NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)

CERTIFICATION EXAM – PRACTICE TEST NO. 5

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 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

PRACTICE TEST NO. 5

Question 1 Which of the following is the most important determinant for an

investment plan to achieve the desired goal ?
(a) Choosing the asset class giving the best return
(b) Choosing the asset allocation as per one's situation
(c) Choosing the best investment product
(d) Managing the asset portfolio through tactical asset allocation

Question 2 Which of these is a Systematic Risk ?

(a) Business Risk
(b) Market Risk
(c) Total Risk
(d) Time Risk

Correct Answer 1 Choosing the asset allocation as per one's situation

Correct Answer 2 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.
These risks are also known as undiversifiable risks, because they cannot be
eliminated through diversification. 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.
 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

Question 3 What is the rate of Wealth Tax?

(a) 1%
(b) 5%
(c) 2%
(d) None of the above

Question 4 Mr. Y invests in 200 shares for Rs.20,000 in ABC Ltd( Face Value Rs.10).
The company pays a dividend o Rs.3 per share for the year. What is the
dividend yield on the security?
(a) 30%
(b) 3%
(c) 33%
(d) 100%

Correct Answer 3 None of the above

Answer Wealth Tax has been abolished with effect from 1st April, 2016.
Explanation

Correct Answer 4 3%

Answer Dividend Yield = Dividend / Purchase Price (Purchase price is 20000 / 200 =
Explanation Rs 100)
= 3 / 100
= 3%
 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

Question 5 After how many years, amount can be withdrawn from the NSC Scheme?
(a) 1
(b) 2
(c) 3
(d) 4

Question 6 A Loan cover policy covers the individuals home loan amount in case of
an eventuality.
(a) TRUE
(b) FALSE

Correct Answer 5 3

Correct Answer 6 TRUE

Answer Loan Cover Policy covers the individual’s home loan amount in case of an
Explanation eventuality.
 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

Question 7 For a risk to be insurable , there should be an element of gain or profit -

True or False ?
(a) TRUE
(b) FALSE

Question 8 The market price of a equity share of a company is 342. The Profit after
after tax is 260 crores and the number of shares issued by the company is
6 crores. What is the Price to Earning Ratio ( PE Ratio ) ?
(a) 43.33
(b) 24.78
(c) 7.89
(d) 3.77

Correct Answer 7 FALSE

Answer A characteristic of the insurable risk is that it does not involve any prospect of
Explanation gain or profit.
This means that, if it was possible to insure against not making a profit from
selling goods in a shop, there would be very little incentive to try to sell the
goods if the owner knew the insurance company would step in and pay up
anyway.

Correct Answer 8 7.89

Answer PE = Market Price / EPS (Earning Per Share)

Explanation EPS = Net Profit / No. of Shares
EPS = 260 / 6 = 43.33
So PE = 342 / 43.33
= 7.89
 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

Question 9 _______ Investors normally prefer to keep their money in the bank or in
safe income yielding instruments.
(a) Conservative
(b) Moderate
(c) Traditional
(d) Aggressive

Question 10 Funds that identify underpriced stocks that are not in focus but have the
potential to do well in the long run are known as-
(a) Value Funds
(b) Special Funds
(c) Growth Funds
(d) Dividend Funds

Correct Answer 9 Conservative

Answer Conservative Investors normally prefer to keep their money in the bank or in
Explanation safe income yielding instruments

Correct Answer 10 Value Funds

Answer Value funds identify underpriced stocks that are not in focus but have the
Explanation potential to do well in the long run.
Value strategy plays out over the long run and is potentially a low risk
proposition.
 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

Question 11 If a person opens a PPF account in the financial year 2009-10, when will
the account mature?
(a) 1st April 2024
(b) 31st March 2024
(c) 31st March 2025
(d) 1st April 2025

Question 12 The prime responsibility of Self Regulatory Organization (SRO) is

_______.
(a) to form a lobby to protect their members
(b) to conduct training programs
(c) to regulate their own members
(d) all of the above

Correct Answer 11 1st April 2025

Answer PPF account matures 15 years after the end of the financial year in which the
Explanation account was formed.

Correct Answer 12 to regulate their own members

 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

Question 13 Mrs. Roy wants to earn better returns through changes in asset allocation
from time to time. What kind of asset allocation is she looking at?
(a) Strategic Asset Allocation
(b) Tactical Asset Allocation
(c) Dynamic Asset Allocation
(d) Distinct Asset Allocation

Question 14 Which of the following does not have a participation clause?

(a) Endowment Policy
(b) Money Back Plan
(c) Term Policy
(d) Whole Life Plan

Correct Answer 13 Tactical Asset Allocation

Answer Tactical asset allocation involves active portfolio management with the aim of
Explanation adding value through short term adjustments in asset allocation based on the
view for relative asset class performance

Correct Answer 14 Term Policy

Answer Participation Clause generally means an amount over and above the promised
Explanation amount based on the profits of the insurance company.
Term policies never have a participation clause
 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

Question 15 If a person who owns a house and resides in the same, the annual value of
the property will be considered to be _________.
(a) The Standard Rent as per Rent Control Act
(b) The sum at which the property might reasonably be let out
(c) Both 1 and 2
(d) None of the above

Question 16 Risk and return characteristics of a bond are relatively higher than
equity. -True or False ?
(a) FALSE
(b) TRUE

Correct Answer 15 None of the above

Answer Income from house property: Income under this head is taxable if the assessee
Explanation is the
owner of a property consisting of building or land appurtenant thereto and is
not used
by him for his business or professional purpose.

