000 is the Debt component

5100000 / 3 x 1 = Rs. 1700000 is the Equity component.

Q 47. Calculate the Enterprise Value of a company with the following data : Number of shares = 100000
shares ; EPS = 5; PE Ratio = 14; Debt = Rs. 700000; Cash Equivalents = Rs. 700000.
Rs. 45 lakhs
Rs. 70 lakhs
Rs. 85 lakhs
Rs. 90 lakhs

CORRECT ANSWER:
Rs. 70 lakhs

Explanation:
Enterprise value = Market capitalization + Market value of debt – cash and cash equivalents

First lets find out the Market Capitalisation

Price Earning (PE) ratio = Market Price / Earning Per Share (EPS)
14 = Market Price / 5

Market Price = 14 X 5 = Rs. 70

Market Capitalisation = Market Price X No. of Shares

= 70 X 100000 = 70,000,00

Enterprise value = Market capitalization + Market value of debt – Cash and cash equivalents

= 7000000 + 700000 - 700000

= Rs. 70,000,00

Q 48. __________ will be considered as a THREAT in SWOT analysis.

Dire financial condition of the company due to very low sales
No succession planning in the company
Social pressure due to which the Government can ban the company's products
Important patents expiring in the next 6 months

CORRECT ANSWER:
Social pressure due to which the Government can ban the company's products

Explanation:
Strengths, Weaknesses, Opportunities and Threats (SWOT) Analysis

In SWOT analysis of a company, 'Threats' are essentially risk that comes from external environment.
( 'Weaknesses' are something which are internal to the company)
For the above four options, the pressure on Government to ban the company's products is a threat to the
company as its from an external source. The other three are internal weaknesses.

Q 49. Which is the authentic source to check facts on a company by a research analyst?
Business Websites
Annual Reports
Research reports and opinions of Research Analysts
Media reports

CORRECT ANSWER:
Annual Reports

Explanation:
Annual Reports are an authentic source to verify the facts of a company as they are published by the
company itself and the accounts etc. are certified by Chartered Accountants.

Q 50. Beta of a stock which is more volatile than market is likely to be ________ .
Below zero
Between zero and one
Exactly zero
Greater than one

CORRECT ANSWER:
Greater than one
Explanation:
Beta of 1 indicates that the security's price will move with the market. Beta of less than 1 means that the
security will be less volatile than the market. And, beta of greater than 1 indicates that the security's price
will be more volatile than the market.

For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market both on up and
down moves.

Q 51. Miss. Z invest Rs. 30,000 at the rate of 8% per annum. What would be the future value of such
investment after 5 years?
Rs. 37,816
Rs. 42,560
Rs. 53,100
Rs. 44,079

CORRECT ANSWER:
Rs. 44,079

Explanation:
The formula for calculating Future Value is : FV = PV ( 1+r )n

PV = Present Value ; r = yearly interest rate (8% = .08) ; n = number of years = 5

Substituting :

FV = 30,000 (1 + .08) ^ 5
FV = 30000 (1.08) ^ 5

On the Scientific Calculator of your computer press: 1.08, X^Y, 5 = 1.4693

FV = 30000 x 1.4693 = Rs. 44,079

Q 52. In Puttable Bonds, the issuers of the bonds have the right to call the bonds back.
True
False

CORRECT ANSWER:
False

Explanation:
A Callable bond, also known as a redeemable bond, is a bond that the issuer may redeem before it reaches
the stated maturity date. A callable bond allows the issuing company to pay off their debt early.

A Puttable bond is a debt instrument with an embedded option that gives bondholders the right to demand
early repayment of the principal from the issuer.

Q 53. Which of these items is included in an Income Statement ?

Accounts receivable
Current assets and Current liabilities
Depreciation and Amortisation
Long term debt
CORRECT ANSWER:
Depreciation and Amortisation

Explanation:
All type of expenses are included in the Income or the Profit and Loss Statement. Depreciation and
amortisation are expenses of a company.

Depreciation refers to gradual and permanent reduction in value of assets on account of ageing, use and
obsolescence. Amortisation refers to gradual write-off of intangible assets over the period of its life.

Accounts receivable, Long term debt, Current assets and Current liabilities are all included in the Balance
Sheet of the company.

Q 54. ______ as an asset generally generates only one time cash inflow.
Equity
Bond
Gold
Both Equity and Bonds

CORRECT ANSWER:
Gold

Explanation:
In Equity and Bonds, there are regular inflows in the form of dividend and interest and then the final inflow
when they are sold.

But in Gold there are no regular inflows but only one time inflow on sale of gold.
Q 55. The _______ section of a research report is likely to have the analyst's opinion.
Company Overview
Financial Forecast
Shareholding pattern

CORRECT ANSWER:
Financial Forecast

Explanation:
A research analyst analyses ratios to understand how various financial metrics including income and
expenditure behave and their inter relationship. Analysts then use that insight to forecast the future.

(Company overview and shareholding pattern are basic facts of the company and does not have any opinion
of the analyst)

Q 56. _______ will count as a strength in SWOT analysis.

Growing economy
Falling interest rates
Strong financial position of the company
All of the above

CORRECT ANSWER:
Strong financial position of the company
Explanation:
Strengths, Weaknesses, Opportunities and Threats (SWOT) Analysis :

Strengths refer to internal capabilities of the company that allows it to exploit external opportunities and
withstand threats. Here, the strong financial position is the internal strength of the company. Growing
economy and low interest rates are external factors.

Q 57. There is no credit risk in investments in _______ .

AAA rated corporate bonds
Fixed Deposits
Government Bonds
High Yield corporate bonds

CORRECT ANSWER:
Government Bonds

Explanation:
Credit Risk or default risk refers to the possibility that a particular bond issuer will not be able to make
expected interest rate payments and/or principal repayment

The sovereign government do not have a default risk associated with their local currency borrowings
because the government has the ability to raise the funds to pay-off its domestic currency debt through
taxation or by printing more currency. All other borrowings have credit risk.

Q 58. What is the method to calculate 'Value of Equity'?

Free cash flows for equity (FCFE) is discounted using the cost of equity
Free cash flows to the firm (FCFF) is discounted using the cost of debt
Free cash flows for equity (FCFE) is discounted using the cost of debt
Free cash flows to the firm (FCFF) is discounted using the cost of equity

CORRECT ANSWER:
Free cash flows for equity (FCFE) is discounted using the cost of equity

Explanation:
To calculate the value of equity, FCFE is discounted using the cost of equity.

Q 59. What is the role of a Sell-Side analyst?

They main focus is to identify over valued companies which are to be sold-off
They negotiate on behalf of the sellers to get them the best buying price from the buyers
They are employed by firms which provide advisory services, broking services, investment banking services
etc.
They advise their clients on how to implement Short-Selling strategies

CORRECT ANSWER:
They are employed by firms which provide advisory services, broking services, investment banking services
etc.

Explanation:
Sell-side Analysts - These analysts work for firms that provide investment banking, broking, advisory
services for clients.

They typically publish research reports in public domain on the securities of companies or industries with
specific recommendation to buy, hold, or sell the subject security. These recommendations include the
analyst’s expectations of the future earnings of the company and future price performance of the security
(“price target”).

Q 60. Which of these can be termed as capitalization of reserves?

Interim dividend
Rights issue
Cash dividend
Issuance of bonus shares

CORRECT ANSWER:
Issuance of bonus shares

Explanation:
Issuance of bonus shares is termed as capitalization of reserves.

Bonus shares are created by transferring money from a company’s reserves into its equity capital
(capitalization of reserves). This is useful for a company that have cash reserve and capitalized its profit.

Q 61. The Equity Capital of PQR Ltd is Rs. 5,00,000 and its return on equity is 25%. The net profit margin
is 20%. Calculate the sales of PQR Ltd.
Rs.425000
Rs.450000
Rs.500000
Rs.625000
CORRECT ANSWER:
Rs.625000

Explanation:
Return on equity is 25% ie. 25% of 500000 = Rs 1,25,000

This is the Net Profit.

Net Profit Margin = Net Profit / Sales

20% = 125000 / Sales

Sales = 125000 / 0.2 = Rs. 625000

Q 62. What does the Wholesale Price Index (WPI) indicate?

WPI is a basket of products based on general consumption in the economy and compute its prices based on
wholesale prices
WPI is a basket of products based on general consumption in the economy and compute its prices based on
retail prices
WPI is a basket of products based on general consumption in the economy and compute its prices based on
both wholesale and retail prices
None of the above

CORRECT ANSWER:
WPI is a basket of products based on general consumption in the economy and compute its prices based on
wholesale prices
Explanation:
Generally, inflation is measured in two ways - at wholesale level in terms of Wholesale Price Index (WPI)
and retail level in terms of Consumer Price Index (CPI).

Typically, economists define a basket of products based on general consumption in the economy and
compute its prices based on wholesale prices defining WPI and retail prices defining CPI.

Q 63. Calculate the BOOK VALUE PER SHARE of a business whose networth is Rs. 5,00,000, P/E Ratio
is 8, EPS is Rs. 4 and market capitalization is Rs. 10,00,000.
Rs. 7
Rs. 3
Rs. 16
Rs. 25.50

CORRECT ANSWER:
Rs. 16

Explanation:
Price to Earnings Ratio = Market Price of the share / EPS

8 = Market Price of the share / 4

Market Price of the share = 8 x 4 = Rs. 32

Number of shares = Market Capitalisation / Market Price of share

Number of shares = 1000000 / 32 = 31250

Networth = Book Value x Number of shares

500000 = Book Value x 31250

Book Value = Rs. 500000/31250

= Rs 16

Q 64. Corporate Governance takes into account which aspect of the Management ?
Efficiency
Integrity
Profitability
All of the above

CORRECT ANSWER:
Integrity

Explanation:
Corporate governance refers to rules, processes, and procedures that are followed in the management and
operations of a firm. The objective of a good corporate governance standard is to ensure that the company is
run well to take care of all the stakeholders including shareholders, lenders, employees, suppliers, and
customers.

