NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)

CERTIFICATION EXAM – PRACTICE TEST NO. 2

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duration is 2 hours.

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 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

PRACTICE TEST NO. 2

Question 1 Protecting the value of an asset or portfolio of assets against price

fluctuations is known as _______.
(a) Arbitrage
(b) Option Trading
(c) Hedgeing
(d) Delta Safety

Question 2 What is the term of Post Office Monthly Income Scheme?

(a) 5 years
(b) 10 years
(c) 6 years
(d) 15 years

Correct Answer 1 Hedgeing

Correct Answer 2 5 years

Answer Post Office Monthly Income Scheme has a term of 5 years (reduced from 6
Explanation years w.e.f 1 December, 2011).
 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 3 Which of the following is the role of RBI?

(a) Framing Monetary Policies
(b) Framing Fiscal Policies
(c) Drafting Company Rules
(d) Managing Exchanges

Question 4 Which of the following is not a valid reason to change portfolio

allocation?
(a) Change in the macro economic outlook
(b) Change in income requirements
(c) Launch of a new mutual fund
(d) Change in the ability to take risk

Correct Answer 3 Framing Monetary Policies

Correct Answer 4 Launch of a new mutual fund

Answer Launch of a new mutual fund is not a valid reason to change portfolio
Explanation allocation.
 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 5 Which of the following exercises control over matters relating to direct
and Indirect taxes of the Central Government ?
(a) Department of Economic Affairs
(b) Department of Expenditure
(c) Department of Revenue
(d) Department of Financial Services

Question 6 The term of insurance in non-life insurance is typically -

(a) Decided by the insured
(b) One year
(c) Decided based on sum insured
(d) Flexible

Correct Answer 5 Department of Revenue

Answer Department of Revenue exercises control over matters relating to direct and
Explanation Indirect taxes of the Central Government, through two statutory boards, viz.,
the Central Board of Direct Taxes and Central Board of Excise and Customs

Correct Answer 6 One year

Answer Non life insurance policies always have a term of one year.
Explanation
 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 7 Which of the following is not a formal approach in Strategic Asset

Allocation ?
(a) Define what would be an efficient frontier containing the entire efficient
portfolios on the risk return graph
(b) Determination of Risk Bearing capacity of the investor as High, Medium and
Low
(c) Determine the expected returns and the risk parameters of Standard Deviation,
correlation of two asset categories of stocks, bonds etc.
(d) None of the above

Question 8 Which is the most important part relating to relating to retirement

planning?
(a) Projected Inflation
(b) Current Expenses
(c) Current Income
(d) Future Income

Correct Answer 7 Determination of Risk Bearing capacity of the investor as High, Medium and
Low

Correct Answer 8 Projected Inflation

Answer Projected Inflation is the most important part as it will decide the amount of
Explanation retirement corpus.
 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 9 Which of the following statements is INCORRECT about Endowment ?

(a) Endowment Insurance is a popular plan providing protection to self and
family.
(b) At maturity, a lump sum is paid out equal to the sum assured (plus bonus)
(c) If death occurs during the term of the policy then the total amount of insurance
and any bonus accrued are paid out
(d) Endowments are considerably cheaper in terms of annual premium than either
whole life or universal life

Question 10 What is the process that enables better management of the personal
financial situation of a household?
(a) Financial Planning
(b) Wealth Management
(c) Estate Planning
(d) Financial Goal

Correct Answer 9 Endowments are considerably cheaper in terms of annual premium than either
whole life or universal life

Correct Answer 10 Financial Planning

Answer Financial Planning is the process that enables better management of the
Explanation personal financial situation of a household
 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 11 If the inflation rate is 4.9% and tax rate is 30%. The required rate of
return to maintain the value of an investment is:
(a) 6%
(b) 7%
(c) 9%
(d) 10%

Question 12 In ______ plan , the pension amount is known in advance.

(a) Defined Benefit
(b) Defined Contribution
(c) Defined Pension
(d) Defined Retirement

Correct Answer 11 7%

Answer Pre Tax Return= Post Tax Return/ (1-Tax Rate)

Explanation = 4.9%/(1-0.30) = 7%

Correct Answer 12 Defined Benefit

Answer In a defined benefit plan, the pension amount or value of retirement benefit is
Explanation known before hand. Or, the formula based on which the pension amount
would be calculated, is known.
 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 13 Mr Dhiraj wants to withdraw money from his PPF account which he had
opened in the year 2002-03. He wants to know when he can make his first
withdrawal from this account ?
(a) After 31-3-2007
(b) After 31-3-2008
(c) After 31-3-2009
(d) After 31-3-2012

Question 14 What is the minimum amount of contribution in NPS in a year?

