Nism XV - Research Analyst Exam - Last Day Test 1

NISM SERIES XV - RESEARCH
ANALYST CERTIFICATION EXAM

NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM : LAST DAY REVISION TEST . 1
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LAST DAY REVISION TEST . 1
Question 1 FCFF (Free cash flows to the firm) is computed as –
Earnings Before Interest & Tax (EBIT) less Tax plus Depreciation &
Non-cash charges less Increase (Decrease) in working capital Divided by
Capital Expenditure Incurred (Sale of assets) - State True or False ?
(a) TRUE
(b) FALSE
Question 2 Calculate the Net Profit margin if the operating profit margin of a
business is 50% and the operating profit is three times of Net Profit.
Calculate the Net Profit margin.
(a) 16.67%
(b) 19.20%
(c) 21.57%
(d) 22.66%
Correct Answer 1 FALSE

Answer FCFF = EBIT - Tax + Depreciation & Non-cash charges - Increase(Decrease)
Explanation in working capital - Capital Expenditure Incurred (Sale of assets)
Correct Answer 2 16.67%

Answer Let’s assume the Net Profit to be Rs 100.
Explanation The Operating Profit is 3 times the Net Profit ie 100 x 3 = 300
The Operating Profit margin is 50% , this means its 50% of Sales or Sales is
double of Operating Profit.
So Sales = 300 x 2 = Rs 600
Net Profit is Rs 100 and Sales is Rs 600
So the Net Profit margin is 100 / 600 x 100 = 16.67%
Question 3 What does Industry structure in Structure Conduct Performance (SCP)

analysis refer to?
(a) Relationship among the various players in the industry
(b) Market size
(c) Industry Growth rate
(d) All of the above
Question 4 The P/E ratio of a company is 12 and the EPS is Rs 8. The market
capitalisation of this company is Rs 120000 and the book value per share
is Rs 40. Calculate the Networth of the company.
(a) Rs 75000
(b) Rs 70000
(c) Rs 65000
(d) Rs 50000
Correct Answer 3 All of the above
Answer Structure analysis refers to the analysis of competitive intensity in the industry
Explanation (number of players), concentration of business in industry, relationship among
the various players, market size, its growth rate, etc.
Correct Answer 4 Rs 50000
Answer P/E = Market Price / EPS

Explanation Therefore Market Price = P/E X EPS
= 12 x 8 = Rs 96
No. of Shares = Market Cap / Market Price
= 120000 / 96 = 1250
Networth = Book Value x No. of Shares.
= 40 x 1250 = 50000
Question 5 Buying long dated high coupon bond is a good hedge against falling
interest rates - State True or False ?
(a) FALSE
(b) TRUE
Question 6 If Depository Receipts are issued in several countries together and listed
on a stock exchange outside the U.S., they are called as _______ .
(a) American Depository Receipts (ADRs)
(b) Global Depository Receipts (GDRs)
(c) Indian Depository Receipts (IDRs)
(d) Foreign Depository Receipts (FDRs)
Correct Answer 5 TRUE
Answer When interest rates fall, bond holders experience a rise in the price of bonds as
Explanation there is an inverse relationship between bond prices and interest rates.
Correct Answer 6 Global Depository Receipts (GDRs)

Question 7 For analysts, which is the authentic source to check facts on a Company?
(a) Business Websites
(b) Annual Reports
(c) Media reports
(d) Research reports and opinions of Research Analysts
Question 8 The Mutual Fund schemes which have a fixed unit capital are known as
_______.
(a) Balanced Schemes
(b) ELSS Schemes
(c) Open Ended Schemes
(d) Close Ended Schemes
Correct Answer 7 Annual Reports

Answer Annual Reports are published by the company itself and the accounts etc are
Explanation certified by Chartered Accountants.
Correct Answer 8 Close Ended Schemes

Answer The unit capital of closed-ended funds is fixed and they sell a specific number
Explanation of units during the New Fund Offer (NFO) period. Once the NFO closes, no
new units are issued.
Question 9 RBI in India is vested with the responsibility of administering the Fiscal
policy - State True or False ?
(a) TRUE
(b) FALSE
Question 10 M/s. Alpha Industries has a Gross Sales revenue of Rs 25,00,000 which is
inclusive of Indirect Taxes of Rs 4,00,000 and Direct taxes of Rs 3,00,000.
Calculate the Net sales of Alpha Industries.
(a) Rs 25,00,000
(b) Rs 22,00,000
(c) Rs 21,00,000
(d) Rs 18,00,000

Answer RBI is the central bank of the country and is vested with the responsibility of
Explanation administering the monetary policy.
Fiscal policy contains the measures of the Government which deal with its
revenues and expenses.
Correct Answer 10 Rs 21,00,000

