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NISM SERIES XV - RESEARCH

ANALYST CERTIFICATION EXAM


NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 4

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NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 4

PRATICE TEST NO. 4

Question 1 A company has 200000 shares. The Price to Book Value ratio of this
company is 7 and the Book Value is 5. Calculate the Networth of the
company.

(a) Rs 1000000

(b) Rs 2000000

(c) Rs 1400000

(d) Rs 3500000

Question 2 SEBI has been appointed under the Companies Act to register companies
in India and to ensure that they comply with the provisions of the law.-
State True or False ?

(a) TRUE

(b) FALSE

Correct Answer 1 Rs 1000000


Answer Price to book value ratio = Market price per share / Book value per share
Explanation 7 = Market Price / 5
Market Price = 7 x 5 = 35
Market Cap = 35 x 200000 = 7000000
Another formula for Price to Book Value Ratio = Market Cap / Networth
ie. 7 = 7000000 / Networth
So Networth = 7000000 / 7 = Rs. 1000000

Correct Answer 2 FALSE


Answer The Registrar of Companies (ROC) is the authority appointed under the
Explanation Companies Act to register companies and to ensure that they comply with the
provisions of the law.
NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 4

Question 3 Indian Depository Receipts are issued in India and are listed on any
world Stock Exchange with foreign stocks as underlying shares - State
True or False ?

(a) TRUE

(b) FALSE

Question 4 Country’s dependence on other countries in terms of important natural


resources, monitory policies of the Central Banker, Balance of payment
positions and forex reserves etc. are part of ___________ in PESTLE
Analysis.

(a) Political Factors

(b) Technological Factors

(c) Economic Factors

(d) Socio-Cultural Factors

Correct Answer 3 FALSE


Answer Indian Depository Receipts are issued in India and are listed on an Indian
Explanation Stock
Exchange with foreign stocks as underlying shares.

Correct Answer 4 Economic Factors


NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 4

Question 5
When interest rates fall, the prices of old bonds will _______ .

(a) Rise

(b) Fall

(c) No effect on bond prices

(d) None of the above

Question 6 ___________ models help governments and central bankers formulate


economic policies for achieving long run economic growth with stability.

(a) Macroeconomic

(b) Microeconomic

(c) Both 1 and 2

(d) None of the above

Correct Answer 5 Rise


Answer When rates fall, the old bonds with high coupon rates would become
Explanation attractive and so their prices will rise.

Correct Answer 6 Macroeconomic


Answer Structure Conduct Performance (SCP) Analysis
Explanation
NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 4

Question 7 A high Current Account Deficit (CAD) causes the nation’s currency
to weaken relative to other currency - State True or False ?

(a) TRUE

(b) FALSE

Question 8 Most of the businesses are price takers and not price makers as there is
less competition in the market. State True or False ?

(a) TRUE

(b) FALSE

Correct Answer 7 TRUE


Answer A high fiscal deficit (receipts are less than payments) in proportion to the
Explanation GDP caused by lack of competitiveness in trade or excessive consumption is a
negative commentary on the economy. This leads to weakening of the nations
currency.

Correct Answer 8 FALSE


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.
NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 4

Question 9 The Net Profit of a company was Rs 1 crores. The company's equity
capital stood at Rs 1796300. The face value of its shares is Rs 10.
Calculate the Earning Per Share of the company.

(a) 21.66

(b) 35.29

(c) 48.2

(d) 55.67

Question 10 The current stock price of ABC Software Ltd is Rs 1200. Its Profit After
Tax (PAT) is Rs 68,00,000. The number of outstanding shares are
100000. Calculate the P/E Ratio.

(a) 17.64

(b) 19.66

(c) 21.47

(d) 23

Correct Answer 9 55.67


Answer Number of Shares = Equity Capital / Face Value
Explanation = 1796300 / 10
= 179630
EPS = Net Profit / No. of Shares
= 10000000 / 179630
= 55.67

Correct Answer 10 17.64


Answer Price to Earnings Ratio (PE Ratio) = Market price per share / Earnings per
Explanation share (EPS)
We know the Market Price and have to calculate the EPS
EPS = Net Income / No. of Outstanding Shares
= 6800000 / 100000
= 68
PE Ratio = Market price per share / EPS
PE = 1200 / 68 = 17.64
NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 4

Question 11 The credit risk in all exchange traded markets is taken care by Stock
Exchange in which the trade has taken place - State True or False ?

(a) TRUE

(b) FALSE

Question 12 Foreign Commercial Paper provide access of Indian securities to


unregistered overseas investors thro' SEBI registered foreign portfolio
investors - State True or False ?

(a) TRUE

(b) FALSE

Correct Answer 11 FALSE


Answer The trades executed on the exchange are settled through the Clearing
Explanation 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).

Correct Answer 12 FALSE


Answer P-Notes ( Participatory Notes ) provide access of Indian securities to
Explanation unregistered overseas investors thro' SEBI registered foreign portfolio
investors.
NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 4

Question 13 In the process of valuation of a business, the growth rate is calculated by


adding the retention rate and the return on equity - State True or False?

