NISM SERIES XV - RESEARCH

ANALYST CERTIFICATION EXAM

 NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 5

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 NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 5

PRATICE TEST NO. 5

Question 1 Speculation is _____________ calls made with leveraged funds, unlike

investing money which is a _________ disciplined activity for creating
wealth.

(a) Long term; medium term

(b) Long term; Long term

(c) Long term; Short term

(d) Short Term; Long term

Question 2 The telecom industry does not face any threat of substitutes - State True
or False ?

(a) FALSE

(b) TRUE

Correct Answer 1 Short Term; Long term

Answer Investing money without going through the rigor of understanding and analyzing the
Explanation investment options, their risk and return features and appropriate value would be like
taking a bet or speculating rather than investing.
Such activity has a greater chance of losing rather than making money for the
investors.
Speculation is typically short-term calls made with leveraged funds, unlike
investing money which is a long-term disciplined activity for creating wealth.

Correct Answer 2 FALSE

Answer The telecom industry also faces threat of substitutes. Mobile phones have
Explanation overtaken the once dominant landline phones. In future some new technology
may make mobile phones obsolete.
Some industries like power, healthcare, education etc do not have threat of
substitutes at all.
There could be different modes of servicing customers at different times but
these products/services will never be out of business.
 NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 5

Question 3 ______ has an obligation to buy an asset at a predetermined price.

(a) Call Buyer

(b) Call Writer

(c) Put Buyer

(d) Put Writer

Question 4 Sometimes, Bottom-up analysts focus purely on dynamics of business and

industry with little or no attention to the Economic factors - State True
or False ?

(a) TRUE

(b) FALSE

Correct Answer 3 Put Writer

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

Correct Answer 4 TRUE

Answer Sometimes, bottom-up analysts focus purely on dynamics of business and
Explanation industry with little or no attention to the Economic factors as their focus
remains on buying and holding fundamentally strong businesses which would
probably do well across the economic cycles, such as pharmaceuticals,
consumer goods and other such businesses.
 NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 5

Question 5 Mr. Singh purchases MF units at NAV Rs 11. After 400 days , he
redeems it at NAV Rs 12.50. What is his compounded rate of return ?

(a) 16.20%

(b) 14.18%

(c) 13.55%

(d) 12.36%

Question 6 Which of these Qualities are desired in a good research analyst?

(a) Clarity in financial concepts

(b) Ability to read and understand financial statement

(c) Knack for numbers and interpretation

(d) All of the above

Correct Answer 5 12.36%

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 = 12.50 ; Begin Price = 11
n = time. We have to find yearly return so n = 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 1.207 then use x^y key
and then type 0.73 = 1.1236
1.1236 - 1 = .1236x 100 = 12.36 %

Correct Answer 6 All of the above

 NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 5

Question 7 Code of conduct is defined in the Schedule II of Research Analyst

Regulations - State True or False ?

(a) TRUE

(b) FALSE

Question 8 The Net Profit of a company is Rs 12,00,000 and the Market

Capitalisation is Rs 60,00,000. Calculate the Earnings Yield.

(a) 20%

(b) 5%

(c) 500%

(d) 0.20%

Correct Answer 7 FALSE

Answer Code of conduct is defined in the Schedule III of Research Analyst
Explanation Regulations.

Correct Answer 8 20%

Answer 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
=1200000 / 6000000
= 0.2 x 100 = 20 %
 NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 5

Question 9 The analysis of historical stock prices of a company is called as

'Company Analysis' - State True or False ?

(a) TRUE

(b) FALSE

Question 10 A warrant is relatively _________ option to buy ________ at a specified

exercise price over a specified period of time.

(a) Long Term , Bonds

(b) Long Term , Common Stock

(c) Short Term , Bonds

(d) Short Term , Common Stock

Correct Answer 9 FALSE

Answer The analysis of historical stock prices of a company is called as 'Technical
Explanation Analysis'

Correct Answer 10 Long Term , Common Stock

Answer Warrants are options that entitle an investor to buy equity shares of the issuer
Explanation company after a specified time period (usually long term) at a given price.
 NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 5

Question 11 Corporate actions like Bonus Issue, Stock Split and Share Consolidation
will lead to change in the per share data - State True or False ?

(a) TRUE

(b) FALSE

Question 12 _________ is NOT a component of the Current Account of a country.

(a) Revenue from Imports and Exports

(b) Capital flows like FII

(c) Capital flows like FDI

(d) Both 2 and 3

Correct Answer 11 TRUE

Answer In case of Bonus Shares, per share data (earning per share, book value per
Explanation 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.