Answer All indirect taxes have to be deducted from the Gross Sales to get the Net
Explanation Sales figure as these taxes are collected by the business for the government
and don’t belong to the business.
Net Sales = Sales - Indirect Taxes
= 25,00,000 - 4,00,000
= 21,00,000
Question 11 ________ policy is intended to cool down the heated up economy through
reduction in the money supply and increase in the interest rates.
(a) Contractionary
(b) Expansionary
(c) Neutral
(d) None of the above
Question 12 The price of the stock of a company is Rs 380 and the PE ratio is 12. Find
the amount retained by the company if the retention ratio is 25%.
(a) Rs 3
(b) Rs 7.92
(c) Rs 9.74
(d) Rs 12.07
Correct Answer 11 Contractionary
Expansionary monetary policy is used to push the economy up by increasing

Answer the money supply steeply and reduction in the interest rates.
Explanation
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.
Correct Answer 12 Rs 7.92
Answer PE Ratio = Stock Price / EPS

Explanation 12 = 380 / EPS
Thus the Earning Per Share is 380 / 12 = Rs 31.67
Out of this Rs 31.67 earnings, the company retains 25% = Rs 7.92
Question 13 A high Price to book value ratio means that the assets are available cheap
- State True or False ?
(a) TRUE
(b) FALSE
Question 14 If a stock has low PE multiple can be seen as a _______ stock
(a) Over Valued
(b) Expensive
(c) Cheap
(d) Low Beta

Answer Price to book value ratio = Market capitalization / Book value of equity or net-
Explanation 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.
Correct Answer 14 Cheap

Answer A stock with a relatively low PE multiple may be seen as an undervalued /
Explanation cheap stock.
Question 15 XYZ Computers Ltd. gets a huge order which could lead to good profits
in the near future. Based on this information and other analysis, a
research analyst recommends buying this stock. What type of research
approach is this ?
(a) Unscientific Approach
(b) Top Down Approach
(c) Bottom Up Approach
(d) Technical Approach
Question 16 A company has shares of facevalue Rs 10 and its paid up capital is Rs 30

lakhs. The P/E ratio of the company is 12 and the EPS is Rs 10. Calculate
the market capitalisation of this company.
(a) Rs 360 lakhs
(b) Rs 130 lakhs
(c) Rs 240 lakhs
(d) Rs 580 lakhs
Correct Answer 15 Bottom Up Approach

Answer Sometimes analysis is triggered by some news or piece of information on
Explanation some company, which may move to industry analysis and then economic
analysis to see whether broad industry and economic parameters favor
the company. This is called bottom-up approach to fundamental research.
Correct Answer 16 Rs 360 lakhs

Answer No. of Shares of the Company = 3000000 / 10 = 3 lakhs
Explanation PE = Market Price / EPS
Market Price = PE X EPS
= 12 x 10 = 120
Market Capitalisation = Market Price x No. of shares
= 120 x 3,00,000 = Rs 36000000
Question 17 When an investor estimates the distance future based on recent past,
completely ignoring the distant past - This bias is known as ________ .
(a) Projection bias
(b) Herd mentality
(c) Ownership bias
(d) Confirmation bias
Question 18 An industry with rivalry and competition will see lower pricing power
and higher incomes for the industry participants - State True or False ?
(a) FALSE
(b) TRUE
Correct Answer 17 Projection bias

Answer An industry with rivalry and competition will see lower pricing power and
Explanation lower incomes for the industry participants. For eg - Telecom and Airline
industry.
Question 19 A trader supplies goods to M/s PQR Ltd but the company defaults and is
unable to make the payments. What type of risk is this ?
(a) Operation Risk
(b) Market Risk
(c) Credit Risk
(d) Business Risk
Question 20 Which authority was set up with the primary responsibility of promoting
old age income security by establishing, developing and regulating
pension funds?
(a) Insurance and Regulatory Development Authority
(b) Pension Fund Regulatory and Development Authority
(c) Association of Mutual Funds in India
(d) Securities Exchange Board of India
Correct Answer 19 Credit Risk

Answer Credit Risk or default risk is refers to the possibility that a particular bond
Explanation issuer or a company will not be able to make expected payments.
Correct Answer 20 Pension Fund Regulatory and Development Authority

Question 21 As per SCRA, the term securities include which of the following?
(a) Derivatives
(b) Government Securities
(c) Shares, scrip’s or bonds
Question 22 Current Ratio measures the ability of the company to satisfy its long term
obligations as and when they come due - State True or False ?
(a) TRUE
(b) FALSE
Correct Answer 22 FALSE.
Answer Current Ratio measures the ability of the company to satisfy its SHORT term
Explanation obligations as and when they come due.
Question 23 If financials are great, it is expected that the quality of business is also
good. State whether True or False.
(a) TRUE
(b) FALSE
Question 24 Corporate Governance takes into account which aspect of the

Management?
(a) Profitability
(b) Integrity
(c) Efficiency
Correct Answer 24 Integrity

Answer Corporate Governance - The framework of rules and practices by which a
Explanation board of Directors ensures accountability, fairness, and transperency in a
company's relationship with all its stakeholders.
Question 25 The Market Capitalisation of a company is Rs. 2 Crores. The Earning per
Share of this company is Rs 18 and the Book Value per share is Rs 48.
Calculate the Return on Equity.
(a) 37.50%
(b) 26.66%
(c) 41.55%
(d) Insufficient Data
Question 26 Opportunities and Threats deal with the external environment of the
business - State True or False ?
(a) TRUE
(b) FALSE

