NISM Series X-A: Investment Adviser (Level 1) Cert. 'Case Study 8'

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NISM Series X-A: Investment Adviser (Level 1) Certification – Case Study 8

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1. D is in her mid-40s and been managing her finances on her own. She has always found it difficult to meet her goals even though she saves and invests. Her primary investments are in equity mutual funds. She is now getting ready to fund her son’s college education in a year. This is a snapshot of her finances.
Income
Salary 2,20,000

Expenses
loan repayment 90,000
Essential living 65,000
Discretionary expenses 30,000
1,85,000
Travel expenses incurred every 2 years 2,00,000

8,333.33
Assets Liabilities
Cash in bank 80,000
Equity mutual funds 50,00,000 20,00,000
Bank fixed deposits maturing in 18 months 15,00,000 5,00,000
Liquid funds 3,00,000
Gold 10,00,000 4,00,000
Provident Fund 18,00,000
self-occupied property and loan outstanding 70,00,000 37,50,000
Car and loan outstanding 2,50,000 2,00,000
Personal loan 5,00,000
1,69,30,000 73,50,000

D is not sure that her life goals like retirement will be met within her planned timeline. She however believes that she is managing her income and expenses reasonably well. What is the advice that you would give as her investment adviser?

a. Liquidity ratio, currently at 11%, can be increased to fund goals

b. Expense ratio, currently at 88%, should be reduced to save and invest more for goals

c. Leverage ratio, currently at 43%, can be increased to fund goals

d. All of the above

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2. D is in her mid-40s and been managing her finances on her own. She has always found it difficult to meet her goals even though she saves and invests. Her primary investments are in equity mutual funds. She is now getting ready to fund her son’s college education in a year. This is a snapshot of her finances.
Income
Salary 2,20,000

Expenses
loan repayment 90,000
Essential living 65,000
Discretionary expenses 30,000
1,85,000
Travel expenses incurred every 2 years 2,00,000

Which of the following factors may hinder D’s ability to fund her child’s education goal in a year’s time?

a. The liquid assets to Networth ratio is low at 3.9% and D may find it difficult to realize the funds required given the short time available to pay for the goal

b. Leverage ratio, currently at 43%, is high and this may prevent D from finding the funds for the goal

c. The expense ratio at 88% is high and implies that D may not be in a position to meet education expenses at this stage

d. The discretionary expenses to total expense ratio at 40% is high and this will affect her ability to meet essential expenses

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3. L is doing an annual review of her equity portfolio and want to make some decisions on stock holdings in it.
L has seen a run-up in prices in the stocks in his portfolio. He wants to add more of stocks that have good growth prospects but wants to avoid over valued stocks. Which of the following would best suit his preference?

a. Stocks where PE ratio is greater than 1

b. Stocks whose PE ratio is greater than than PE ratio of market index

c. Stock whose PEG ratio less than 1

d. Stock whose PEG ratio greater than 1 and PE ratio is less than 1

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4. L is doing an annual review of her equity portfolio and want to make some decisions on stock holdings in it.
L wants to add dividends earned as a part of her retirement income portfolio. In a situation of rising prices what is she likely to observe in this regard?

a. Dividend payout is likely to be higher

b. Dividend yield is likely to be lower

c. Dividend payout is likely to be lower

d. Dividend yield is likely to be higher

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5. L is doing an annual review of her equity portfolio and want to make some decisions on stock holdings in it.
Which of the following should L see as an indicator to consider buying the shares she wants to accumulate?

a. Stock is trading just above 30 day moving average

b. Stock price is near the top of a rising trend

c. Stock trading well below 200 day moving average

d. Stock is trading at the start of a declining trend

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6. M is seeking some help on understanding her fixed income portfolio.
M wants to break a 5 year bank deposit on which she earns 7% interest and buy a 8% corporate bond with a term to maturity of 5 years trading at a price of Rs.107. Should she consider it? Take settlement date as 30th November 2022, maturity date as 30th November 2027 and redemption price as Rs.100

a. Yes, since she will earn an yield of 8% on the bond as compared to 7% on the fixed deposit

b. No, since the yield on the bond will be only 6.3% while the fixed deposit gives her 7% interest

c. Yes, since the bond is available at Rs.107 which is at a premium to redemption value of the bond at Rs.100

d. No, since corporate bonds can only be subscribed in the IPO and cannot be bought in the secondary markets

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7. M is seeking some help on understanding her fixed income portfolio.
The yield applicable on the bond M goes up to 7.5%. What is the impact on the price of the bond? The bond pays coupon annually.Take settlement date as 30th November, 2022.

a. The price of the bond goes down to Rs.103

b. The price of the bond goes up to Rs.106

c. The price of the bond goes up to Rs.107

d. The price of the bond goes down to Rs.102

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8. K is accumulating funds to meet the goal of putting down a downpayment for a house in 2 years , childrens education in 7 years and retirement in 20 years. She finds that she may fall short of the goal value for the house downpayment but does not have extra savings to assign to the goal and she does not want to divert funds from other goals to this goal.
Which of the following is the appropriate way for K to invest and manage the goal to accumulate funds for the downpayment for the house?

a. K should invest in debt funds holding portfolios with low duration and postpone the goal till the funds are accumulated

b. K should invest in high duration debt funds to earn better return and at the same time have the low volatility of debt investments

c. K should invest in equity actively managed equity funds to earn better returns than the index to get her to the goal value quickly

d. K should invest in index funds to combine the stability if index investing with the higher returns from equity that will get to her goal value in the prescribed time

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9. K is accumulating funds to meet the goal of putting down a downpayment for a house in 2 years , childrens education in 7 years and retirement in 20 years. She finds that she may fall short of the goal value for the house downpayment but does not have extra savings to assign to the goal and she does not want to divert funds from other goals to this goal.
K wants to send her daughter to the US to pursue her education. Which of the following is the most suitable investment choice for this goal?

a. Arbitrage fund

b. International fund

c. Target maturity funds

d. Any of these

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10. K is accumulating funds to meet the goal of putting down a downpayment for a house in 2 years , childrens education in 7 years and retirement in 20 years. She finds that she may fall short of the goal value for the house downpayment but does not have extra savings to assign to the goal and she does not want to divert funds from other goals to this goal.
Which of the following is the most suitable for the retirement goal?

a. Capital Protection Fund

b. Arbitrage fund

c. Flexicap fund

d. Short-duration fund

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NISM Series X-A: Investment Adviser (Level 1) Cert. 'Case Study 8'