Correct Answer 12 Both 2 and 3

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.
 NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 5

Question 13 Calculate the Market Price of a company's share from the following data
- Total Assets : 50,00,000 Net Income : 4,00,000 Earning Per Share : 0.50
Price to Book Value (P/BV) : 6 Return on Equity : 40%

(a) Rs 15

(b) Rs 12.50

(c) Rs 7.50

(d) Rs 5

Question 14 In a company, if the total liabilities are Rs 8000 and the total assets are
Rs 20000, calculate the Equity to Asset ratio.

(a) 0.6

(b) 1.1

(c) 1.4

(d) 0.4

Correct Answer 13 Rs 7.50

Answer Earning Per Share = Net Income / No. of Shares
Explanation So : No. of Shares = Net Income / EPS
No. of shares = 400000 / .50 = 8,00,000
Return on Equity ie. Net Profit is 40% of Equity. Net Profit is Rs 400000
So Equity will be 400000 / 40 x 100 = 10,00,000
Book Value = Equity / No of Shares = 1000000 / 800000 = 1.25
Price to Book Value = Current Market Price / Book Value
So Current Market Price = Price to Book Value x Book Value
= 6 x 1.25 = 7.50

Correct Answer 14 0.6

Answer Equity = Assets – Liabilities
Explanation = 20000 – 8000
= 12000
Equity to Asset Ratio = Equity / Assets
= 12000 / 20000
= 0.6
 NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 5

Question 15 The __________ of an equity share is the discounted value of its future
benefits to the investors.

(a) Replacement value

(b) Market value

(c) Face Value

(d) Intrinsic Value

Question 16 The unique parameter for evaluation of the Telecom sector is _________.

(a) Number of new customers added every month

(b) Number of new customers added every quarter

(c) Number of calls made per day

(d) Average Revenue Per User

Correct Answer 15 Intrinsic Value

Answer Intrinsic value refers to the value of the equity share determined through
Explanation fundamental analysis. Its ordinarily calculated by summing the discounted
future income generated to obtain the present value.

Correct Answer 16 Average Revenue Per User

 NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 5

Question 17 Earning Per Share = EBIT / Number of shares outstanding - State True
or False ?

(a) TRUE

(b) FALSE

Question 18 The fiscal deficit is bridged by the government through market

borrowings, both short-term and long term. State whether True or
False?

(a) TRUE

(b) FALSE

Correct Answer 17 FALSE

Answer EPS = Net Profit / Number of shares outstanding
Explanation

Correct Answer 18 TRUE

Answer Budgeted excess of Government’s expenditure over its revenues in a specific
Explanation year is known as fiscal deficit.
The fiscal deficit is bridged by the government through market borrowings,
both short-term and long term.
 NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 5

Question 19 Mark to Market margin is the notional ______ which an outstanding

trade has during a specified period on account of price movements.

(a) Profit

(b) Loss

Question 20 ________ policy stance is usually undertaken during recessions/slow

moving economy.

(a) Expansionary fiscal policy

(b) Contractionary fiscal policy

(c) Neutral fiscal policy

(d) None of the above

Correct Answer 19 Loss

Correct Answer 20 Expansionary fiscal policy

Answer Expansionary fiscal policy – Fiscal measures when government’s spending

Explanation 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.
 NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 5

Question 21 __________ covers Banks, Insurance, Financial Services provided by

various government agencies and private corporations.

(a) Department of Revenue

(b) Department of Economic Affairs

(c) Department of Expenditure

(d) Department of Financial Services

Question 22 When there is lots of licensing required and huge investments in

specialized assets are also required, this means _________.

(a) Competition is high in this industry

(b) Low Entry barriers in this industry

(c) High Entry barriers in this industry

(d) All of the above

Correct Answer 21 Department of Financial Services

Correct Answer 22 High Entry barriers in this industry

 NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 5

Question 23 Holding Period Returns (HPR) method of yield calculation assumes that
the investor will hold the bond till maturity - State True or False ?

(a) TRUE

(b) FALSE

Question 24 Investors looks for businesses with _______ entry barriers.

(a) High

(b) Low

(c) Either high or low depending on the nature of business

(d) None of the above

Correct Answer 23 FALSE

Answer Yield to Maturity (YTM) method of yield calculation assumes that the
Explanation investor will hold the bond till maturity.
Holding Period Returns (HPR) - the investor may hold the bond till maturity
or may exit earlier in between by selling on the secondary market.
The returns to the investor for the period for which the bond was held is
known as HPR.

Correct Answer 24 High

Answer Investors look for businesses with high entry barriers. Such businesses will
Explanation have pricing power viz. can sell the products at a premium without fear of
losing customers.
 NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 5

Question 25 A Rights Issue is open for subscription for a minimum period of _____
days.

(a) 7

(b) 10

(c) 15

(d) 30

Correct Answer 25 15

Answer A rights issue is open for subscription for a minimum period of 15 days and a
Explanation maximum period of 30 days.
 NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 5

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 NISM SERIES XV – RESEARCH ANALYST
CERTIFICATION EXAM – PRACTICE TEST 5