It’s the framework of rules and practices by which a board of Directors ensures accountability, fairness, and
transperency in a company's relationship with all its stakeholders.
Q 65. The analysis done more from the perspective of a business which is looking to setup unit offshore
and analyzing several countries to choose from is known as ________ .
PESTLE Analysis
SCP Analysis
BCG Analysis
None of the above

CORRECT ANSWER:
PESTLE Analysis

Explanation:
PESTLE Analysis stands for Political, Economic, Socio-cultural, Technological, Legal and Environmental
Analysis.

To do business in any country, a business must know each of the above factors very well and how changes in
any/either of these would impact business.

Q 66. The gross sales of a business is Rs 200000 and the Net Profit margin is at 12%. Calculate the Equity
Capital of this business if the Return on Equity is 25%.
Rs 24000
Rs 59000
Rs 84000
Rs 96000

CORRECT ANSWER:
Rs 96000
Explanation:

Net Profit is 12% of Rs 200000 (Sales) = Rs 24000

Return on Equity = Net Profit / Equity Capital

25% = 24000 / Equity Capital

Equity Capital = 24000 / .25 = 96000

Q 67. The Net Profit of a company was Rs 75 crores. The company's equity capital stood at Rs
5,73,47,560. The company has not issued any preference shares. The face value of its shares is Rs 5.
Calculate the Earning Per Share of the company.
24.66
65.39
88.50
109.12

CORRECT ANSWER:
65.39

Explanation:
Number of Shares = Equity Capital / Face Value

= 5,73,47,560 / 5

= 11469512

EPS = Net Profit / No. of Shares

= 750000000 / 11469512
= 65.39

Q 68. A company has a sales of Rs 28000 and from this they have a operating profit of Rs 3900. If the
corporate tax is at 30%, calculate the net profit margin of the company. ( There is no interest expense )
9.75%
10.80%
13.20%
16.75%

CORRECT ANSWER:
9.75%

Explanation:
Net Profit is the final profit ie. after Interest and tax.

In this question, to get Net Profit, we shall have to deduct the tax from Operating Profit.

So 3900 less 30 % Tax ( 3900 - 1170 ) = 2730 is the Net Profit

Net Profit margin is the Net profit as a % of Sales

Sales = Rs 28000

NP = Rs 2730
2730 / 28000 x 100 = 9.75%

Q 69. The Mutual Fund schemes which does not have any fixed date of redemption is known as _______ .
Open Ended Schemes
Close Ended Schemes
FMP Schemes
All of the above

CORRECT ANSWER:
Open Ended Schemes

Explanation:
An open-ended scheme offers the investors an option to buy and sell the units at any time. These schemes do
not have any fixed maturity period.

Q 70. What's the formula for calculating Weighted Average Cost of Capital (WACC) ?
[Ke * We] + [Kd * (1-Tx)*Wd]
[Ke * We] X [Kd * (1-Tx)*Wd]
[Ke * We] - [Kd * (1-Tx)*Wd]
[Ke * We] / [Kd * (1-Tx)*Wd]

CORRECT ANSWER:
[Ke * We] + [Kd * (1-Tx)*Wd]
Explanation:
WACC = [Ke * Equity / (Equity+ Debt)] + [Kd * (1-Tax)* Debt / (Equity+ Debt)]

= [Ke * We] + [Kd * (1-Tx)*Wd]

Where Kd = Cost of Debt, Wd = Weight of Debt, Ke = Cost of Equity, We = Weight of Equity

Q 71. The total current assets of a company are Rs 80000, the Inventory is Rs 20000 and the Quick Ratio is
2, Calculate the Current Ratio.
2
2.15
2.66
3

CORRECT ANSWER:
2.66

Explanation:
Quick Ratio = (Current Assets – Inventories) / Current liabilities

2 = 80000 - 20000 / Current liabilities

2 = 60000 / Current liabilities

Current liabilities = 60000 / 2 = 30000

Current Ratio = Current Assets / Current liabilities

= 80000 / 30000
= 2.66

Q 72. The focus area(s) for an analyst while analysing an Economy would be ______ .
Changes in various macro-economic factors like - National income, Inflation, Interest rate and
Unemployment rate
Flows from Foreign Direct Investment (FDI) and Foreign Portfolio Investors (FPIs)
Savings and investment patterns
All of the above

CORRECT ANSWER:
All of the above

Explanation:
The focus areas for an analyst while analysing an Economy are :

- Changes in various macro-economic factors like - National income, Inflation, Interest rate and
Unemployment rate
- Fiscal and Monetary Policies and their impact on the economy
- Flows from Foreign Direct Investment (FDI) and Foreign Portfolio Investors (FPIs)
- Savings and investment patterns
- Global factors that impact the GDP growth based on export and import transactions

Q 73. Which of the below options is not true with respect to Stock Split ?
In a stock split, there is a division of shares into multiple shares
There is generally a boost in liquidity after the stock split
Stock split is usually done when the price of a stock becomes quiet high
Stock Split leads to increase in the wealth of shareholders
CORRECT ANSWER:
Stock Split leads to increase in the wealth of shareholders

Explanation:
Stock split does not lead to any increase in the wealth of shareholders. Its merely an action of reducing the
face value of shares there by multiplying the number of shares leading to increase in liquidity.

The increase / decrease in the wealth of the shareholder will be determined by the stock prices.

Q 74. A company declares a dividend of 30% on shares of value Rs 5. The dividend payout ratio is 40%.
The current market price of this share is Rs 60. Find the P/E ratio and the Earnings Yield.
PE = 24 , Earnings Yield = 9.50%
PE = 20 , Earnings Yield = 6.88%
PE = 16 , Earnings Yield = 6.25%
PE = 14 , Earnings Yield = 8.56%

CORRECT ANSWER:
PE = 16 , Earnings Yield = 6.25%

Explanation:
Dividend Declared is 30% of Rs 5 = Rs 1.5

Dividend Payout Ratio = Yearly Dividend per Share / EPS

40% ie. 0.4 = 1.5 / EPS

EPS = 1.5 / 0.4 = 3.75

PE = Market Price / EPS

= 60 / 3.75

PE = 16

Earnings Yield formula is reverse of PE ratio formula x 100.

= EPS / Market Price x 100

= 3.75 / 60 x 100

0.0625 x 100 = 6.25%

Q 75. Sometimes, any small change in the industry configuration can trigger significant change in the
industry prospects - State True or False ?
True
False

CORRECT ANSWER:
True

Explanation:
Sometimes, any small change in the industry configuration can trigger significant change in the industry
prospects. For example, in the General Budget of 2014, an announcement increased the definition of ‘Long
Term’ from 1 years to 3 years for calculating capital gains on units of debt Mutual funds units and suddenly
the way the industry was selling this product changed.
Q 76. Which technological factor(s) help a country attract investors ?
Availability of technology savvy population
Institutions driving technology based initiatives
Less technological support
Both 1 and 2

CORRECT ANSWER:
Both 1 and 2

Explanation:
Availability of technology savvy population and institutions driving technology based initiatives and
infrastructure help a country attract investors.

Q 77. The margin(s) charged by the Clearing Corporations is/are _______ .

Mark to market
Initial or upfront margin
Value At Risk
Both 1 and 2

CORRECT ANSWER:
Both 1 and 2
Explanation:
To handle the risk of default by the buyers and sellers, the clearing corporation charges various kinds of
margins, most prominent among these margins are Initial margin and Mark to market (MTM) margins.

Q 78. A " _________ Wall” policy separates 'insider areas' from 'public areas' in a firm.
Indian
Chinese
Berlin
Hard Rock

CORRECT ANSWER:
Chinese

Explanation:
To prevent the misuse of confidential information the organisation shall adopt a “Chinese Wall” policy
which separates those areas of the organisation/firm which routinely have access to confidential information
ie. “insider areas” from those areas which deal with sale/marketing/investment advice or other departments
providing support services considered public areas.

The employees in the insider area shall not communicate any Price Sensitive Information to anyone in the
public area.

Q 79. What do the investors usually earn ?

They get returns on their capital invested
They get rent on their property
They get income based on the services they offer
Both 1 and 2

CORRECT ANSWER:
Both 1 and 2

Explanation:
Employees earn wages and salaries, Professionals earn their income based on their services, Entrepreneurs
earn profits and Investors earn return on their capital and rent on their land.

Q 80. If a stock has exceeded its Target Price, an analyst may recommend __________.
Selling the stock
Buying the stock
Holding on to the stock
None of the above

CORRECT ANSWER:
Selling the stock

Explanation:
Target price is that price, which if achieved, would result in an investor recognizing the best possible
outcome for his or her investment.
This is the price at which the investor would like to exit his or her existing position so that he or she can
realize the most reward.

For eg. - A analyst recommends buying XYZ stock at Rs 100 with a target price of Rs 160. So when the
price rises to Rs 160, the target has been achieved and the analyst will recommend selling the stock at Rs
160.

Q 81. _________ is the nodal agency of the Central Government to formulate and monitor India’s
macroeconomic policies.
Department of Economic Affairs
Department of Revenue
Department of Financial Services
RBI

CORRECT ANSWER:
Department of Economic Affairs

Explanation:
Department of Economic Affairs is the nodal agency of the Central Government to formulate and monitor
India’s macroeconomic policies, covering monetary and fiscal policy as well as the functioning of the
Capital Market including stock exchanges.

Q 82. Which of the following is not true about investing ?

Basically all types of investment will result in capital appreciation over a long period of time
Basically all types of investment carry risk of capital erosion
Investment in equity is riskier than investing in bonds
None of the above

CORRECT ANSWER:
Basically all types of investment will result in capital appreciation over a long period of time

Q 83. The investor receives only one time cash inflow in which of the following asset ?
Gold
Equity
Bonds
Both 2 & 3

CORRECT ANSWER:
Gold

Explanation:
In Equity and Bonds, there are regular inflows in the form of dividend and interest and then the final inflow
when they are sold. But in gold there are no regular inflows but only one time inflow on sale of gold.