Answer Return on Equity = (Earning Per Share / Book Value) x 100
Explanation = 18 / 48 x 100
= 0.375 x 100
= 37.5 %

Answer In the Strengths, Weaknesses, Opportunities and Threats (SWOT) Analysis,
Explanation Strengths and Weaknesses are internal to the company, Opportunities and
Threats deal with the external environment of the business.
Question 27 A company can issue both Secured as well as Unsecured debentures -

State True or False ?
(a) FALSE
(b) TRUE
Question 28 Price to earnings ratio of a business is 10, price to book value ratio of this
business is 5, book value per share is Rs. 15 and outstanding number of
shares are 10,000, what would be the return on equity of this business?
(a) 20%
(b) 25%
(c) 50%
(d) 70%
Correct Answer 28 50%

Answer Price to Book Value = Stock Price / Book Value
Explanation So Stock Price = Price to Book Value X Book Value
Stock Price = 5 X 15 = Rs 75.
PE = Stock Price / EPS
So EPS = Stock Price / PE
EPS = 75 / 10 = 7.5
Return on Equity = (EPS / Book Value) X 100
= (7.5 / 15) x 100 = 50%
Question 29 In the discounted cash flow method of valuation of a business, free cash
flows ie. inflows over outflows are used instead of all cash flows - State
True or False ?
(a) TRUE
(b) FALSE
Question 30 Where the entire face value of the debenture is converted into equity
shares, it is known as _____________.
(a) Non Convertible Debenture
(b) Party Convertible Debenture
(c) Fully Convertible Debenture
Correct Answer 30 Fully Convertible Debenture

Question 31 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.
(a) TRUE
(b) FALSE
Question 32 PE ratios of all stocks tend to be _____ in a bull market and tend to be
______ in a bear market.
(a) High , High
(b) Low , Low
(c) Low , High
(d) High , Low

Answer Sell side Analyst work for firms that provide investment banking, broking,
Explanation advisory services for clients.
Correct Answer 32 High , Low

Question 33 What is the role of Research Analyst?
(a) Research Analyst help their clients take informed decisions
(b) Research Analyst are only involved in the analysis of data
(c) Research Analyst help in financial planning of their client
(d) Research Analyst are only involved in collection of the data
Question 34 Leverage ratio is a part of _________ parameter of business analysis.
(a) Quantitative
(b) Qualitative
Correct Answer 33 Research Analyst help their clients take informed decisions
Answer The role of a research analysts is that of a selector - to do a comprehensive

Explanation study of companies, evaluate their past performance, analyse how a company
is expected to perform in the future and make recommendations based on this
analysis so that informed decisions can be taken by the investors.
Correct Answer 34 Quantitative

Question 35 When an analyst uses the checklist approach for making an investment
report, the checklist should contain which parameter(s) ?
(a) qualitative
(b) quantitative
(c) valuation
Question 36 _________ helps us understand how the prices of the products and
services get determined in an economy and how individuals and firm
behave with regard to those prices.
(a) Macroeconomics
(b) Microeconomics
(c) Retail Sales

Answer The best way to prepare a report is to have a checklist based approach,
Explanation wherein analysts can answer questions based on qualitative, quantitative and
valuation parameters.
Correct Answer 36 Microeconomics

Answer Microeconomics is the study of the behaviour of individuals and their
Explanation decisions on what to buy and consume based on prevalent prices. The
philosophy of microeconomics is that prices and production levels of goods
and services in an economy are driven by consumer demand.
Question 37 Factors such as age of the population, their education and skills, health,
social values, lifestyle factors etc are issues related to which of the
following factors in PESTLE analysis ?
(a) Environmental Factors
(b) Economic Factors
(c) Political Factors
(d) Socio-Cultural Factors
Question 38 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.
(a) 1.13
(b) 1.35
(c) 5.4
(d) 2.33
Correct Answer 37 Socio-Cultural Factors

Answer In PESTLE Analysis of Socio-Cultural Factors - The social and cultural
Explanation aspects of the population of the country, such as the demographic profile in
terms of age, education and skills, health, social values, lifestyle factors, all
affect the choices that people make in what they buy and consume.
Correct Answer 38 1.35

Answer First we calculate the number of Shares.
Explanation EPS = Income / No. of Shares
1 = 80000 / No. of Shares
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
Question 39
Code of ethics for a Research Analyst does NOT include _______ .
(a) Non Compliance
(b) Honesty and fairness
(c) Insider Trading or front running
(d) Confidentiality
Question 40 Earning Per Share is calculated as _______ .
(a) Net Profit / Number of shares outstanding
(b) EBIT / Number of shares outstanding
(c) EBDITA / Number of shares outstanding
(d) PE Ratio / Number of shares outstanding
Correct Answer 39 Non Compliance
Answer Code of Conduct/Ethics for Research Analysts includes Compliance which

