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ABFM MODULE - D
Top MCQs (PART-I)
What we will study?
*High priority MCQs of Module D?
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Ques 1: Which statement is incorrect about hybrid security?
a. The characteristics of debt and equity which are combined into a
single instrument is known as a hybrid security.
b. Advantages of hybrid security include higher yield, less volatile
market price and risk diversification.
c. Disadvantages of hybrid security is that its assessment is
difficult.
d. Venture Capital is an example of hybrid security.
Example of Hybrid Securities:
Preference Shares, Warrants, Convertible Debentures/Bonds
Foreign Currency Convertible Bonds, Mezzanine Financing.
Ques 2: Banks may issue Perpetual Non-Cumulative Preference
Shares (PNCPS) with a call option at a specific date but the call
option on the instrument is acceptable after it has run for ------?
a. At least 5 years. b. Less than 5 years.
c. 5 years. d. At least 10 years.
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Ques 3: Which of the following statement is true?
Statement x: As per Section 43 of the Companies Act, 2013,
Preference Share Capital in case of any company limited by shares,
shareholder would carry a preferential right with respect to:
(1) Payment of taxable or tax-free dividend, as a fixed amount or at
a fixed rate.
(2) Repayment of paid-up or deemed paid-up share capital, in the
case of a winding-up.
Statement y: In terms of provisions of Section 47, where the
dividend in respect of a class of preference shares has not been
paid for a period of 2 years or more, such class of preference
shareholders shall have a right to vote on all the resolutions placed
before the company.
a. Only x. b. Only y.
c. x and y both. d. None.
Ques 4: Black Scholes Model approach is used for valuation of?
a. Bonds. b. Share.
c. Warrant. d. Debenture.
Note: It is used for valuation of Options or Warrant.
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Ques 5: ------- of the Companies Act, 2013, states that issue of
irredeemable shares is prohibited and puts an outer limit for
redemption of a period not exceeding 20 years from the date of
their issue but permits issue of preference shares for a period
exceeding 20 years for infrastructure projects, subject to the
redemption of such % of shares as may be prescribed on an annual
basis at the option of such preferential shareholders?
a. Section 43. b. Section 55.
c. Section 47. d. Section 62.
Ques 6: A debenture has the par value of ₹100 and market value of
₹150 and conversion ratio of 5. What is the conversion price (P) of
the share.
a. ₹ 20. b. ₹ 25.
c. ₹ 30. d. ₹ 40.
Solution:
Conversion Price = Debenture Par Value/Conversion Ratio
Note: We need to consider bond par value only.
Debenture Par Value = Rs. 100 Conversion Ratio = 5
So, Conversion Price = 100/5 = Rs.20.
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Ques 7: A convertible bond with a par value of 500 rupees is being
sold for 520 rupees. What is the conversion price if the conversion
ratio is 20?
a. ₹ 15. b. ₹ 20.
c. ₹ 25. d. ₹ 26.
Solution:
Conversion Price = Bond Par Value/Conversion Ratio
Note: We need to consider bond par value only.
Bond Par Value = Rs. 500Conversion Ratio = 20
So, Conversion Price = 500/20 = Rs.25.
Ques 8: Which statement is incorrect about Perpetual Non-
Cumulative Preference Shares (PNCPS)?
a. Perpetual Non-Cumulative Preference Shares (PNCPS) in
Additional Tier I Capital (AT-I) cannot exceed 1.5% of risk-weighted
assets.
b. Once minimum total Tier 1 capital (7%) is met, any additional
PNCPS issued by the bank can be added in Tier-II.
c. Excess PNCPS can be considered Tier 2 capital if less than 2% of
RWAs, while meeting minimum Total Capital of 9% of RWAs.
d. PNCPS shouldn't have a "call option."
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Ques 9: Match the following?
(x) Non-cumulative (i) In this type of Preference Share, the dividend on
preference share. these shares will continue to accumulate unless
they are completely paid out.
(y) Non-Convertible (ii) If for some reason a dividend is not declared
Preference Shares. throughout the course of a given year, the right to
receive that dividend for that year will be forfeited.
(z) Cumulative (iii) This preference shares do not qualify for a fixed
Preference Shares. dividend rate. The dividend pay-outs depend on
the interest rates prevalent in the market.