Q 84. The important provision(s) of Securities and Exchange Board of India (Research Analyst)
Regulations, 2014 with respect to the requirements to foster objectivity and transparency in security research
and provide investors with more reliable and useful information to make investment decisions is/are -
Qualification and certification requirement for Research Analyst
Application for grant of certificate for Research Analyst
Capital adequacy for Research Analyst
All of the above

CORRECT ANSWER:
All of the above

Explanation:
SEBI (Research Analyst) Regulation, 2014 and its amendments set forth requirements to foster objectivity
and transparency in security research and provide investors with more reliable and useful information to
make investment decisions. Some of the important provisions of these regulations are -

Regulation 3: Application for grant of certificate

Regulation 4: Issuance of research report by a person located outside India

Regulation 5: Furnishing of further information, clarification and personal representation

Regulation 6: Consideration of application and eligibility criteria

Regulation 7: Qualification and certification requirement

Regulation 8: Capital adequacy

Regulation 9: Grant of certificate of registration

Regulation 10: Period of validity of certificate

Regulation 11: Renewal of certificate

Regulation 12: Procedure where registration is refused

Q 85. The growth rate can be calculated as the ________ of the retention rate and the return on equity.
product
division
summation
None of the above

CORRECT ANSWER:
product

Explanation:
Growth Rate = Retention Rate X Return on Equity

Q 86. Business is available at what discount to its intrinsic value - This is ________ parameter of business
analysis.
Qualitative parameter
Quantitative parameter
Valuation parameter
Futuristic parameter

CORRECT ANSWER:
Valuation parameter

Explanation:
Valuation parameters consist of intrinsic value, P/E, P/BV, margin of safety aspects.

Qualitative parameters take care of aspects like business/revenue model, SWOT analysis, competition in the
industry, technology aspects etc.

Quantitative parameters would consist of financial aspects such as ratio analysis, analysis of cash flows etc.
Q 87. Of the below given options, which is NOT a component of the Current A/c of a country with the rest
of the world ?
Loans
Imports
Exports
None of the above

CORRECT ANSWER:
Loans

Explanation:
Balance of payment statement mainly consists of two accounts - Current account and Capital account.

The current account has all the details of transactions on revenue account viz. imports and exports of goods
and services.

The capital account captures all the capital flows like FDI, FII, loans, and grants etc.

Q 88. Calling feature in bonds __________.

Is most prevalent when interest rates are expected to rise
Is most prevalent when interest rates are expected to fall
Favours investors
Is against the interest of issuers

CORRECT ANSWER:
Is most prevalent when interest rates are expected to fall
Explanation:
Callable bonds allow the issuer to redeem the bonds prior to their original maturity date.

When interest rates fall, the issuer would be in a position to raise the same amount of loan, at a lower
interest rate. So the issuer to redeem the existing high-cost bond before maturity and replace it with a new
low cost bond.

Q 89. The Earning per Share of a company is Rs 10 and the Book Value per share is Rs 50. The Market
Capitalisation of this company is Rs. 25,00,000. Calculate the Return on Equity.
500%
50%
20%
Insufficient Data

CORRECT ANSWER:
20%

Explanation:
Return on Equity = EPS / Book Value x 100

= 10 / 50 x 100

= 0.2 x 100 = 20%

Q 90. Analysts who prepare research report of a listed company shall not trade in securities of that
company for ______ days from preparation of such report.
15
30
45
60

CORRECT ANSWER:
30

Explanation:
Regulations state that "Analysts, if any, employed with the organization /firm while preparing research
reports of client company(s) shall disclose their shareholdings/interest in such company(s) to the
Compliance Officer and the Analysts who prepare research report of listed company shall not trade in
securities of that company for thirty days from preparation of such report.

Q 91. In which of the below mentioned options do you see Inflation Risk ?
The currency is depreciating faster than bank interest rates
The investments are earning less than the inflation rate
Money received on an investment may be worth more when adjusted for inflation
The inflation rate is less than the return on investments

CORRECT ANSWER:
The investments are earning less than the inflation rate

Explanation:
Inflation risk represents the risk that the money received on an investment may be worth less when adjusted
for inflation.

Q 92. Efficient Market Hypothesis (EMH) propagates that share prices incorporate and reflect all relevant
information - State True or False ?
False
True
CORRECT ANSWER:
True

Explanation:
The Efficient market hypothesis (EMH) states that share prices reflect all information. The EMH
hypothesizes that stocks trade at their fair market value on exchanges.

Proponents of EMH posit that investors benefit from investing in a low-cost, passive portfolio. Opponents of
EMH believe that it is possible to beat the market and that stocks can deviate from their fair market values.

Q 93. The operating profit margin of a business is 50% and the operating profit is two times of Net Profit.
Calculate the Net Profit margin.
30%
25%
27.5%
18%

CORRECT ANSWER:
25%

Explanation:
Lets assume the Net Profit to be Rs 100.

The Operating Profit is 2 times the Net Profit ie 100 x 2 = 200

The Operating Profit margin is 50% , this means its 50% of Sales or Sales is double of Operating Profit.
So Sales = 200 x 2 = Rs 400

Net Profit is Rs 100 and Sales is Rs 400

So the Net Profit margin is 100 / 400 x 100 = 25%

Q 94. A rights issue is open for subscription for a minimum period of 15 days and a maximum period of
____ days.
20
30
45
60

CORRECT ANSWER:
30

Explanation:
A rights issue is open for subscription for a minimum period of 15 days and a maximum period of 30 days.

Q 95. What are the qualities of a good research analyst ?

Ability to read and comprehend financial statements and reports
Good communication Skills – Written and Verbal
Good Excel/spreadsheet and other data analytical tools
All of the above

CORRECT ANSWER:
All of the above

Explanation:
Qualities that are desired in a good research analyst are:

- Good with numbers

- Good Excel/spreadsheet and other data analytical tools
- Clarity in financial concepts
- Ability to read and comprehend financial statements and reports
- Ability to ask pertinent questions
- Attention to details
- Communication Skills – Written and Verbal

Q 96. Securities and Exchange Board of India (Research Analyst) Regulations, 2014 are not applicable to
____________ .
Investment Advisers
Fund managers
Research Analyst with brokerage houses
Both 1 and 2

CORRECT ANSWER:
Both 1 and 2

Explanation:
Investment Advisers, Asset Management Companies, Proxy Advisory Service providers and fund managers
of Alternative Investment Funds shall not be required to be registered under the Securities and Exchange
Board of India (Research Analyst) Regulations, 2014.
Q 97. From the below given options, which one is NOT useful for Technical Analysts ?
Volume in stock trading
Management views on future prospects
Point of Support and Resistance
Stock Price trends

CORRECT ANSWER:
Management views on future prospects

Explanation:
Technical Analyst observe the price charts, trends, volumes, support and resistance levels. For them what
has happened and what is happening is important to predict the future prices. The company performance,
management views etc. are not considered by technical analyst.

Q 98. Industry rivalry will be high if _______ .

Switching cost for customers from one product/service to another is low or nil
Every industry participant tries to attract customers with similar strategies – lower prices or longer credits
Many companies exist in the business segment
All of the above

CORRECT ANSWER:
All of the above

Q 99. The formula for calculating Dividend Payout Ratio is __________ .

Dividing the company's dividend per share by earnings per share
Dividing the company's total dividend by Net Profit
Dividing the company's EPS by total dividend
Both 1 and 2

CORRECT ANSWER:
Both 1 and 2

Explanation:
The two formulae for calculating Dividend Payout Ratio are :

- Yearly Dividend Per Share / EPS

- Total Dividends / Net Income

Q 100. During a slowdown in economies, unemployment rate _______ and during an expansion phase, the
unemployment rate ________ .
falls , falls
rises , rises
rises , falls
falls , rises

CORRECT ANSWER:
rises , falls

Explanation:
During a slowdown in economies, unemployment rate rises as production falls and jobs are lost.
During an expansion phase, the unemployment rate falls as more jobs are created as production goes up.

Q 1. When is the valuation exercise of a company/business carried out?

Accounting, taxation and other regulatory and legal requirements
Selling a business as part of disinvestment exercise
Buying a business as part of investment exercise
All of the above

WRONG ANSWER

CORRET ANSWER:
All of the above
Explanation:
While purpose of carrying out valuation could vary from person to person, some of the reasons for carrying
out valuations of assets/businesses/liabilities are as follows:
- Buying a business as part of investment exercise
- Selling a business as part of disinvestment exercise
- Mergers and Acquisitions
- General sense of value of business to owners
- Fair treatment to different set of stake holders in case of equity swap
- Accounting, taxation and other regulatory and legal requirements

Q 2. Find the market price of a company's share from the following data : Total Assets : Rs. 50,00,000
Earning Per Share (EPS) : Rs. 2 Net Income : Rs. 4,00,000 Return on equity : 20% Price to Book Value : 5
Rs. 50
Rs. 9
Rs. 35
Rs. 75

CORRECT ANSWER:
Rs. 50

Explanation:
To find the above answer, we need to find the Book Value per Share.

Let’s find the number of shares first

Earnings Per share = Net Income/No of Shares outstanding

2 = 4,00,000/No of shares outstanding

No of Shares Outstanding = 400000/2 = 2,00,000

Now let’s find the book value per share, before which we’ll have to find book value of total equity

Return on Equity = Net Income/Book Value of Equity

20% = 400000/Book Value of Equity

Book Value of Equity = 400000/.20 = 20,00,000

Now, Book value per share = Book Value of Equity/No of Shares Outstanding

Book Value per share = 2000000/200000 = 10

Now let’s finally find the market price per share

Market price per share = Book Value per share x Price to Book Value

Market Price per share = 10 x 5 = 50

Q 3. Identify the statement which is most accurate?
Equity analyst have to pay special attention on understanding economic factors as market movements are
largely driven by the economic factors
Equity analyst should not pay attention on economic or industry analysis as those outside factors are not
under the control of a company
Equity analyst have to pay attention on industry and company factors but they need not consider broader
economic conditions as its unpredictable
Equity analyst have to pay attention on analysing broader economy and also the industry as they affect the
performance of the companies analysed

CORRECT ANSWER:
Equity analyst have to pay attention on analysing broader economy and also the industry as they affect the
performance of the companies analysed

Explanation:
A complete study of company by an equity analyst will involve : Economic analysis 2. Industry analysis 3.
Company analysis

Therefore, while researching a company, the equity analyst need to focus his studies on the boarder
economy, the industry to which the company belongs and the company.

Q 4. For plain vanilla fixed rate bonds, __________ are certain and known to the bond investors. A. The
Capital Appreciation B. The amount of cash flows C. The timing of cash flows
Only A and B
Only A
Only B and C
All A, B and C

CORRECT ANSWER:
All A, B and C

Explanation:
A plain vanilla bond is market jargon to describe a standard bond i.e. an interest-bearing security paying
coupons at regular intervals with a stated fixed maturity. In other words, a plain vanilla bond has no
embedded options or structured elements.