Explanation 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.
Correct Answer 40 Net Profit / Number of shares outstanding
Answer EPS = Net Profit / Number of shares outstanding

Explanation 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.
Question 41 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.
(a) 12500
(b) 25000
(c) 32600
(d) 39500
Question 42 An industry which has High barriers to entry, Weak buyers bargaining
power, Few substitutes and Low competition would have _________ .
(a) Low pricing power and High profit margins
(b) Strong pricing power and High profit margins
(c) Low pricing power and Low profit margins
(d) Strong pricing power and Low profit margins
Correct Answer 41 25000
Answer Price to book value ratio = Market price per share/ Book value per share
Explanation So Market Price = P/BV x BV
= 12 x 7 = 84
Market Cap = No. of Shares outstanding x Market Price of a share
No. of shares Outstanding = Market Cap / Market Price
= 2100000 / 84 = 25000
Correct Answer 42 Strong pricing power and High profit margins

Question 43 ________ is/are Unsystematic risk.
(a) credit risk
(b) business risk
(c) liquidity risk
Question 44 A company has 25000 shares. The Price to Book Value ratio of this
company is 12 and the Book Value is 9. Calculate the Networth of the
company.
(a) Rs 2700000
(b) Rs 450000
(c) Rs 225000
(d) Rs 386000
Answer Unsystematic risk is the risk specific to individual securities / industry.

Explanation Hence it can be diversified away by including other assets in the portfolio.
Credit risk, business risk, and liquidity risks are unsystematic risks.
Answer Price to book value ratio = Market price per share / Book value per share
Explanation 12 = Market Price / 9
Market Price = 12 x 9 = 108
Market Cap = 108 x 25000 = 2700000
Another formula for Price to Book Value Ratio = Market Cap / Networth
ie. 12 = 2700000 / Networth
So Networth = 2700000 / 12 = Rs. 225000
Question 45 _________ is not a component of the Capital Account of a country.
(a) Capital flows like FDI
(b) Capital flows like FII
(c) Capital flows from Exports
(d) Capital flows from Loans
Question 46 A bond is issued at a face value of Rs. 100 and a coupon of 9% p.a. The
interest rates in the market have increased subsequently. This bond is
likely to quote at:
(a) At the face value
(b) At a price above face value
(c) At a price below face value
(d) At a price that reflects its credit risk
Correct Answer 45 Capital flows from Exports
Answer Balance of payment statement of a country is broadly divided into two

Explanation 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.
The capital account captures all the capital flows like FDI, FII, loans, and
grants etc.
Correct Answer 46 At a price below face value
Answer Bond prices and interest rates move in opposite directions.

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 bond.
Question 47 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.
(a) Rs 162000
(b) Rs 108000
(c) Rs 67000
(d) Rs 54000
Question 48 The gross sales of a business is Rs 200000 and the Net Profit margin is at
12%. Calculate the Equity Capital of this business is the Return on Equity
is 25%.
(a) Rs 24000
(b) Rs 59000
(c) Rs 84000
(d) Rs 96000
Answer Size of Balance Sheet = Assets = Equity + Liabilities

Explanation 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
Answer Net Profit is 12% of Rs 200000 (Sales) = Rs 24000

Explanation Return on Equity = Net Profit / Equity Capital
25% = 24000 / Equity Capital
Equity Capital = 24000 / .25 = 96000
Question 49 Which of the following is Systematic Risk ?
(a) Credit risk
(b) Market Risk
(c) Business risk
(d) Liquidity risks
Question 50 When an investor does some investment, he looks for ________ .
(a) Getting adequate returns
(b) Safety of principal
(c) Beating inflation
Correct Answer 49 Market Risk
Answer Systematic risk or market risk refers to those risks that are applicable to the
Explanation 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.

Question 51 Free cash flows for equity (FCFE) is calculates as _______ .
(a) Free cash flows to the firm (FCFF) Less Interest plus Net borrowing
(b) Free cash flows to the firm (FCFF) Less Interest Less Net borrowing
(c) Free cash flows to the firm (FCFF) plus Interest plus Net borrowing
(d) Free cash flows to the firm (FCFF) plus Interest plus Net borrowing
Question 52 An investor bought 800 shares of a company for Rs 48000. The face value
of these shares is Rs 5. Calculate the dividend yield on the value invested
in these shares if the company declares 200% dividend.
(a) 10%
(b) 12.55%
(c) 16.67%
(d) 23.80%
Correct Answer 51 Free cash flows to the firm (FCFF) Less Interest plus Net borrowing
(Please remember the formula)
Answer Face Value is Rs 5. 200% dividend means a dividend of Rs 10 per share.