Correct Answer 16 FALSE

Answer Risk and return characteristics of bond are relatively lower than equity and
Explanation hence, suitable for an investor seeking regular income flows with minimal
risk.
 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

Question 17 High growth stocks are stocks which have-

(a) High Dividend yield
(b) High Price
(c) High Returns
(d) High Earnings Growth

Question 18 What is the maximum amount which can be claimed as deduction on

interest on housing loan for a Self Occupied Property?
(a) No Limit
(b) 30,000
(c) 1,50,000
(d) 2,00,000

Correct Answer 17 High Earnings Growth

Answer Stocks which have high earnings growth are known as high growth stocks.
Explanation

Correct Answer 18 1,50,000

Answer The maximum amount allowed under section 24 as deduction for Self
Explanation Occupied Property is 1,50,000.
 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

Question 19 ______ Risk refers to the ease with which an investment can be bought or
sold in the market.
(a) Market
(b) Interest Rate
(c) Liquidity
(d) Default

Question 20 Which of the following will be a taxable gift under the Income tax Act?
(a) Rs.50,000 received from Father
(b) Ornaments received as Marriage gift
(c) Inherited property worth Rs.25 lakh
(d) Received property worth Rs.25 lakh for Rs.20 lakh

Correct Answer 19 Liquidity

Answer Liquidity or marketability refers to the ease with which an investment can be
Explanation bought or sold in the market.
Liquidity risk refers to an absence of liquidity in an investment.

Correct Answer 20 Received property worth Rs.25 lakh for Rs.20 lakh

Answer Following gifts are exempt under the income tax exempt-
Explanation Up to Rs 50,000/year is not taxable
Any amount received by relatives is not taxable at all
Any amount received as Wedding Gift is not taxable
No tax on the amount received through WILL or Inheritance
 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

Correct Answer 21 An investor who seeks a high level of return and is willing to bear the
risks will be recommended _________.
(a) Aggressive Portfolio
(b) Low Beta Portfolio
(c) Balanced Portfolio
(d) Conservative Portfolio

Question 22 The rate at which RBI borrows short term money from the Bank is
known as ________.
(a) Repo Rate
(b) Reverse Repo Rate
(c) Bank Rate
(d) CRR

Correct Answer 21 Aggressive Portfolio

Correct Answer 22 Reverse Repo Rate

 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

Question 23 A person who is in the retirement stage, will have a higher allocation to
which asset class-
(a) Equity
(b) Debt
(c) Real Estate
(d) Commodities

Question 24 Mr. Raj requires Rs.10 lakhs in six months time to pay his sons admission
fees. An appropriate investment to set aside money for his goal would be
_______.
(a) Equity shares of high-growth companies
(b) Real estate
(c) Short term debt fund
(d) Long term corporate bond

Correct Answer 23 Debt

Answer A person close to retirement will have a higher allocation to safer investments
Explanation such as debt and lower allocation to equity.

Correct Answer 24 Short term debt fund

Answer Since the amount is required after a short term period of 6 months, Short term
Explanation debt fund be the right investment option.
 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

Question 25 What is expected return?

(a) Average of returns of securities within a portfolio
(b) The maximum return from a portfolio which an investor expects
(c) The minimum return from a portfolio which an investor expects
(d) The weighted average of returns of securities within a portfolio

Question 26 CAGR and IRR can be used interchangeably in all situations - True or
False ?
(a) TRUE
(b) FALSE

Correct Answer 25 The weighted average of returns of securities within a portfolio

Answer The expected return is the expected value of a random variable usually
Explanation representing a gain, i.e. the weighted-average outcome in probability theory,
economics or finance.

Correct Answer 26 FALSE

Answer In actual practice, CAGR is more commonly used for past period data, for
Explanation which the inflows and outflows are known.
IRR tends to be used for evaluating investment viability, where estimated
future cash flows are used rather than actual values.
 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

Question 27 A strategy which brings in the element of market timing and view based
allocation to portfolio management is known as?
(a) Dynamic Asset Allocation
(b) Strategic Asset Allocation
(c) Tactical Asset Allocation
(d) Periodic Asset Allocation

Question 28 Which of these asset classes is primarily used to meet regular needs for
liquid cash?
(a) Debt
(b) Cash and equivalents
(c) Equity

Correct Answer 27 Tactical Asset Allocation

Answer Tactical asset allocation regularly adjusts asset allocation as per the changing
Explanation market conditions subject to forecasts, whims or guesses. The premise is that
by doing this, one can optimize market exposure to best maximize risk-
adjusted returns
This strategy allows portfolio managers to create extra value by taking
advantage of certain situations in the marketplace.

Correct Answer 28 Cash and equivalents

Answer Cash and equivalents are the most liquid form of investments, so they are used
Explanation to meet regular needs for liquid cash.
 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

Question 29 What is the maximum amount which can be invested in NSC - National
Saving Certificate in a financial year?
(a) Rs 50,000
(b) Rs 1,00,000
(c) Rs 1,50,000
(d) NO LIMIT

Question 30 The healing period of a person after a car accident would be covered by
which insurance?
(a) Motor Insurance
(b) Life Insurance
(c) Health Insurance
(d) Reinsurance

Correct Answer 29 NO LIMIT

Correct Answer 30 Health Insurance

 NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

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NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 5