(t) Adjustable-rate (iv) the owner of the preference share does not
Preference Shares. have the right to have his holdings converted into
equity shares.
a. (x) – (i), (y) – (ii), (z) – (iii), (t) – (iv).
b. (x) – (ii), (y) – (iv), (z) – (i), (t) – (iii).
c. (x) – (iii), (y) – (ii), (z) – (i), (t) – (iv).
d. (x) – (iv), (y) – (ii), (z) – (iii), (t) – (i).
Ques 10: A warrant is a relatively --------- option to buy ------- at a
predetermined exercise price over a specified period of time?
a. Short-term; Debentures. b. Short-term; Equity Shares.
c. Long-term; Debentures. d. Long-term; Equity Shares.
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Ques 11: Match the following?
(x) Non-Participating (i) In addition to the right to a fixed dividend,
Preference Shares. these shares give the holder the right to
participate in any surplus profits that remain after
equity shareholders have been paid dividends at a
predetermined rate.
(y) Convertible (ii) The shareholder only receives a predetermined
Preference Shares. rate of dividend payment each year and does not
get any additional rights in profits or in the
surplus.
(z) Participating (iii) The preference shares that do not come with
Preference Shares. an arrangement regarding redemption.
(t) Non-Redeemable (iv) The holders of these shares have the right to
Preference Shares. have them converted into equity shares, at their
discretion.
a. (x) – (i), (y) – (ii), (z) – (iii), (t) – (iv).
b. (x) – (ii), (y) – (iv), (z) – (i), (t) – (iii).
c. (x) – (iii), (y) – (ii), (z) – (i), (t) – (iv).
d. (x) – (iv), (y) – (ii), (z) – (iii), (t) – (i).
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Ques 12: As per SEBI guidelines there are now 3 different forms of
convertible debentures that can be issued in India?
a. Debentures that are automatically convertible and have a
conversion provision that takes effect after 36 months.
b. Debentures with an optional conversion feature that allow for
the conversion to take place within 36 months.
c. Debentures that allow for conversion after 36 months but have
"call" and "put" features in addition to that provision.
d. Debentures that are automatically convertible and have a
conversion provision that takes effect after 18 months.
Ques 13: What is the conversion ratio?
a. The number of debentures that can be obtained in exchange for
one equity share upon conversion.
b. The number of equity shares that can be obtained in exchange
for one debenture upon conversion.
c. The number of preference shares that can be obtained in
exchange for one equity share upon conversion.
d. The number of shares that can be obtained in exchange for one
debenture upon conversion.
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Ques 14: What is conversion price (denoted by the letter P)?
a. The conversion price is the price per debenture that the holder
really pays when the conversion takes place.
b. The conversion price is the price per preference share that the
holder really pays when the conversion takes place.
c. The conversion price is the price per share that the holder really
pays when the conversion takes place.
d. The conversion price is the price per warrant that the holder
really pays when the conversion takes place.
Ques 15: Which statement is incorrect about Mezzanine financing?
a. This is another hybrid type of debt and equity financing. It gives
the lender the right to convert the debt in to equity of the
company in case of default.
b. Mezzanine financing can provide higher returns to investors
compared to normal debt instruments.
c. Mezzanine debt is often a secured debt.
d. It typically matures in more than 5 years.
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Ques 16: Which department look after Start up India program?
a. Ministry of finance (MoF).
b. Department for Promotion of Industry and Internal Trade
(DPIIT).
c. Securities and Exchange Board of India (SEBI).
d. Registrar of company (RoC).
Ques 17: An entity shall be considered a startup if it meets certain
criteria. Which is not a correct criteria?
a. Up to 5 years from the date of its incorporation/registration.
b. If its turnover for any of the Financial Year since Incorporation /
registration has not exceeded 100 crores.
c. It is working towards innovation, improvement or development
of products or processes of services or if it is a scalable business
with a high potential of employment generation or wealth
creation.
d. If it is incorporated as a private limited company or registered as
a partnership firm or a limited Liability partnership in India.
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Note: What is Pitch Presentation:
The pitch presentation is a slide presentation usually using either
Power point or Keynote Slides in the background, that helps the
entrepreneur to showcase its business and provide the reasons for
which an investor should invest into the business.