Explanation He has 800 shares, so dividend received is Rs 10 x 800 = Rs 8000
On an investment of Rs 48,000 he has received dividend of Rs 8000
So the Dividend Yield = Dividend Received / Amount Invested x 100
= 8000 / 48000 x 100 = 16.67 %
Question 53 The method of analyzing industries by looking at the industry structure,

its conduct and its performance is known as __________.
(a) DELTA analysis
(b) PESTLE analysis
(c) BCG Analysis
(d) SCP Analysis
Question 54 Which of the below mentioned actions is NOT included in the powers of
Securities and Exchange Board of India (SEBI) ?
(a) To appoint the directors of Financial Intelligence Unit (FIU).
(b) Suspend an officer of a SEBI registered Stock Broker.
(c) Impound and retain the proceeds or securities in respect of any transaction
which is in violation of regulations.
(d) Suspend trading of a listed security on a recognised stock exchange.
Correct Answer 53 SCP Analysis
Answer Structure Conduct Performance (SCP) Analysis look at the industry structure
Explanation (monopoly, oligopoly), its conduct (commoditized or specialized, seasonal or
round the year.) and its performance (RoE, RoIC, etc.).
Correct Answer 54 To appoint the directors of Financial Intelligence Unit (FIU).
Answer FIU is an independent body reporting directly to the Economic Intelligence

Explanation Council (EIC) headed by the Finance Minister.
Question 55 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.
(a) 500%
(b) 50%
(c) 20%
(d) Insufficient Data
Question 56 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 ?
(a) Top Down Approach
(b) Bottom-up Approach
(c) Independent Research
(d) Technical Approach
Correct Answer 55 20%
Answer Return on Equity = EPS / Book Value x 100

Explanation = 10 / 50 x 100
= 0.2 x 100 = 20%
Correct Answer 56 Top Down Approach
Answer Top Down approach starts with economic analysis, moves to industry analysis
Explanation and then finally to selection of companies in an Industry.
Question 57 A study of which of the following factor(s) is done in Macroeconomics ?
(a) overall price levels
(b) investment rate
(c) gross domestic product (GDP)
Question 58 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 ?
(a) 10.88%
(b) 14.70%
(c) 12.30%
(d) 9.63%
Answer The focus of macroeconomics is on factors that influence aggregate supply

Explanation and demand in an economy such as unemployment rates, gross
domestic product (GDP), overall price levels, inflation, savings rate,
investment rate etc.
Correct Answer 58 14.70 %
Answer The formula to find the CAGR - Compounded Annual Growth Rate holding
Explanation 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 %
Question 59 To be eligible for a share buyback, a company should not have defaulted
on ___________ .
(a) its payment of interest or principal on debentures
(b) redemption of preference shares
(c) payment of dividend declared
Question 60 The unique parameters for evaluation of Retail Sector is ______ .
(a) Average Revenue Per User
(b) Financial results of the last 5 years
(c) Footfalls and same store sales
Correct Answer 60 Footfalls and same store sales
Answer Retail store formats rely on low cost procurement of goods from
Explanation manufacturers and selling it on wafer thin margins to a large number of
people.
Hence foot falls becomes an important industry driver.
Question 61 Which of the following statements is wrong with respect to Debentures ?
(a) Debentures cannot be secured
(b) Debentures are used to raise long term debts
(c) Debentures can be partly convertible
(d) Debentures can be redeemable
Question 62 In which of the following does Capitalisation of Revenue Reserve takes

place ?
(a) Bonus Shares
(b) Stock Split
(c) Rights Issue
Correct Answer 61 Debentures cannot be secured
Answer Debentures are instruments for raising long term debt. Debentures are
Explanation 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.
Non-Convertible Debentures are pure debt instruments without a feature of
conversion. They are repayable / redeemable on maturity.
Correct Answer 62 Bonus Shares
Answer Bonus shares or Stock dividend are additional shares are given to the
Explanation 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.
Question 63 In a Top Down Analysis, importance is given to detailed study of the

business and Industry. Economic factors are not of primary importance.
State True or False ?
(a) TRUE
(b) FALSE
Question 64 The Net Profit of a company is Rs 50000 and the Market Capitalisation is
Rs 600000. Calculate the Earnings Yield.
(a) 12%
(b) 10.55%
(c) 8.33%
(d) 13.87%
Answer Top Down approach starts with economic analysis, moves to industry
Explanation analysis and then finally to selection of companies in an Industry.
Bottom Up approach starts with company analysis first, then industry and
economic analysis.
Sometimes, bottom-up analysts focus purely on dynamics of business and
industry with little or no attention to the Economic factors as their focus
remains on buying and holding fundamentally strong businesses
Answer IMP - Earning Yield is the reverse of P/E Ratio.

Explanation 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%
Question 65 The risk of a company unable to honour its debt obligation is known as
____ .
(a) Liquidity Risk
(b) Call Risk
(c) Business Risk
(d) Credit Risk
Question 66 The major difference(s) between a great organisation and an ordinary

one is/are _______ .
(a) The accounting policies
(b) The Quality of Management
(c) The Organisation Structure
Correct Answer 65 Credit Risk
Answer The risk of loss of principal or loss of a financial reward stemming from a
Explanation borrower's failure to repay a loan or otherwise meet a contractual obligation is
known as Credit Risk.
Correct Answer 66 The Quality of Management
Answer The oragnisation structure and accounting policies can be same in many
Explanation organisations but what is most important is the quality and integrity of the
management.
Question 67 Of the below given options, which is NOT a component of the Current
A/c of a country with the rest of the world ?
(a) Loans
(b) Imports
(c) Exports
Question 68 From the given data, calculate the Net Sales. Sales Revenues : Rs 10
Lakhs. Direct Taxes Rs 1 Lakh and Indirect Taxes Rs 2 Lakhs. The sales
figure includes both direct and indirect taxes.
(a) Rs 10 Lakhs
(b) Rs 9 Lakhs
(c) Rs 8 Lakhs
(d) Rs 7 Lakhs
Correct Answer 67 Loans
Answer Balance of payment statement mainly consists of two accounts - Current