'Plain Vanilla Bonds' are the most basic type of bonds, having a fixed coupon payment at pre-determined
fixed intervals with a pre-determined maturity.

The face value of the bond is also pre-determined and the investor receives the bond at the face value on the
date of maturity.

Q 5. What is the minimum time gap between relisting and delisting of a company in case of voluntary
delisting?
3 years
5 years
7.5 years
10 years

CORRECT ANSWER:
5 years

Explanation:
As per SEBI (Delisting of Equity Shares) Regulation of 2009, a company can apply for relisting (i) five
years after delisting in the case of voluntary delisting and (ii) ten years after delisting in the case of
compulsory delisting.

Q 6. The Total Assets of a company are Rs 100000 and the Total Liabilities are Rs 74000. Calculate the
Equity to Asset Ratio.
0.26
3.41
0.74
1

CORRECT ANSWER:
0.26

Explanation:
Equity = Assets - Liabilities

= 100000 - 74000

= 26000

Equity to Asset Ratio = Equity / Assets

= 26000/ 100000

= 0.26
Q 7. In which of these situations is Free Cash Flows to the Firm (FCFF) used for valuation?
When the Free Cash Flow for Equity (FCFE) is likely to be negative
When the Free Cash Flow for Equity (FCFE) is likely to be positive
When the capital structure of the firm is likely to change significantly in the future
Both option 1 and 3 above

CORRECT ANSWER:
When the capital structure of the firm is likely to change significantly in the future

Explanation:
FCFF is a measurement of a company's profitability after all expenses and reinvestments.

The Free Cash Flow model cannot be used when the cash flows are negative as it becomes difficult to
determine the growth rates and form a terminal value.

Also, if the firm is likely to change significantly in the future, to know the real value of the business, FCFF
model is preferable.

Q 8. Which of the following is / are included under Unpublished Price Sensitive Information (UPSI) ?
Merger between two or more companies
Dividends
Changes in key managerial employees
All of the above

CORRECT ANSWER:
All of the above
Explanation:
The Regulation 2(n) of SEBI (Prohibition of Insider Trading) Regulations defines unpublished price
sensitive information as any information, relating to a company or its securities, directly or indirectly, that is
not generally available which upon becoming generally available, is likely to materially affect the price of
the securities and shall, ordinarily including but not restricted to, information relating to the following: –

(i) financial results; (ii) dividends; (iii) change in capital structure; (iv) mergers, de-mergers, acquisitions,
delisting, disposals and expansion of business and such other transactions; (v) changes in key managerial
personnel.

Q 9. The Networth of a business is Rs. 2,00,000 and the debt on Balance Sheet is Rs 2,00,000. The
Market Capitalisation is Rs. 8,00,000. Calculate the Capital Employed by the business.
Rs. 2,00,000
Rs. 10,00,000
Rs. 6,00,000
Rs. 4,00,000

CORRECT ANSWER:
Rs. 4,00,000

Explanation:
Capital Employed can be calculated using two formulas.

1) Capital Employed = Total Assets – Current Liabilities

2) Capital Employed = Total Equity + Total Debt

Here we use the second formula.

Capital Employed = Total Equity + Total Debt

= 200000 + 200000 = 400000

Q 10. Which of these sections should be included in a company research report?

Share holding pattern of the company and its financial indicators
Complete industry overview and peer group analysis
Both of the above
None of the above

CORRECT ANSWER:
Both of the above

Explanation:
The major sections of a research report include : Company business, peer group analysis, shareholding
pattern, key strengths, key concerns, industry overview, company fundamentals, key financial indicators and
financials.

Q 11. Calculate the outstanding number of shares of a company for the given data : Net Profit - Rs. 500000
Return on Equity - 25% Book Value per share - Rs. 100
2,000
20,000
2,00,000
200

CORRECT ANSWER:
20,000

Explanation:
Return On Equity (ROE) = Net Profit / Value of Equity

Now, we have all terms in the above formula except Value of equity, so lets calculate that first,

ROE = Net Profit/Value of Equity

25% = 5,00,000/Value of Equity

On re-arranging the above equation, we get;

Value of Equity = 5,00,000/25%

Value of Equity = 5,00,000/0.25

Value of Equity = 20,00,000

Now, since we have the value of equity and the value per share, we can easily find the number of shares.

Value of Equity = Book Value per share * No of Shares

20,00,000 = 100 * No of Shares

No of Shares = 20,00,000/100 = 20,000

Q 12. A situation of ___________ is most likely to result in high bargaining power for buyers.
limited production capacity but large number of buyers
large production capacity but limited number of buyers
limited production capacity and limited number of buyers
large production capacity and large number of buyers

CORRECT ANSWER:
large production capacity but limited number of buyers

Explanation:
Buyers can exert a lot of pressure and dictate prices, if there are a large number of sellers with similar
products/services.

Therefore, if there is a large production capacity / many sellers and few buyers, than the buyers can bargain
for better prices.

Q 13. What is a limitation of depending exclusively on Annual Reports for research purpose?
Annual reports cannot be relied upon as they are prepared by the company management and therefore will
present a positive picture about the company
As the annual reports are prepared only once in a year, the information provided in it can become obsolete at
a given point of time
Annual reports cannot be relied upon to get information regarding the governance standard of the company
Annual reports do not provide qualitative information on historical performance of the company

CORRECT ANSWER:
As the annual reports are prepared only once in a year, the information provided in it can become obsolete at
a given point of time

Explanation:
A company’s annual report may be a treasure trove of information about a company. However, given that
annual reports are published once every year, the information contained in an annual report starts becoming
dated with the passage of time.

Q 14. When the capital inflows are more than the capital outflows, the country will have a ______ .
Current Account Surplus
Current Account Deficit
Capital Account Surplus
Capital Account Deficit

CORRECT ANSWER:
Capital Account Surplus

Explanation:
Balance of payment statement of a country is broadly divided into two accounts namely the current account
and the capital account. The current account has all the details of transactions on revenue account viz.
imports and exports of goods and services while the capital account captures all the capital flows like FDI,
FII, loans, and grants etc.

Capital account will be in surplus if inflows are more than outflows and in deficit if outflows are more than
inflows on capital account.
Q 15. When two companies combine together to form a totally new company and the previous companies
cease to exist, it is known as _______ .
Merger
Consolidation
Acquisition
Takeover

CORRECT ANSWER:
Consolidation

Explanation:
In a consolidation, companies combine together to form a new company and the merged companies cease to
exist.

(In a merger, the acquirer buys up the shares of the target company and it is absorbed into the acquiring
company and ceases to exist. In an acquisition or takeover, the acquiring company acquires all or a
substantial portion of the stock of the target company. Both entities typically continue to exist after the
acquisition)

Q 16. In which method is the national income measured as the aggregate income of individuals in the
economy?
Product Method
Income Method
Expenditure Method
None of the above

CORRECT ANSWER:
Income Method
Explanation:
National income of an economy can be measured through three methods: (i) Product Method (ii) Income
Method, and (iii) Expenditure Method.

In the Income method, national income is measured as the aggregate income of individuals in the economy.

Q 17. On which factor does the earnings for an investor from the business depend upon?
On the performance of the company
Inflation
Market conditions
Interest rate

CORRECT ANSWER:
On the performance of the company

Explanation:
The returns to an investor from a business depends on various factors, but the most important factor is the
performance of the company.

Q 18. Which of these bonds are issued at a discount?

Junk Bonds
Puttable Bonds
Convertible Bonds
Zero Coupon Bonds

CORRECT ANSWER:
Zero Coupon Bonds

Explanation:
Bonds which do not pay coupon in their entire term are known as Zero Coupon Bonds. Such bonds are
issued at a discount to their face values and are redeemed at par.

Thus, the return on these bonds is not in the form of periodic payment of interest but in the form of
difference between the issue price and redemption value.

Q 19. Which committee is responsible for reviewing the financial statements of the company and for
nominating the auditors ?
Audit committee
Nomination committee
Remuneration committee
Board committee

CORRECT ANSWER:
Audit committee

Explanation:
Audit independence is one of the very critical aspects of corporate governance.

The audit committee is responsible for reviewing the financial statements of the company and for
nominating the auditors.

Q 20. In _________ phase of the cycle, we are most likely to witness low consumer confidence.
Slow down
Recovery
Expansion / Boom
Recession

CORRECT ANSWER:
Recession

Explanation:
In the Recession phase of economic cycle the utilization rates are low and so the manufacturers cut down on
their further expansion plans.

This results in increase in unemployment, decrease in income levels and in turn decrease in consumption.
Decreasing consumption causes losses and more unemployment resulting in low consumer confidence.

Q 21. Which department of Ministry of Finance administers policies relating to pension reforms, life and
general insurance, public sector banks etc?
Department of Expenditure
Department of Financial Services
Department of Revenue
Department of Economic Affairs

CORRECT ANSWER:
Department of Financial Services

Explanation:
The Ministry of Finance (MoF) handles issues related to taxation, financial legislation, financial institutions,
capital markets, state finances and the Union Budget.
Under the MoF, the Department of Financial Services covers Banks, Insurance, Financial Services provided
by various government agencies and private corporations, pension reforms and Industrial Finance and
Micro, Small and Medium Enterprise.

Q 22. As per Regulation 8 of SEBI (Research Analyst) Regulations, any corporate entity wishing to get
registered with SEBI as a Research Analyst should have a minimum net worth of ______ .
Rs 10 lakhs
Rs 20 lakhs
Rs 25 lakhs
Rs 50 lakhs

CORRECT ANSWER:
Rs 25 lakhs

Explanation:
Regulation 8: Capital adequacy

(1) A research analyst who is individual or partnership firm shall have net tangible assets of value not less
than one lakh rupees.

(2) A research analyst who is body corporate or limited liability partnership firm shall have a networth of not
less than twenty five lakh rupees.