Note: INSPIRE means "Innovation in Science Pursuit for Inspired
Research".
Ques 18: What is the main objective of Startup India Yatra
program?
a. To identify prospective business owners living in metropolitan
areas and provide them with a venue in which they can pursue
their dreams of running their own companies.
b. To identify prospective business owners living in non-
metropolitan areas and provide them with a venue in which they
can pursue their dreams of running their own companies.
c. It primarily focuses on metropolitan areas to identify
entrepreneurial talent.
d. The program intends to visit only backward district in the
country.
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Ques 19: Startup India Seed Fund Scheme’s (SISFS) primary mission
is?
a. To identify prospective business owners living in metropolitan
areas and provide them with a venue to promote their company.
b. To provide funding to startups for proof of concept, product
trials, prototype development, commercialization and market
entry.
c. To increase the amount of available capital, stimulating private
investment.
d. None.
Ques 20: To help the women entrepreneurs which program has
been launched by GOI?
a. WING. b. SETU.
c. GEM portal. d. INSPIRE.
WING: Women Capacity Development programme.
SETU: Self-employment and Talent Utilization (SETU) program.
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Ques 21: What is the primary objective of Startup India Single Use
Plastic International Challenge?
a. To help reduce the amount of double-use plastic used in the
food and beverage industry.
b. To help reduce the amount of single-use plastic used in the food
and beverage industry.
c. To help reduce the amount of single-use plastic used in startups.
d. None.
Ques 22: What is Hurdle Rate in VC?
a. This is the minimum annual return, measured as net Present
value (NPV).
b. This is the minimum annual return, measured as internal rate of
return (IRR).
c. This is the maximum return that must be offered by VC.
d. This is the rate at which the VC is supposed to grow.
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Ques 23: Which statement is correct?
a. Public equity markets generate (25-35%) and debt markets give
return of (12-15%), while venture capital generates a return in the
range of (8-10%) annually.
b. Public equity markets generate (8-10%) and debt markets give
return of (12-15%), while venture capital generates a return in the
range of (25-35%) annually.
c. Public equity markets generate (12-15%) and debt markets give
return of (8-10%), while venture capital generates a return in the
range of (25-35%) annually.
d. None.
Ques 24: Private equity (PE) and Venture Capital (VC) is managed
under which act?
a. SEBI (Alternative Investment Funds) Regulation,2012.
b. SEBI (Venture Capital Funds) Regulation,1996.
c. SEBI (Mutual Funds) Regulations, 1996.
d. SEBI (Collective Investment Schemes) Regulations, 1999.
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Ques 25: As per SEBI there are total 3 categories of Alternative
Investment Funds (AIF) namely AIF I, AIF II, AIF III. Venture capital
funds (Including Angel Funds), SME Funds, Social Venture Funds,
Infrastructure funds come under which category.
a. Category II AIF. b. Category I AIF.
c. Category III AIF. d. Category IV AIF.
Ques 26: "Angel investor" means any person who proposes to
invest in an angel fund and who has net tangible assets of at least -
------ rupees excluding value of his principal residence.
a. 5 crore rupees. b. 10 crore rupees.
c. 1 crore rupees. d. 2 crore rupees.
Ques 27: "Angel investor" means any person who proposes to
invest in an angel fund and if it is a body corporate then the net
worth should be at least ----?
a. 5 crore rupees. b. 10 crore rupees.
c. 3 crore rupees. d. 2 crore rupees.
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Ques 28: What is meant by Exit Strategy?
a. The investors' plan to leave the conference.
b. The investors' plan to sell their shares in a firm after a
predetermined amount of time has passed.
c. The investors' plan to buy their shares in a firm after a
predetermined amount of time has passed.
d. The investors' plan to increase their share in a firm after a
predetermined amount of time has passed.
Ques 29: Valuation methodology has the tendency to determine
the worth of the firm on the basis of the value of the assets held by
the business?
a. Book Value Approach. b. Cost Approach.
c. Market Value Approach. d. Market Approach.