Explanation 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.
Correct Answer 68 Rs 8 Lakhs
Answer All indirect taxes such as Excise Duty, Value Added Tax (VAT), Service Tax
Explanation etc. 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.
So in the above question Net Sales = Sales Less Indirect Taxes
= 10 lakhs - 2 Lakhs
= 8 Lakhs
Question 69 When is the threat of substitutes high ?
(a) When the substitute offers better price
(b) When the substitute offers better quality
(c) When the substitute offers better ease
Question 70 Analysts who prepare research report of a listed company shall not trade
in securities of that company for ______ days from preparation of such
report.
(a) 15
(b) 30
(c) 45
(d) 60
Answer Threat of substitutes would be high if:

Explanation 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
Correct Answer 70 30
Question 71 Which of the following is a non-cash charge?
(a) Amortization of capital expenses
(b) Depreciation
(c) Interest on Foreign Exchange Borrowing
(d) Both 1 and 2
Question 72 In the research of an economy, a Research Analyst would consider which

of the following :
(a) International Trade, Exchange Rate and Trade Deficit
(b) Monetary Policies and their Impact on Economy
(c) Flows from Foreign Direct Investment (FDI)
Correct Answer 71 Both 1 and 2
Answer Non cash charges are basically accounting entries and no payment is actually
Explanation made.
Interest on borrowings is actually paid to the lender and so its a cash charge.
Answer All the above Macroeconomic Variables will be considered while analysing
Explanation an economy.
Question 73 What is certain and known to the holders of a simple bond ?
(a) Capital Appreciation
(b) The timing of cash flows
(c) The amount of cash flows
(d) Both 2 and 3
Question 74 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 ?
(a) Rs 25000
(b) Rs 40000
(c) Rs 150000
(d) Rs 250000
Answer In a simple bond, the timing and amount of interest receipts and principal
Explanation amount payment is certain and known to the investor.
Answer We will use the following formulas to solve this problem :

Explanation 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.
Question 75 Companies appoint Compliance Officers because _______ .
(a) by regulation, having a compliance officer in the company is a must
(b) for efficient management of investor complaints
(c) for smooth channelisation of information to regulatory bodies
Question 76 National income of an economy can be measured through which of the

following methods?
(a) Income Method
(b) Product Method
(c) Expenditure Method
Answer National income of an economy is defined through a variety of measures such

Explanation 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.
Question 77 In Structure Conduct Performance (SCP) Analysis, while analyzing

'Performance' of an industry, analysts will look at __________ .
(a) the competition in the industry
(b) the Return on Equity
(c) the Return on Capital Employed
(d) Both 2 and 3
Question 78 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.
(a) 24.66
(b) 65.39
(c) 88.5
(d) 109.12
Answer Under 'Performance' in SCP Analysis , analysts will look at several

Explanation numerical ratios.
In Structure analysis, he will look into the competition in the industry etc.
Answer Number of Shares = Equity Capital / Face Value

Explanation = 5,73,47,560 / 5
= 11469512
EPS = Net Profit / No. of Shares
= 750000000 / 11469512
65.39
Question 79 To get a quick sense of quality while analyzing business, one must look at
_________ .
(a) The Macro and Micro economic factors
(b) The future financial projections of the business
(c) The historical financials of the business
(d) The managements future perceptions of the business
Question 80 How can the Government control / reduce inflation ?
(a) By increasing supply
(b) By reducing demand
(c) Both 1 & 2
Correct Answer 79 The historical financials of the business
Answer The history of a company is best illustrated by its financial performance.

Explanation 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.
Correct Answer 80 Both 1 & 2

Question 81 Whats the formula for calculating Weighted Average Cost of Capital
(WACC) ?
(a) [Ke * We] + [Kd * (1-Tx)*Wd]
(b) [Ke * We] X [Kd * (1-Tx)*Wd]
(c) [Ke * We] - [Kd * (1-Tx)*Wd]
(d) [Ke * We] / [Kd * (1-Tx)*Wd]
Question 82 The investor receives only one time cash inflow in which of the following
asset ?
(a) Gold
(b) Equity
(c) Bonds
(d) Both 2 & 3
Correct Answer 81 [Ke * We] + [Kd * (1-Tx)*Wd]
Answer WACC = [Ke * Equity / (Equity+ Debt)] + [Kd * (1-Tax)* Debt / (Equity+
Explanation Debt)]
= [Ke * We] + [Kd * (1-Tx)*Wd]
Where Kd = Cost of Debt, Wd = Weight of Debt, Ke = Cost of Equity, We =
Weight of Equity
Correct Answer 82 Gold
Answer In Equity and Bonds, there are regular inflows in the form of dividend and
Explanation 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.
Question 83 Most of the businesses are price takers and not price makers, Why ?
(a) As the margin on sales is low
(b) As there is stiff competition and one has to match the competitors prices
(c) As customers have low purchasing powers
Question 84 The Non Performing Assets (NPAs) are typically low when ________ .
(a) Interest rates are low
(b) Interest rates are high
(c) Inflation is high
Correct Answer 83 As there is stiff competition and one has to match the competitors prices
Answer In any competitive industry, pricing command is virtually missing. If a