Q 23. As per Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015,
deemed to be connected person includes _________ .
A holding / Subsidiary company
Company under the same management
Company under the same group
All of the above
CORRECT ANSWER:
All of the above

Explanation:
As per SEBI, (Prohibition of Insider Trading) Regulations, deemed to be connected persons include -

'A holding company, subsidiary or associate company under the same management or group'

Q 24. A company has declared 20% dividend. The face value of the share is Rs 5 and the dividend payout
ratio is 50%. The current market price of the share is Rs. 100. Calculate the Earning Yield.
2%
20%
7.5%
15%

CORRECT ANSWER:
2%

Explanation:
The company has declared 20% dividend on Rs. 5 face value. So the dividend is Re. 1 (20% of 5)

Dividend Payout ratio = Dividend Per Share / EPS

50% = 1 / EPS

EPS = 1 / 0.5
EPS (Earning Per Share) = 2

Earning Yield % = EPS / Stock Price x 100

= 2 / 100 x 100

= .02 x 100 = 2 %

Q 25. Find out the Cost of Equity if the risk free rate is 7%, the market risk premium is 9% and the Beta is
0.60.
8.1%
13.8%
10.5%
12.4%

CORRECT ANSWER:
12.4%

Explanation:
Cost of Equity = Risk Free Rate + Beta (Risk free rate - Expected Rate)

'Risk free rate - Expected Rate' is also known as Market Risk Premium

= 7 + 0.60 (9)

= 7 + 5.4 = 12.4%

Q 26. Identify which of these is a deeply cyclical industry?

Consumer Durables industry
Health Care industry
Food and Beverage industry
Capital Goods industry

CORRECT ANSWER:
Capital Goods industry

Explanation:
Deep cyclical industries: These industries witness extreme cyclicality in their revenues as they are largely
driven by economic cycle and/or commodity cycles. Capital goods industry exhibits such behaviour.

During recessionary conditions, their sales drop significantly as most companies put their capacity
expansion plans on hold. However, these industries experience massive growth at the first signs of economic
recovery as pent up demand result in higher orders.

Q 27. Which section of the research report is likely to include the analyst's opinion?
Valuation
Industry Analysis
Financial Forecasting
All of the above

CORRECT ANSWER:
All of the above

Explanation:
The research analyst will give his opinion on all these matters :

1. Is the company rightly valued / over or under valued

2. How competitive is the company in the industry etc.

3. Financial forecasting using various ratios

Q 28. As per the SEBI standards of corporate governance, independent directors should constitute at least
75% of the board if the chairman is an executive director. State whether True or False?
True
False

CORRECT ANSWER:
False

Explanation:
SEBI regulation stipulates that independent directors should constitute at least 50% of the board if the
chairman is an executive director. In all other cases, it requires 1/3rd of the board to be comprised of
independent directors.

Q 29. According to Securities and Exchange Board of India (Prohibition of Insider Trading)
Regulations,2015 , a Connected Person includes ___________ .
An officer of the company
An employee of the company
A person who has professional or business relationship with the company
All of the above

CORRECT ANSWER:
All of the above

Explanation:
A connected person is defined by the act as anyone who has been associated with the company in the six
months prior to the connected act and include any person who has been in frequent communication with the
officers of the company in pursuit of contractual, fiduciary or employment relationship or as an officer,
employee or director of the company or holds any position that provides access to such unpublished price
sensitive information.

Q 30. Any change in the Securities Transaction Tax will have an affect on which of these industries?
Defense supply industry
Pharma industry
Security manpower suppliers
Stock brokerage firms

CORRECT ANSWER:
Stock brokerage firms

Explanation:
Security transaction tax is paid at the time of sale of securities / derivatives etc. Since it reduces the
realisable value of security sales, it discourages short-term trading. Thus, this affects stock traders and in
turn stock brokerage firms.

Q 31. The EBITDA % of a business is 60% and the Net Profit is 25% of EBITDA. The Earning Per Share
(EPS) is Rs. 4 and the company has 30000 outstanding shares. Calculate the Sales of the business.
Rs. 7,00,000
Rs. 6,50,000
Rs. 5,00,000
Rs. 8,00,000
CORRECT ANSWER:
Rs. 8,00,000

Explanation:
Earning Per Share (EPS) = Net Profit / No. of shares

So Net Profit = EPS X No, of Shares

Net Profit = 4 X 30000 = Rs 1,20,000

The Net Profit (Rs 120000) is 25% of EBITDA

So EBITA = 120000 X 100 / 25 = Rs 4,80,000

EBITDA is 60% of business, which means EBITDA is 60% of sales

So Sales = 480000 X 100 / 60 = Rs 8,00,000

Q 32. Companies consider consolidating their shares if prices of their shares in the secondary market are
seen to be _______ .
very high
very low
very flat
very volatile

CORRECT ANSWER:
very low
Explanation:
In a share consolidation, the company changes the structure of its share capital by increasing the par value of
its shares in a defined ratio and correspondingly reducing the number of shares outstanding to maintain the
paid up/subscribed capital.

Companies consider consolidating their shares if prices of their shares in the secondary market are seen to be
very low effecting the perception of investors. An increase in the price per share post- consolidation, leads to
better perception among the market participants about the company’s prospects.

Q 33. What is the reason that even though the prices of a product shoots up, still there is no fall in the
demand?
The customers are very brand loyal
The customers are addicted to the product
Pricing power of the business
All of the above

CORRECT ANSWER:
All of the above

Explanation:
Pricing power is generally a function of industry dynamics, elasticity of demand and branding and customer
loyalty/addiction. Presence of strong brands and/or virtual monopoly play an important factor in the pricing
power.

Tobacco based businesses are an example of such businesses wherein, constant rise in taxes by the Govt. are
passed on by the companies to their end consumers and even then there is no impact on volumes as
consumers are generally brand loyal / addict.

Q 34. __________ has mandated that listed companies shall declare dividends in rupees terms on per share
basis.
Ministry of Finance
RBI
SEBI
Stock Exchanges

CORRECT ANSWER:
SEBI

Explanation:
SEBI has mandated that listed companies shall declare dividends in rupees terms on per share basis as
against the earlier practice of declaring dividends as a percentage of the face value.
This is to avoid confusion among investors while comparing dividend on various shares of different face
values.
For eg. If a company declares 50% dividend on shares of face value Rs. 2, it should state that the dividend is
Re. 1 per share ( 50% of facevalue Rs. 2)

Q 35. _________ is NOT considered as a political factor.

Communal tensions and violence
Bureaucracy
Minimal corruption
Balance of Payment position

CORRECT ANSWER:
Balance of Payment position

Explanation:
In PESTLE Analysis - Stability in legislation and policy, minimal corruption, bureaucracy, communal
tensions and violence coupled with maximum freedom of press, ease of doing business and quick turnaround
time are some of the political factors which investors would look at in a country.

Balance of Payment is an Economic factor.

(PESTLE Analysis stands for Political, Economic, Socio-cultural, Technological, Legal and Environmental
Analysis)

Q 36. SEBI (Research Analyst) Regulations 8 states that - A research analyst who is body Corporate shall
have a networth of not less than ________ .
One lakh rupees
Ten lakh rupees
Twenty five lakh rupees
Fifty lakh rupees

CORRECT ANSWER:
Twenty five lakh rupees

Explanation:
Regulation 8: Capital adequacy -

(1) A research analyst who is individual or partnership firm shall have net tangible assets of
value not less than one lakh rupees.

(2) A research analyst who is body corporate or limited liability partnership firm shall have a
networth of not less than twenty five lakh rupees.

Q 37. In a company the total assets are of Rs. 70000 and the total liabilities are of Rs. 50000. Calculate the
Asset to Equity Ratio.
3.5
2.75
1.4
1.7
CORRECT ANSWER:
3.5

Explanation:
The difference between the assets and the liabilities is known as equity.

So Equity = Assets - Liabilities

= 70000 - 50000 = 20000

Asset to Equity Ratio = Assets / Equity

= 70000 / 20000

= 3.5

Q 38. The term “securities” has been defined in the Section 2(h) of Securities Contracts (Regulation) Act,
1956 and it include(s) _______ .
Treasury Bills (Government Securities)
Bonds
Equity Shares
All of the above

CORRECT ANSWER:
All of the above

Explanation:
As per SCRA, the term ‘Securities’ include:
1. Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in
or of any incorporated company or other body corporate
2. Derivative
3. Units or any other instrument issued by any collective investment scheme to the investors in such schemes
units
4. Security receipt
5. Units or any other such instrument issued to the investors under any mutual fund scheme
6. Any certificate or instrument
7. Government securities
8. Such other securities as may be declared by the Central Government to be securities and
9. Rights or interest in securities

Q 39. Current Account Savings Account(CASA) deposit is an important factor while analyzing and
examining banks - State True or False?
True
False

CORRECT ANSWER:
True

Explanation:
Low cost deposits like Current Account, Savings Account - CASA is a one of the determining factor for
banks profitability. More CASA means more low cost of funds which can be lend out and so more profits.

Q 40. Book value per share of a company is calculated as ______ .

Debt + Equity of the company
Equity plus Reserves of the company
Net Worth of the Company / Number of Outstanding Shares
Net Profit / Equity
CORRECT ANSWER:
Net Worth of the Company / Number of Outstanding Shares

Explanation:
Book Value of a company is the net-worth of the company.

To compute book value per share, net-worth of the company is divided by the number of outstanding shares.

In simple terms, book value per share means the theoretical amount of money each share would get in case
the company was to wind up.

Q 41. To do good investing, one is required to _______ .

Do rigorous research
Evaluate alternate investment opportunities
Have clear investment goals
All of the above

CORRECT ANSWER:
All of the above

Explanation:
Investing requires adequate efforts in terms of research and understanding the investment options available,
determining their suitability for the needs of the investors and their appropriate value.

Q 42. Study of microeconomics involve _______ .

Study of behavior of individuals in an economy
Study of firms and households
Study of general state of economy
Both 1 and 2
CORRECT ANSWER:
Both 1 and 2

Explanation:
Microeconomics is the study of the behaviour of individuals and their decisions on what to buy and consume
based on prevalent prices which in turn signals where the economy has to direct its productive activities.
Accordingly, Microeconomics focuses on the drivers of decision making, as well as the ways in which
individuals’ decisions affect the overall supply and demand and supply of particular goods and services, in
an economy, and in turn their prices.

Macroeconomics is the study of "the big picture" in the economy. While microeconomics focuses on
individual households and firms, macroeconomics deals with the economy as a whole.