(a) 500
(b) 5000
(c) 1000
(d) 6000

Correct Answer 13 After 31-3-2008

Correct Answer 14 6000

Answer The minimum amount per contribution is Rs.500 and the minimum
Explanation contribution in a year is Rs.6000. The minimum number of contributions in a
year is 1. There is no maximum limit.
 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 15 What is the maximum limit of investment in Senior Citizen Savings

Scheme?
(a) 50,000
(b) 1,00,000
(c) 15,00,000
(d) No Limit

Question 16 NPS is regulated by-

(a) PFRDA
(b) SEBI
(c) RBI
(d) IRDA

Correct Answer 15 15,00,000

Correct Answer 16 PFRDA

Answer The National Pension Scheme (NPS) is regulated by PFRDA (Pension Funds
Explanation Regulation and Development Authority).
 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 17 Tax adjusted returns are always more than nominal rate of returns -
True or False ?
(a) TRUE
(b) FALSE

Question 18 Which of the following are allowed as deduction under income from
house property :- I) Municipal taxes accrued, II) Municipal taxes paid
,III) Interest on Loan, IV)30% of the Net annual value.
(a) I, II, III
(b) II, IV
(c) I,III,IV
(d) II,III,IV

Correct Answer 17 FALSE

Answer Tax adjusted returns are always less than nominal returns.
Explanation

Correct Answer 18 II,III,IV

Answer Municipal taxes are allowed on payment basis and not accrual , all other
Explanation deductions are allowed.
 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 19 What is the market value of the outstanding share capital of a company
known as?
(a) Market capitalization
(b) Exchange capitalization
(c) Face Value
(d) Share Capital

Question 20 An investment in the shares of a motor company will be affected by which

of the risk-
(a) Credit risk
(b) Default risk
(c) Interest rate risk
(d) Inflation risk

Correct Answer 19 Market capitalization

Answer Market Capitalisation refers to the market value of the outstanding share
Explanation capital of a company. The number of shares times the market price per share
gives the market capitalisation.
Market cap is an indicator of the size of the company in terms of the current
market price of its shares.

Correct Answer 20 Inflation risk

Answer Inflation risk is the uncertainty over the future real value (after inflation) of
Explanation your investment.
 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 21 A residents total income comprises all his income accrued/received or

deemed to accrue/ received _________.
(a) Within India only
(b) Outside India only
(c) Within and outside India
(d) None of the above

Question 22 Which of these is a financial goal ?

(a) Rs 3 lacs needed after 3 years for child's educational fees
(b) Rs 10 lacs needed for buying a car
(c) A big sum needed to buy a new house after 5 years
(d) Rs 10,000 needed every month for general expenses

Correct Answer 21 Within and outside India

Correct Answer 22 Rs 3 lacs needed after 3 years for child's educational fees

Answer In defining a financial goal, both the time period and amount needed has to be
Explanation specified.
 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 23 Company X Ltd. has 2,13,459 outstanding equity shares of face value 10
each. Market Price of X Ltd. Is Rs.475. The current year earnings of the
company is Rs.2,57,00,000. What is the P/E ratio of X Ltd.?
(a) 7.94
(b) 4.65
(c) 3.95
(d) 2.58

Question 24 Which of the following is not a condition to claim maximum deduction u/s
24 for interest paid on a Self Occupied Property?
(a) Loan amount should be paid in lumpsum to the builder.
(b) Property should be acquired/constructed within 3 years from the end of
financial year in which the capital was borrowed.
(c) Certificate from the lender has to be availed
(d) Capital is borrowed on or after April 1,1999

Correct Answer 23 3.95

Answer P/E Ratio ( Price/ Earning) = Total Market Cap / Total Earnings
Explanation = (213459*475)/2,57,00,000 = 3.95
OR
PE Ratio = Market Price / EPS
(EPS = Profit / No. of Share = 25700000 / 213459 = 120.397)
So PE Ratio = 475 / 120.397 = 3.95

Correct Answer 24 Loan amount should be paid in lumpsum to the builder.

 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 25 Risk Financing is a process to determine the balance between ________.

(a) Retaining Risk and Sharing Risk
(b) Retaining Risk and Diversifying Risk
(c) Retaining Risk and Transferring Risk
(d) Retaining Risk and Distributing Risk

Question 26 An investor who seeks a high level of return and is willing to bear the
risks of such investments is likely to be recommended
(a) Aggressive portfolio
(b) Moderate portfolio
(c) Conservative portfolio

Correct Answer 25 Retaining Risk and Transferring Risk

Correct Answer 26 Aggressive portfolio

Answer Investments with high level of returns is always associated with high risks. A
Explanation portfolio with such investments is known as an aggressive portfolio.
 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 27 All the receipts under Reverse Mortgage Loan shall be exempt from
income under section 10 (43) of IT Act. - True or False ?
(a) TRUE
(b) FALSE

Question 28 Providing protection is the ________ function of Insurance.

(a) Primary
(b) Secondary
(c) Supplementary
(d) Other

Correct Answer 27 TRUE

Correct Answer 28 Primary

 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 29 As per Section 139(1) of the ITA, the due date for filing a return for Non-
corporate under audit is _______.
(a) 30th Sept of the Assessment Year
(b) 31st July of the Assessment Year
(c) 31st July of the Previous Year
(d) 15th Sept of the Assessment Year

Question 30 ______ is defined as the possibility that what is actually earned as return
could be different from what is expected to be earned.
(a) Return
(b) Expected Return
(c) Risk
(d) Probability

Correct Answer 29 30th Sept of the Assessment Year

Correct Answer 30 Risk

Answer Risk is defined as the possibility that what is actually earned as return could be
Explanation different from what is expected to be earned.
 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

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NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 2