Explanation competitor reduces prices, others will have to follow to remain in the market.
So the companies in a competative market are price takers and not price
makers.
Correct Answer 84 Interest rates are low
Answer NPAs are typically low when interest rates are low as defaults become less
Explanation due to affordability of Equated Monthly Installments (EMIs).
Question 85 The important factor(s) for long term sustainability of a business with
regard to competition is/are ___________ .
(a) Easy exit for the business
(b) Strong entry barriers
(c) No entry barriers
Question 86 ___________ measures the ability of the company to satisfy its short term
obligations as and when they come due?
(a) Asset Turnover Ratio
(b) Inventory Turnover Ratio
(c) High Return On Capital Employed
(d) Current Ratio
Correct Answer 85 Strong entry barriers
Answer Businesses with high entry barriers will have pricing power viz. can sell the
Explanation products at a premium without fear of losing customers. Such business can
easily sustain for a long term.
Correct Answer 86 Current Ratio
Answer Current ratio measures the ability of the company to meet its short-term
Explanation liabilities.
Current Ratio = Current Assets/ Current Liabilities
Question 87 Business is available at what discount to its intrinsic value - This is

________ parameter of business analysis.
(a) Qualitative parameter
(b) Quantitative parameter
(c) Valuation parameter
(d) Futuristic parameter
Question 88 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.
(a) 1.762
(b) 17.62
(c) 2.198
(d) 21.98
Correct Answer 87 Valuation parameter
Answer Valuation parameters consist of intrinsic value, P/E, P/BV, margin of safety
Explanation 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.
Answer Earning Per Share (EPS) = Net Profit / Outstanding Shares

Explanation = 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.
Question 89 A stock which has a low ______ may be judged as a undervalued or

cheap stock.
(a) EPS
(b) Current Ratio
(c) Beta
(d) PE Ratio
Question 90 The unemployment rate is _____ during boom times in the economy.
(a) High
(b) Low
(c) Nil
(d) 100%
Correct Answer 89 PE Ratio
Answer Price to Earnings Ratio ( PE Ratio ) measures the price that the market is
Explanation 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.
Correct Answer 90 Low
Answer Unemployment rate refers to the eligible and willing to work unemployed
Explanation population of the country.
During an expansion phase / boom time, the unemployment rate falls as more
jobs are created as production goes up.
Question 91 An important feature of Growth Option is Tax Deferral - True or False ?
(a) Competition in the industry
(b) Financial data
(c) Views of the Management on future opportunities and threats
(d) Business model
Question 92 In a ______ market, the Price Earning ratios tend to be low.
(a) Bull
(b) Bear
(c) Emerging
Correct Answer 91 Views of the Management on future opportunities and threats
Answer Correct and detailed management views can be obtained only through
Explanation personal interactions with them. These views are generally not available
elsewhere.
Correct Answer 92 Bear
Answer PE ratio = Market Price / EPS

Explanation In a Bear Market, the market price of shares are quiet low, so accordingly the
PE ratios are also low.
Question 93 The Mutual Fund schemes which does not have any fixed date of
redemption is known as _______ .
(a) Open Ended Schemes
(b) Close Ended Schemes
(c) FMP Schemes
Question 94 ‘Tom' trades are the trades where settlement occurs on ______ day(s)
(a) T+0
(b) T+1
(c) T+2
(d) T+3
Correct Answer 93 Open Ended Schemes
Answer An open-ended scheme offers the investors an option to buy and sell the units
Explanation at any time. These schemes do not have any fixed maturity period.
Correct Answer 94 T+1
Answer Tom trades are the trades where settlement (payment and delivery) occurs on
Explanation 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.
Question 95 __________ bonds can be changed into Equity.
(a) Deep Discount bonds
(b) Callable bonds
(c) Puttable bonds
(d) Convertible bonds
Question 96 A fund manager buys a security to maintain its weight in the portfolio.
What does this indicate ?
(a) The portfolio was underweight in that security
(b) The portfolio was overweight in that security
(c) Nothing can be indicated from this information
Correct Answer 95 Convertible bonds
Answer A convertible bond or debenture is generally issued as a debt instrument with

Explanation the option to investors to convert the amount invested into equity of the issuer
company later.
Correct Answer 96 The portfolio was underweight in that security

Question 97 The Debt to Equity Ratio of a company is 1.5 : 1. The total size of its
Balance Sheet is Rs 50 Lakhs. Calculate the Equity of the company.
(a) Rs 10 lakhs
(b) Rs 20 lakhs
(c) Rs 30 lakhs
(d) Rs 40 lakhs
Question 98 While investing in shares, which of the below options should you not
consider ?
(a) Shares in which the masses are buying
(b) Doing a SWOT analysis of the company
(c) Looking at the Government regulations affecting the company
(d) The competition in the industry
Correct Answer 97 Rs 20 lakhs
Answer Size of a Balanace Sheet includes Equity + Debt.