Q 43. What is the market capitalisation of a company if the Return on Equity is 25%, the Net Profit is Rs.
80000, the Book value per share is Rs 100 and the market price per share is Rs. 200.
Rs. 1640000
Rs. 640000
Rs. 6400000
Rs. 264000

CORRECT ANSWER:
Rs. 640000

Explanation:
Step1.

Return On Equity = Earning Per Share (EPS) / Book Value

25% = EPS / 100

So EPS is 25% of 100 = 25

Step 2.

EPS = Net Profit / No. of Shares

25 = 80000 / No. of Shares

No Shares = 80000 / 25 = 3200

Step 3.

Market Capitalisation = Market Price X No. of shares

= 200 x 3200 = 640000

Q 44. _______ allow the issuer to redeem the bonds prior to their original maturity date.
Callable Bonds
Puttable Bonds
Payment in Kind (PIK) Bonds
Zero coupon bonds

CORRECT ANSWER:
Callable Bonds
Explanation:
Callable Bonds give the right to issuers to call the bonds back. It allows the issuer to redeem the bonds prior
to their original maturity date.

When interest rates fall, the issuer would be in a position to raise the same amount of loan, at a lower
interest rate. So it would call back the bonds, redeem the amount and raise the same amount of loan at a
lower interest cost.

Q 45. Price to Earnings ratio is calculated as ______ .

Earnings per share (EPS) x Current price of stock
Earnings per share (EPS) / Current price of stock
Current price of stock / Earnings per share (EPS)
Current price of stock X Earnings per share (EPS)

CORRECT ANSWER:
Current price of stock / Earnings per share (EPS)

Explanation:
Price to Earnings Ratio (P/E) = Current price of stock/ Earnings Per Share (EPS)

The PE ratio represents the value placed by the market on each rupee of earnings of the company. It is
calculated using the current market price and the historical EPS, or forward PE by using the forecasted EPS.

Q 46. Per Capita Income of a country is calculated as _______ .

Total population X National Income
Total population / National Income
National Income X Total population
National Income / Total population

CORRECT ANSWER:
National Income / Total population

Explanation:
Per Capita Income is the average income earned by each individual in the economy and is calculated as :
National Income / Total population

Q 47. ______ will suspend the price-value thought from the mind of the customers.
Brand Loyalty
Good Service
Good Quality Products
All of the above

CORRECT ANSWER:
All of the above

Explanation:
Price-Value thought means the thought which a consumer has regarding the price he pays for the value
which he gets from the product or service.

If the product is very good or if the consumer is very loyal to a brand, he will not mind the price and will
ignore the value because he is satisfied. For eg. If a person buys SONY TV, he will pay a higher price for it
and believe he has got a good product even though other brands may offer better products at a lower price.

Q 48. A low price to book value indicates that ______ .

the assets are expensive
the assets are cheap
the management is prudent
P/B Ratio as such gives no indication

CORRECT ANSWER:
the assets are cheap

Explanation:
Price to book value ratio = Market capitalization / Book value of equity or net-worth

This ratio indicates, how much we are paying to buy each Rs. of book value of equity.

Lower P/B ratio means assets are available cheap and higher this number, assets are expensive.

Q 49. Good corporate governance does not involve the aspects of honesty and transparency in operations of
the business - State True or False?
True
False

CORRECT ANSWER:
False

Explanation:
Governance, in simplest sense, means telling the “Truth” in all aspects of life.

Corporate Governance basically takes into account the integrity and transparency aspect of the management.
Q 50. Which factor or factors contribute to economic recovery from recessionary conditions?
Low interest rates
Low inflation
Both low interest rates and low inflation
Neither low interest rates nor low inflation

CORRECT ANSWER:
Both low interest rates and low inflation

Explanation:
The stages in economic life cycle can be broken into four phases - Expansion / Boom, Slow Down,
Recession and Recovery.

Recovery: Low inflation rate enables central banks to loosen their monetary policy and extend liquidity in
the market. With relative easy availability of money and decrease in prices, consumers start buying goods
and services. This results in economic activity picking up and eventually results in return of expansionary
phase.

Low interest rates motivate the industries to get funds at cheaper rates which leads to increased productivity
which leads to increased jobs and increased income which subsequently leads to economic recovery.

Q 51. In technical analysis terminology, the price at which the stock peaks is called as ______ .
Year high
Support
Resistance
Week high

CORRECT ANSWER:
Resistance
Explanation:
A Resistance Level on the technical charts is where the price tends to find resistance as it is going up. Its the
likely peak point. This means the price is more likely to go down from this level rather than break through it.

On the other hand, a Support Level is level where the price tends to find support as it is going down. Its
more likely to bounce UP from these levels.

Q 52. XYZ Ltd. has Return on Capital Employed (ROCE) of 40% and Return on Equity (ROE) of 25%.
The Net Profit is at Rs. 2,00,000 and the EBIT is at Rs. 4,00,000. Calculate the debt level in this business.
Rs. 2,00,000
Rs, 5,00,000
Rs. 7,50,000
Rs. 4,75,000

CORRECT ANSWER:
Rs. 2,00,000

Explanation:
ROCE = EBIT / Capital Employed

40% = 4,00,000 / Capital Employed

Capital Employed = 400000/0.4 = Rs. 10,00,000

ROE = Net Profit / Share Equity

25% = 2,00,000 / Share Equity

Share Equity = 200000 / 0.25 = Rs. 8,00,000

Debt = Total Capital Employed - Share Equity

= 10,00,000 - 8,00,000

= Rs. 2,00,000

Q 53. Which concern provides for maintenance of ownership records in a book entry form?
Depository
Stock Exchange
Bank
Clearing Corporation

CORRECT ANSWER:
Depository

Explanation:
Depositories hold securities of investors in electronic form and maintains the ownership records.

Q 54. A research analyst has assessed that the fair value of a share ABC Ltd., to be quiet lower than its
current market price. What would be the appropriate way to express this in a research report?
We recommend investor to not consider buying ABC Ltd. as it is overvalued
We assign an 'underweight' rating on ABC Ltd.
We we strongly recommend that investors in ABC Ltd. should sell it at the earliest
All of the above

CORRECT ANSWER:
We assign an 'underweight' rating on ABC Ltd.

Explanation:
Consider an example. The fair value of ABC Ltd. share according to a research analyst is Rs 100 and the
current market price is Rs 140.

In such a case, where the share is over priced, the analyst will recommend selling the share in case an
investor is holding it or not to buy these shares for a new investor. An 'Underweight' rating will be assigned.

(In financial markets, while rating stocks, various conventions are used by the research analysts. The
prevalent recommendations include: "buy", "overweight", "hold", "underweight" and "sell")

Q 55. When a foreign investor invests in the existing financial instruments of a country, this is know as
_____ .
Foreign Financial Participation
Foreign Direct investment
Foreign Portfolio Investment
Foreign Aid

CORRECT ANSWER:
Foreign Portfolio Investment

Explanation:
Foreign capital flows to a country can be either in active form known as Foreign Direct Investment (FDI) or
passive form known as Foreign Portfolio Investment (FPI).
In case of FDIs, investing entities participate in decision making and drive the businesses. However,
Portfolio Investment, as name indicates is investment in the existing financial instruments – equity or bonds
by the Foreign Portfolio Investors (FPIs) without any management participation.

Q 56. The EBIT % of a business is 50% with EBIT levels of Rs. 600000. The Net Profit margin of this
company is 25%. No. of shares outstanding are 50000. The Retention Ratio is 50%. Calculate the Dividend
Per Share.
Rs. 1.50
Rs. 3
Rs. 4
Rs. 5

CORRECT ANSWER:
Rs. 3

Explanation:
The EBIT is Rs 600000 and this is 50% of the business ie. 50% of sales.

So Sales = Rs 12,00,000 (600000 / 50 x 100)

Net Profit margin is 25% ie 25% of Sales Rs. 12,00,000

25% of Rs. 12,00,000 = Rs. 3,00,000

EPS = Net Profit / No. of Shares

= 300000 / 50000 = 6

Retention Ratio is 50% which means the Dividend Payout Ration is 50% ( 100 - 50 )
50% dividend is paid from the earnings.

50% of EPS ie. 50% of 6 = Rs. 3 is the Dividend Paid per share

Q 57. The top management of a company has to give a presentation to Research Analysts. A good
management will talk about _______ .
Future financial prospects to positively influence the analysts
Challenges and opportunities faced in the company business
Future performance of the company's stock in the stock market
All of the above

CORRECT ANSWER:
All of the above

Explanation:
A good management will give a 360 degree view of the future prospects of the company to the research
analysts to positively influence their sentiments.

Q 58. SEBI Act has empowered SEBI to take following actions, except _______ .
Impound and retain the proceeds or securities in respect of any transaction which is in violation or prima
facie in violation of SEBI regulations
Appointment of Director of Financial Intelligence Unit
To suspend an office bearer of a SEBI registered intermediary
To suspend trading in a security listed on a stock exchange
CORRECT ANSWER:
Appointment of Director of Financial Intelligence Unit

Explanation:
Financial Intelligence Unit – India (FIU-IND) was set by the Government of India in 2004 as the central
national agency responsible for receiving, processing, analyzing and disseminating information relating to
suspect financial transactions.

The directors of FIU are appointed by the Central Government and not by SEBI.

Q 59. Identify the industry which is most likely in its pioneering stage?
Smart Phones
Financial Services
Block Chain Technology
Food and Hotel

CORRECT ANSWER:
Block Chain Technology

Explanation:
Every industry typically goes through various stages like Pioneering stage, Growth stage, Matured stage etc.

In the Pioneering stage the industry is just taking shape. It is not widely adopted. The concept is still being
proven or just been proven.

Block Chain technology is currently a new industry and the concept is yet to be widely accepted.
Q 60. Identify the Act / Regulation which empowers SEBI to direct any intermediary or person associated
with the securities market, not to dispose of any asset which is a part of an investigation.
SEBI Act, 1992
Securities Contracts (Regulation) Act, 1956
SEBI (Intermediaries) Regulations, 2008
SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulation, 2003

CORRECT ANSWER:
SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulation, 2003

Explanation:
As per the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets)
Regulations :

SEBI by an order in the interests of the investors and the securities market issue or take any of the following
actions or directions, either pending investigation or enquiry or on completion of the investigation or enquiry
namely -

Direct an intermediary or any person associated with the securities market in any manner not to dispose of or
alienate an asset forming part of a fraudulent and unfair transaction.