(a) TRUE

(b) FALSE

Question 14 The Total Assets of a company are Rs 124000 and the Total Liabilities
are Rs 79000. Calculate the Equity to Asset Ratio.

(a) 1.64

(b) 2.5

(c) 0.54

(d) 0.36

Correct Answer 13 FALSE


Answer The growth rate is calculated as the product (multiplication) of the retention
Explanation rate and the return on equity.

Correct Answer 14 0.36


Answer Equity = Assets – Liabilities
Explanation = 124000 – 79000
= 45000
Equity to Asset Ratio = Equity / Assets
= 45000 / 124000
= 0.36
NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 4

Question 15 SEBI has standardized the symbols used by credit rating agencies and
symbols such as AAA, A1 indicate the ________ degree of credit
worthiness.

(a) Highest

(b) Lowest

(c) Default

(d) There are no such symbols

Question 16 Calculate the Enterprise Value based on the given information: Market
Capitalisation = 28 lakhs; Total Debt= 7 lakhs; Cash = 6 lakhs.

(a) Rs 41 Lakhs

(b) Rs 28 Lakhs

(c) Rs 29 Lakhs

(d) Rs 27 Lakhs

Correct Answer 15 Highest

Correct Answer 16 Rs 29 Lakhs


Answer Enterprise Value (EV) is the theoretical takeover price of a firm.
Explanation Enterprise value (EV) = Market value of equity (Market capitalization) +
Market value of debt – cash and cash equivalents
EV = 28 L + 7 L - 6 L
= 29 Lakhs
NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 4

Question 17 _________ bonds are a safe option for the issuers in a falling interest rate
scenario.

(a) Callable

(b) Puttable

(c) Zero Coupon

(d) All of the above

Question 18 PEG Ratio is calculated as : [Current price of stock/ Earnings Per Share]
X Growth rate. State True or False ?

(a) TRUE

(b) FALSE

Correct Answer 17 Callable


Answer Callable bonds allow the issuer to redeem/ buyback the bonds prior to their
Explanation original maturity date.
When interest rates fall, the issuer will buy back the high interest bonds and
would be in a position to raise the same amount of loan, at a lower interest
rate.

Correct Answer 18 FALSE


Answer Growth Adjusted Price to Earning Ratio (PEG) =
Explanation [Current price of stock/ Earnings Per Share] / Growth rate
NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 4

Question 19 The basic purpose of Portfolio Investment is to have a say in


management of a company so as to improve its efficiency - State True or
False ?

(a) TRUE

(b) FALSE

Question 20 Shares may be voluntary delisted by the company from a stock exchange.
It could be for various reasons as mentioned below EXCEPT -

(a) to avoid the regulatory reporting complexities

(b) due to mergers and acquisitions

(c) on account of non-compliance to regulations of the stock exchange

(d) to have freedom to execute a changed strategy

Correct Answer 19 FALSE

Correct Answer 20 on account of non-compliance to regulations of the stock exchange

Answer Delisting may be compulsory or voluntary.


Explanation 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 and the motives may range from regulatory reporting complexities and
compliance overhead to mergers and acquisitions and sometimes to have
freedom to execute a changed strategy.
NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 4

Question 21 If the price is same as the value, then the asset is said to be _______ .

(a) Fairly priced

(b) Under Priced

(c) Over Priced

(d) None of the above

Question 22 Dividend Payout Ratio is calculated by ________ .

(a) dividing the company's earnings per share by dividend per share.

(b) dividing the company's profits by dividend per share.

(c) dividing the company's dividend per share by earnings per share.

(d) None of the above

Correct Answer 21 Fairly priced

Correct Answer 22 Dividing the company's dividend per share by earnings per share.
NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 4

Question 23 _________ is often used during a merger or acquisition of a company


when acquiring company uses its own stock as cash to purchase the
business.

(a) Share Swap

(b) Buy Back of Shares

(c) Loan Restructuring

(d) Share consolidation

Question 24 In case of Stock Consolidation, the per share data (earning per share,
book value per share, market price per share etc.) witnesses immediate
improvement. State True or False ?

(a) TRUE

(b) FALSE

Correct Answer 23 Share Swap


Answer Share swap means exchanging one set of shares with another set of shares.
Explanation Share swap is often used during a merger or acquisition of a company when
acquiring company uses its own stock as cash to purchase the business.
Each shareholder of the acquired company receives a pre-determined amount
of shares from the acquiring company.

Correct Answer 24 TRUE


Answer In Stock Consolidation. as total no. of shares go down without any economic
Explanation 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.
NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 4

Question 25 The View-based section in research report consist of _______ .

(a) Company Business

(b) Key Strengths

(c) Industry Overview

(d) All of the above

Correct Answer 25 All of the above


Answer Research Reports can also be divided into Fact based and View based
Explanation sections.
The View-based section in research report has Company Business, Key
Strengths, Key concerns, Industry Overview.
The fact based section comprises of sheer facts like peer group analysis,
shareholding pattern, company fundamentals and key financial indicators.
NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 4

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NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 4