Ques 30: A company issued convertible debentures at a price of
Rs.1000 at conversion rate of 40. What is the conversion price?
a. ₹ 25. b. ₹ 250.
c. ₹ 4,000. d. ₹ 40,000.
Conversion price = Debenture price/ conversion rate = 1000/40 =
25.
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Ques 31: Most appropriate characteristic shared by Private Equity
and Venture Capital?
a. A private equity investment deal may incorporate debt, which is
unusual for a venture capital investment deal.
b. Private equity investors place a greater premium on good
corporate governance, whereas various venture capital investors
devote more of their attention on management capability.
c. They make investments in businesses that are either unable or
not yet prepared to raise funds from members of the general
public.
d. None.
Ques 32: What is Al Hub?
a. The goal of Al Hub is to gain an understanding of a client's
financial health by evaluating the data that the client provides, in
addition to the client's financial history.
b. Al Hub provides developers and data scientist working on Al,
access to collection of useful components for their work.
c. AI offer a very high return on investment (ROI) in terms of cost
savings, which is one of the reasons why they are one of the most
widely employed applications of AI across all sectors.
d. None.
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Ques 33: Match the following?
(x) Principals. (i) They are persons who are on the cusp of
becoming partners in the company. They hold a
position of authority inside the company, yet they
cannot be ranked among the most senior
employees of the company.
(y) Analysts role. (ii) Those with the least experience strive to
become this. These individuals are either folks
who have recently graduated from school or MBA
students who are participating in an internship.
(z) Partners. (iii) They are considered to be the most senior
members of a venture capital firm, placing them a
tier above principals.
(t) Associates. (iv) People who arrive with a financial background
and significant skills in creating relationships are
typically the types of people who are considered
this.
a. (x) – (i), (y) – (ii), (z) – (iii), (t) – (iv).
b. (x) – (ii), (y) – (iv), (z) – (i), (t) – (iii).
c. (x) – (iii), (y) – (ii), (z) – (i), (t) – (iv).
d. (x) – (iv), (y) – (ii), (z) – (iii), (t) – (i).
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Ques 34: Match the following?
(x) Descriptive (i) This approach makes use of data on previous
analytics. performance to make recommendations for how
similar situations should be managed in the
future.
(y) Diagnostic (ii) This is the practice of applying statistics to
analytics. estimate and evaluate future outcomes by
employing statistical models and techniques
derived from machine learning.
(z) Predictive (iii) This type of analysis focuses on previous
analytics. performance to understand which factors drive
particular trends.
(t) Prescriptive (iv) This method involves the interpretation of
analytics. historical data and key performance indicators to
discover patterns and trends.
a. (x) – (i), (y) – (ii), (z) – (iii), (t) – (iv).
b. (x) – (ii), (y) – (iv), (z) – (i), (t) – (iii).
c. (x) – (iii), (y) – (ii), (z) – (i), (t) – (iv).
d. (x) – (iv), (y) – (iii), (z) – (ii), (t) – (i).
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Ques 35: Match the following?
(x) ISO 32210. (i) Monetary valuation of environmental impacts.
(y) ISO 14007. (ii) Framework for Sustainable Finance.
(z) ISO 14008. (iii) Assessing and reporting investments related
to climate change.
(t) ISO 14097. (iv) Environmental costs and Benefits.
a. (x) – (i), (y) – (ii), (z) – (iii), (t) – (iv).
b. (x) – (ii), (y) – (iv), (z) – (i), (t) – (iii).
c. (x) – (iii), (y) – (ii), (z) – (i), (t) – (iv).
d. (x) – (iv), (y) – (iii), (z) – (ii), (t) – (i).
Ques 36: When a share's market price is Rs. 30 and a warrant
contains the right to purchase one share of common stock and is
exercisable at Rs. 20 per common share, the warrant's theoretical
value is Rs. ---?
a. ₹ 5. b. ₹ 10.
c. ₹ 15. d. ₹ 20.
Theoretical Value of the Warrant = Market Price of the Share -
Exercise Price of the Warrant. = Rs. 30 - Rs. 20 = Rs. 10.
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Ques 37: In Zero growth dividend model, we assume that?
a. Dividend per share stays the same from year to year.
b. Dividend per share increase at a constant rate from year to year.
c. Dividend per share decrease at a constant rate from year to year.
d. Dividend per share either increases or decreases from year to
year.