Q 61. Identify the TRUE statement with respect to CREDIT RATING.

Credit rating is only relevant to those equity share holders who also hold debt securities of the company
Credit rating is relevant to equity share holders as a company can provide returns to equity investors only if
the lenders are serviced first
Credit rating is not at all relevant to equity share holders as it is only related with debt
None of the above
CORRECT ANSWER:
Credit rating is relevant to equity share holders as a company can provide returns to equity investors only if
the lenders are serviced first

Explanation:
Credit rating refers to the rating of the ability of a borrower to service its debt related obligations.

Although credit rating pertains to debt, it is also of relevance to equity investors as a company can provide
returns to equity investors only if the lenders are serviced first. Thus, credit rating provides an investor with
the level of financial risk involved and can thus drive the return expectations of investors.

Q 62. ___________ measures the ability of the company to satisfy its short term obligations.
Current Ratio
High Return on Equity (ROE)
High Return on Capital Employed (ROCE)
Inventory Turnover Ratio

CORRECT ANSWER:
Current Ratio

Explanation:
Current Ratio: This ratio measures the company’s liquidity situation by comparing its current assets with its
current liabilities. This ratio measures the ability of the company to meet its short-term liabilities.

Current Ratio = Current Assets/ Current Liabilities

Q 63. A business, once it reaches its Matured Stage, ______________ .
will again re-enter the growth phase
may decline and die or it can reinvent it self and revive the business
will reinvent it self and revive the business
will eventually decline and die

CORRECT ANSWER:
may decline and die or it can reinvent it self and revive the business

Explanation:
Every industry typically goes through the following phases:

a) Pioneering stage: The industry is just taking shape. It is not widely adopted. The concept is still being
proven or just been proven.

b) Growth stage: The concept is found viable and many customers start adopting the new product. As more
and more customers adopt the product, the industry witness steep growth.

c) Matured stage: The industry has existed for long and most customers who can use the product are already
using it. Number of new (potential) customers are relatively less.

d) Declining stage: Change in customer preference or a new technology replaces the industry’s product with
a new product. At this juncture, the industry starts losing out to the alternatives.

e) Reinvention and revival: Although it is very rare, it is possible that the goods or services produced by the
industry finds a new use in a different application and starts a new cycle all over again.
Q 64. What does investing on the basis of Margin of Safety (MOS) mean?
Investing in securities which are over-priced by the market
Investing in securities of monopolistic businesses
Investing in securities which are underpriced by market
Investing in businesses with strong moats

CORRECT ANSWER:
Investing in securities which are underpriced by market

Explanation:
Margin of Safety is the term popularized by Mr. Benjamin Graham (known as "the father of value
investing") and his followers, most notably Mr. Warren Buffett.

In simple words, margin of safety refers to the difference between value and prices, when securities are
bought at a price significantly below their intrinsic value. Higher the difference between value and price
(i.e., value higher than price), higher the margin of safety.

Q 65. Which trends Secular are often driven by disruptions caused by change in technology, culture,
demography etc.
Seasonal Trends
Cyclical Trends
Secular Trends
All of the above

CORRECT ANSWER:
Secular Trends
Explanation:
Secular trends refer to long term change that is occurring in the economy or industry.

Secular trends are often driven by disruptions caused by change in technology, culture, demography, and
consumer preferences among other factors. They are often long term in nature and often cause an inflection
in the business lifecycle of an industry.

Q 66. [Link] is an research analyst and has assessed the fair value of a listed stock at Rs. 570. The
current market price of this stock is Rs. 475. Identify the appropriate way in which this can be expressed in a
research report.
We assign an ‘Overweight’ rating on the stock with target price of Rs. 570
We assign a BUY rating on the stock and it can approx 20% return in one year
We firmly recommend that investors should buy this share
All of the above

CORRECT ANSWER:
We assign an ‘Overweight’ rating on the stock with target price of Rs. 570

Explanation:
In financial markets, while rating stocks, various conventions are used by the research analysts. The
prevalent recommendations include: "buy", "overweight", "hold", "underweight" and "sell".

An ‘overweight’ rating indicates the expectation that the stock or sector will perform better than the market.
Q 67. As per the Boston Consulting Group (BCG) Analysis, Tata Nano can be considered as an example of
a Question Mark, which did not succeed - State True or False ?
False
True

CORRECT ANSWER:
True

Explanation:
In BCG Analysis, Question Marks Business segments in a fast growing market, but having low market
share. The right strategies can help the market share of the business grow, but they also run the risk of
consuming cash in the process of increasing market share and in the end turning out to be not enough cash
generating.

Tata Nano is one such example as although it was in a fast growing market and the Tata's had poured in a lot
of investments, it is not very successful as of date.

Q 68. Investment advisers work with investors to help them decide on asset allocation and make a choice
of investments based on ________.
time horizon of investments
assessment of their needs
ability to bear risk
All of the above

CORRECT ANSWER:
All of the above
Q 69. Which of the following is Systematic Risk ?
Market risk
Credit risk
Liquidity risk
Business risk

CORRECT ANSWER:
Market risk

Explanation:
Systematic risk or market risk refers to those risks that are applicable to the entire financial market or a wide
range of investments.

Systematic risk is caused due to factors that may affect the economy/markets as a whole, such as changes in
government policy, external factors, wars or natural calamities.

These risks are also known as undiversifiable risks, because they cannot be eliminated through
diversification.

Q 70. Visuals like graphs and charts are more effective than numerical data in a research report - State True
or False ?
True
False

CORRECT ANSWER:
True
Explanation:
A good report always comprises of visuals and exhibits like charts and graphs to make it simple for readers
to understand the contents.

Q 71. ________ is/are Unsystematic risk.

credit risk
business risk
liquidity risk
All of the above

CORRECT ANSWER:
All of the above

Explanation:
Unsystematic risk is the risk specific to individual securities / industry. Hence it can be diversified away by
including other assets in the portfolio. Credit risk, business risk, and liquidity risks are unsystematic risks.

Q 72. Investment Operation requires a thorough research due to the below mentioned reasons EXCEPT .
understanding the investment options available
determining their suitability for the needs of the investors
get fast and quick returns on investments
None of the above

CORRECT ANSWER:
get fast and quick returns on investments

Explanation:
An investment operation is one which, upon thorough analysis promises safety of principal and an adequate
return. Operations not meeting these requirements are speculative.
Investing requires adequate efforts in terms of research and understanding the investment options available,
determining their suitability for the needs of the investors and their appropriate value.

Q 73. Predicting absolutely random events on the basis of what happened in the past or making trends
when there exists none - This is known as _______ bias.
Herd mentality
Gambler’s fallacy
Anchoring
Projection

CORRECT ANSWER:
Gambler’s fallacy

Q 74. A well informed long term investor should also be concerned about the short term fluctuations in the
stock market - State True or False ?
True
False

CORRECT ANSWER:
False
Explanation:
An investors having a long term horizon should not be worried about the day to day fluctuations in the stock
markets.

Q 75. Price to earnings ratio of a business is 8, price to book value ratio of this business is 4, book value
per share is Rs. 12 and outstanding number of shares are 8000, what would be the return on equity of this
business?
30%
38%
50%
62%

CORRECT ANSWER:
50%

Explanation:
Price to Book Value = Stock Price / Book Value

So Stock Price = Price to Book Value X Book Value

Stock Price = 4 X 12 = Rs 48

PE = Stock Price / EPS

So EPS = Stock Price / PE

EPS = 48 / 8 = 6

Return on Equity = (EPS / Book Value) X 100

= (6 / 12) x 100 = 50%

Q 76. Mr. A had purchased a bond with a coupon rate of 8%. Subsequently the interest rates in the
economy moved up to 9%. Mr. A will ______ .
book the capital gains
still be able to redeem on face value on maturity
both 1 and 2
None of the above

CORRECT ANSWER:
still be able to redeem on face value on maturity

Explanation:
As the coupon (interest) rates have moved up, the bond purchased by Mr A will become less attractive and
its price will fall.

But on maturity, Mr. A will get the face value amount from the issuer.

Q 77. The Debt to Equity Ratio of a company is 2:1 and the total size of its Balance Sheet is 9,00,000. If
the return on equity is 18%, calculate the Net Profit of the company.
Rs 162000
Rs 108000
Rs 67000
Rs 54000

CORRECT ANSWER:
Rs 54000
Explanation:
Size of Balance Sheet = Assets = Equity + Liabilities

Debt Equity Ratio is 2:1

So 900000 when divided in 2 : 1 = 600000 : 300000 ( Debt and Equity )

So Equity is 300000.

Return on Equity or Net Profit is 18% on Equity ie. 18% of 300000

= 54000

Q 78. __________ Bias means holding on to an old information that may no longer be relevant, and make
their decisions based on that.
Anchoring
Familiarity
Choice Paralysis
Herd Mentality

CORRECT ANSWER:
Anchoring

Explanation:
Investors hold on to some information that may no longer be relevant, and make their decisions based on
that. New information is labelled as incorrect or irrelevant and ignored in the decision making process. This
is known as Anchoring bias.
Q 79. Careful analysis of historical financials is NOT required in which business analysis ?
Valuation
Quantitative
Qualitative
All of the above

CORRECT ANSWER:
Qualitative

Explanation:
Qualitative parameters take care of aspects like business/revenue model, SWOT analysis, competition in the
industry, technology aspects etc.

Quantitative parameters would consist of financial aspects such as ratio analysis, analysis of cash flows etc.;
Valuation parameters would consist of intrinsic value, P/E, P/BV, margin of safety aspects.

So only Quantitative and Valuation analysis of business require analysis of historical financials.

Q 80. __________ is NOT a department of Ministry of Finance.