Explanation Therefore Rs 50,00,000 includes Debts & Equity in the ratio 1.5 : 1
So 5000000 / 2.5 x 1.5 = 3000000 is the Debt componenet
5000000 / 2.5 x 1 = 20,00,000 is the Equity component.
Correct Answer 98 Shares in which the masses are buying
Answer Herd mentality bias is a common behaviour disorder in investing community.

Explanation This bias is an outcome of a belief that others may have better information,
which leads investors to follow the investment choices that others make.
Question 99 In which bias, investors lose even after having won a trade ?
(a) Gambler's fallacy
(b) Winner's curse
(c) Projection bias
(d) Herd mentality
Question 100 __________ is the authority appointed under the Companies Act to
register companies and to ensure that they comply with the provisions of
the law.
(a) The Registrar of Companies (ROC)
(b) Department of Compliance
(c) Commerce Ministry
Correct Answer 99 Winner's curse
Answer Winner’s curse is the tendency to make sure that a competitive bid is won
Explanation even after overpaying for the asset.
While behaviourally it is a win, financially, it may be a loss.
Correct Answer
100 The Registrar of Companies (ROC)
Practice Question Banks also available for :
NISM
NISM Series I: Currency Derivatives Certification Exam

NISM Series V A: Mutual Fund Distributors Certification Exam
NISM Series VI: NISM Series VI - Depository Operations Certification Exam
NISM Series VII: Securities Operations and Risk Management
NISM Series VII: Equity Derivatives Certification Exam
NISM Series III A: Securities Intermediaries Compliance Certification Exam
NISM Series X A : Investment Adviser (Level 1) Certification Exam
NISM Series X B: Investment Adviser (Level 2) Certification Exam
NISM Series X V: Research Analyst Certification Exam
NCFM
NCFM Financial Markets: A Beginners Module

NCFM Capital Market (Dealers) Module
NSE FIMMDA : Debt Market (Basic) Module
NCFM Derivative Market (Dealers) Module
BSE
Certificate on Security Market (BCSM)


Nism XV - Research Analyst Exam - Last Day Test 1

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NISM SERIES XV - RESEARCH

ANALYST CERTIFICATION EXAM

LAST DAY REVISION TEST . 1

Question 1 FCFF (Free cash flows to the firm) is computed as –

Correct Answer 1 FALSE

Correct Answer 2 16.67%

Question 3 What does Industry structure in Structure Conduct Performance (SCP)

(a) Relationship among the various players in the industry

(b) Market size

(c) Industry Growth rate

(d) All of the above

Correct Answer 3 All of the above

Correct Answer 4 Rs 50000

Answer P/E = Market Price / EPS

(a) American Depository Receipts (ADRs)

(b) Global Depository Receipts (GDRs)

(c) Indian Depository Receipts (IDRs)

(d) Foreign Depository Receipts (FDRs)

Correct Answer 5 TRUE

Correct Answer 6 Global Depository Receipts (GDRs)

(a) Business Websites

(b) Annual Reports

(c) Media reports

(d) Research reports and opinions of Research Analysts

(a) Balanced Schemes

(b) ELSS Schemes

(c) Open Ended Schemes

(d) Close Ended Schemes

Correct Answer 7 Annual Reports

Correct Answer 8 Close Ended Schemes

Correct Answer 9 FALSE

Correct Answer 10 Rs 21,00,000

(d) None of the above

Correct Answer 11 Contractionary

Expansionary monetary policy is used to push the economy up by increasing

Correct Answer 12 Rs 7.92

Answer PE Ratio = Stock Price / EPS

Question 14 If a stock has low PE multiple can be seen as a _______ stock

(a) Over Valued

(d) Low Beta

Correct Answer 13 FALSE

Correct Answer 14 Cheap

(a) Unscientific Approach

(b) Top Down Approach

(c) Bottom Up Approach

(d) Technical Approach

Question 16 A company has shares of facevalue Rs 10 and its paid up capital is Rs 30

(a) Rs 360 lakhs

(b) Rs 130 lakhs

(c) Rs 240 lakhs

(d) Rs 580 lakhs

Correct Answer 15 Bottom Up Approach

Correct Answer 16 Rs 360 lakhs

(a) Projection bias

(b) Herd mentality

(c) Ownership bias

(d) Confirmation bias

Correct Answer 17 Projection bias

Correct Answer 18 FALSE

(a) Operation Risk

(b) Market Risk

(c) Credit Risk

(d) Business Risk