Ques 38: XYZ Ltd is expected to declare a dividend of Rs.7 per share
one year from now. The dividend payments are expected to grow
at 4% per annum. If an investor needs 10% rate of return on his
investment, what would be the fair price of the share for the
investor? No option [up to 2 decimal places]
Ques 39: Question which is not a stakeholder in SPAC?
a. Sponsor. b. Target.
c. Company. d. Investor.
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Ques 40: Who is called Limited Partner in VC?
a. Limited Partners (LPs) is the term used for experienced
investment experts who do the actual management of the fund.
b. Limited Partners (LPs) is the term used for investors in venture
capital firms.
c. Limited Partners (LPs) is the term used for person at a company
who do not participate in the decision-making process, but they
may surely make a good first impression on those who are
responsible for making decisions.
d. None.
Ques 41: Which type of chart is not found in the organizational
chart?
a. Vertical Chart. b. Horizontal Chart.
c. Circular Chart. d. Linear Chart.
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Ques 42: SEBI’s circular on Business Responsibility and
Sustainability Report (BRBS) is applicable on?
a. Top 1,000 listed entities.
b. Top 100 listed entities.
c. Top 10 listed entities.
d. Top 10,000 listed entities.
Answer:
Q1. d. Venture Capital is an example of hybrid security. [correct:
not am example].
Q2. a. At least 5 years.
Q3. c. x and y both.
Q4. c. Warrant.
Q5. b. Section 55.
Q6. a. ₹ 20.
Q7. c. ₹ 25.
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Q8. d. PNCPS shouldn't have a call option. [correct: put
option]
Q9. b. (x) – (ii), (y) – (iv), (z) – (i), (t) – (iii).
Q10. d. Long-term; Equity Shares.
Q11. b. (x) – (ii), (y) – (iv), (z) – (i), (t) – (iii).
Q12. a. Debentures that are automatically convertible and have a
conversion provision that takes effect after 36 months.
Q13. b. The number of equity shares that can be obtained in
exchange for one debenture upon conversion.
Q14. c. The conversion price is the price per share that the holder
really pays when the conversion takes place.
Q15. c. Mezzanine debt is often a secured debt. [correct:
unsecured].
Q16. b. Department for Promotion of Industry and Internal Trade
(DPIIT).
Q17. a. Up to 5 years from the date of its incorporation/
registration. [correct: 10 years].
Q18. b. To identify prospective business owners living in non-
metropolitan areas and provide them with a venue in which they
can pursue their dreams of running their own companies.
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Q19. b. To provide funding to startups for proof of concept,
product trials, prototype development, commercialization and
market entry.
Q20. a. WING.
Q21. b. To help reduce the amount of single-use plastic used in the
food and beverage industry.
Q22. b. This is the minimum annual return, measured as internal
rate of return (IRR).
Q23. c. Public equity markets generate (12-15%) and debt markets
give return of (8-10%), while venture capital generates a return in
the range of (25-35%) annually.
Q24. a. SEBI (Alternative Investment Funds) Regulation,2012.
Q25. b. Category I AIF.
Q26. d. 2 crore rupees.
Q27. b. 10 crore rupees.
Q28. b. The investors' plan to sell their shares in a firm after a
predetermined amount of time has passed.
Q29. b. Cost Approach.
Q30. a. ₹ 25.
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Q31. c. They make investments in businesses that are either unable
or not yet prepared to raise funds from members of the general
public.
Q32. b. Al Hub provides developers and data scientist working on
Al, access to collection of useful components for their work.
Q33. a. (x) – (i), (y) – (ii), (z) – (iii), (t) – (iv).
Q34. d. (x) – (iv), (y) – (iii), (z) – (ii), (t) – (i).
Q35. b. (x) – (ii), (y) – (iv), (z) – (i), (t) – (iii).
Q36. b. ₹ 10.
Q37. a. Dividend per share stays the same from year to year.
Q38. ₹116.67.
Q39. c. Company.
Q40. b. Limited Partners (LPs) is the term used for investors in
venture capital firms.
Q41. d. Linear Chart.
Q42. a. Top 1,000 listed entities.
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