Department of Economic Affairs
Department of Disinvestments
Reserve Bank of India
Department of Revenue

CORRECT ANSWER:
Reserve Bank of India

Explanation:
Ministry of Finance comprises of five departments :

Department of Economic Affairs

Department of Expenditure

Department of Revenue

Department of Financial Services

Department of Disinvestments

Q 81. An industry which has weak buyers bargaining power and low competition will have ________.
strong pricing power and high profit margins
strong pricing power and low profit margins
weak pricing power and high profit margins
weak pricing power and low profit margins

CORRECT ANSWER:
strong pricing power and high profit margins

Explanation:
An industry having the below mentioned features will have strong pricing power and high profit margins
and attract investors :

1. Low competition
2. High barriers to entry
3. Weak suppliers’ bargaining power
4. Weak buyers’ bargaining power
5. Few substitutes

Q 82. Policies relating to pollution control, waste disposal etc are issues related to which factor in PESTLE
analysis ?
Socio-Cultural Factors
Environmental Factors
Legal Factors
Political Factors

CORRECT ANSWER:
Environmental Factors

Explanation:
Policies relating to pollution control, waste disposal, mining and protection of natural flora and fauna,
rehabilitation of displaced local residents etc. are Environmental Factors in PESTLE analysis.

Q 83. In which of the following does Capitalisation of Revenue Reserve takes place ?
Bonus Shares
Stock Split
Rights Issue
All of the above

CORRECT ANSWER:
Bonus Shares

Explanation:
Bonus shares or Stock dividend are additional shares are given to the shareholders in proportion of their
holdings by capitalisation of revenue reserves.

Rights issue is given to the existing shareholders to buy additional shares at a price, generally lower than the
prevailing market price.

Stock split means existing shares are replaced by the reduced face value shares and increased number to
maintain the pre-corporate action total face value held by shareholders.

Q 84. The Price to Book Value Ratio (P/B) of a company is quiet low. What does it indicate ?
The assets are available cheap
The assets are expensive
P/B Ratio as such gives no indication
None of the above

CORRECT ANSWER:
The assets are available cheap

Explanation:
Price to book value ratio = Market capitalization / Book value of equity or net-worth

This ratio indicates, how much we are paying to buy each Rs. of book value of equity.
Lower P/B ratio means assets are available cheap and higher this number, assets are expensive.
Q 85. To get a quick sense of quality while analyzing business, one must look at _________ .
The Macro and Micro economic factors
The future financial projections of the business
The historical financials of the business
The managements future perceptions of the business

CORRECT ANSWER:
The historical financials of the business

Explanation:
The history of a company is best illustrated by its financial performance.

If financials are good, they would give a sense of quality of business being good and if they are bad, it will
mean that their is an issue with the business quality.

Q 86. The formula for calculating 'Return on Capital Employed' is _________ .

PAT / Net-worth
PAT / Capital Employed
EBIT/ Capital Employed
EBIT/ Net Sales

CORRECT ANSWER:
EBIT/ Capital Employed

Explanation:
ROCE = Earnings Before Interest & Tax / Capital Employed
Capital Employed = Total Assets – Current Liabilities or Total Equity + Total Debt

Q 87. The current inventory of a company is Rs 2000. The average age of inventory for this company is 10
days. Calculate the Sales of the company over the last year. (Assume 365 days in a year)
Rs 36500
Rs 25000
Rs 73000
Rs 56500

CORRECT ANSWER:
Rs 73000

Explanation:
Inventory Turnover ratio gives the number of times inventory is rolled over by a company.

Since the average age of inventory is 10 days, this means in 365 days the inventory is rolled 36.5 times
(365/10). This is the Inventory turnover.

Inventory Turnover = Sales / Inventory

36.5 = Sales / 2000

Sales = 36.5 x 2000 = Rs 73000

Q 88. In technical analysis, impact of day to day fluctuations in prices is annulled by which of the
following factors?
Using Moving Averages
Using liquidity parameter along with prices
Increasing Time Period of price charts
None of the above

CORRECT ANSWER:
Using Moving Averages

Explanation:
Moving Averages is a widely used indicator in technical analysis that helps smooth out price action by
filtering out the “noise” from random day to day price fluctuations.

Q 89. Code of conduct is defined in the Schedule ____ of Research Analyst Regulations.
I
II
III
IV

CORRECT ANSWER:
III

Q 90. The net profit of a company is Rs 146 crores. The current price of its stock is Rs 66.40. The number
of outstanding shares of the company are 38744620. Find the P/E ratio of the company.
1.762
17.62
2.198
21.98

CORRECT ANSWER:
1.762

Explanation:
Earning Per Share (EPS) = Net Profit / Outstanding Shares

= 1460000000 / 38744620

( Tip : To write in crores, add 7 zeros ahead of the number, for eg. 100 crores = 100,0000000)

EPS = 37.68

P/E Ratio = Stock Price / EPS

= 66.40 / 37.68

= 1.762

Q 91. As per Technical Analysis, the point at which the price of a stock or index peaks is known as the
_________ levels.
52 week high
weekly high
Resistance
Support
CORRECT ANSWER:
Resistance

Explanation:
A Resistance Level on the technical charts is where the price tends to find resistance as it is going up. Its the
likely peak point. This means the price is more likely to go down from this level rather than break through it.

A Support Level is level where the price tends to find support as it is going down. Its more likely to bounce
UP from these levels.

Q 92. Free cash flows to the firm (FCFF), is computed as

EBIT - Tax + Depreciation & Non-cash charges + Increase(Decrease) in working capital - Capital
Expenditure Incurred (Sale of assets)
EBIT - Tax + Depreciation & Non-cash charges * Increase(Decrease) in working capital - Capital
Expenditure Incurred (Sale of assets)
EBIT - Tax + Depreciation & Non-cash charges - Increase(Decrease) in working capital - Capital
Expenditure Incurred (Sale of assets)
EBIT - Tax + Depreciation & Non-cash charges / Increase(Decrease) in working capital - Capital
Expenditure Incurred (Sale of assets)

CORRECT ANSWER:
EBIT - Tax + Depreciation & Non-cash charges - Increase(Decrease) in working capital - Capital
Expenditure Incurred (Sale of assets)

Explanation:
Please remember the formula.
Q 93. The unemployment rate is _____ during boom times in the economy.
High
Low
Nil
100%

CORRECT ANSWER:
Low

Explanation:
Unemployment rate refers to the eligible and willing to work unemployed population of the country.

During an expansion phase / boom time, the unemployment rate falls as more jobs are created as production
goes up.

Q 94. Most of the data required for a research report is readily available, except :
Competition in the industry
Financial data
Views of the Management on future opportunities and threats
Business model

CORRECT ANSWER:
Views of the Management on future opportunities and threats

Explanation:
Correct and detailed management views can be obtained only through personal interactions with them.
These views are generally not available elsewhere.
Q 95. The credit risk in all exchange traded markets is taken care by _______ .
the brokers
the Clearing Corporation
the Depositories
the counter parties themseleves

CORRECT ANSWER:
the Clearing Corporation

Explanation:
The trades executed on the exchange are settled through the clearing corporation, which acts as a
counterparty and guarantees the settlement of the trades to both buyers and sellers.

The clearing corporation, gives settlement guarantee of trades to the counterparties (all buyers and sellers).

Q 96. The price of the stock of M/s PQR Ltd is Rs 100 and the PE ratio is 20. Find the amount retained by
the company if the retention ratio is 30%.
Rs 5
Rs 30
Rs 2.3
Rs 1.5

CORRECT ANSWER:
Rs 1.5
Explanation:
PE Ratio = Stock Price / EPS

20 = 100 / EPS

Thus the Earning Per Share is 100 / 20 = Rs 5

Out of this Rs 5 earnings, the company retains 30% = Rs 1.5

Q 97. The SEBI Act empowers SEBI to take following actions EXCEPT -
Impound and retain the proceeds or securities in respect of any transaction which is in violation or prima
facie in violation of regulations
Develop and Administer certification exam
Suspend trading in a security at a Stock Exchange
Suspend an office bearer of a SEBI registered entity

CORRECT ANSWER:
Develop and Administer certification exam

Explanation:
SEBI directly does not develop and administer the certification exam. It has appointed NISM for this
purpose.

Q 98. The policy stance usually undertaken during recessions/slow moving economy and when
government’s spending exceeds its income is known as Contractionary fiscal policy - State True or False ?
True
False
CORRECT ANSWER:
False

Explanation:
Expansionary fiscal policy – Fiscal measures when government’s spending exceeds its [Link] policy
stance is usually undertaken during recessions/slow moving economy.

Contractionary fiscal policy – Fiscal measures when government’s spending is lower than its income.
Government uses excess income to repay its debts/obligations or acquire assets.

Q 99. A business has a total assets of Rs 1000000 and the Earning Per Share is Rs 1. The Net Income is Rs
80000. The Price to Earning ratio is 12 and the Price to Book Value ratio is 1.3 . Calculate the Asset to
Equity ratio.
1.13
1.35
5.40
2.33

CORRECT ANSWER:
1.35

Explanation:
First we calculate the number of Shares.

EPS = Income / No. of Shares

1 = 80000 / No. of Shares

So No. of Shares = 80,000

Now we calculate the Market Price of a Share

PE = Market Price / EPS

Market Price = PE X EPS

= 12 x 1 = 12

Book Value = Price / Price to Book Ratio

= 12 / 1.3 = 9.23

Equity (Networth) = Book Value x No. of Shares

= 9.23 x 80,000 = 738400

Asset to Equity Ratio = Asset / Equity

= 1000000 / 738400

= 1.35

Q 100. The importance and use of microeconomics is/are ___________.

Microeconomics deals with the understanding and working of a free market economy
Microeconomics helps us understand how the prices of the products and services get determined in an
economy
Microeconomics helps us understand how individuals and firm behave with regard to prices and how goods
and services in an economy are distributed among its various participants.
All of the above
CORRECT ANSWER:
All of the above

Explanation:
Microeconomics is the study of economics on a smaller (micro), more detailed scale and macroeconomics is
the study of economics on a larger (macro), broader scale. Microeconomics is the study of the behaviour of
individuals and their decisions on what to buy and consume based on prevalent prices which in turn signals
where the economy has to direct its productive activities.

The importance and uses of microeconomics in brief are as under:

1. Microeconomics deals with the understanding and working of a free market economy.

2. Microeconomics helps us understand how the prices of the products and services get determined in an
economy, how individuals and firm behave with regard to those prices and how goods and services in an
economy are distributed among its various participants.

Out of 100 questions 1 wrong and 99 un attempted.