NISM Series X-A: Investment Adviser (Level 1) Mock Test (Set 1)

Non-systematic risk, also known as company-specific or unsystematic risk, can be minimized through diversification across companies in an equity portfolio. By spreading investments across different companies, an investor can reduce the impact of individual company-specific events on the overall portfolio.

T + 2 rolling settlement means that trades are settled on the second working day from the date of the trade. This settlement cycle is commonly used in financial markets, and it helps in streamlining the process of trade settlement.

A company may buy back its shares listed on a stock exchange from the investors out of the reserves and surplus available with the company. The shares bought back are extinguished by the company and leads to a reduction in its share capital. A share buyback is used by companies to increase the Earning Per Share (EPS). Surplus cash with the company for which there is no productive use, is used to restructure the capital of the company.

EPS = Profits of the Company / No. of shares Outstanding

So if number of shares decreases due to buyback, the EPS will increase.

SEBI (Securities and Exchange Board of India) has developed a centralized web-based system for lodging and tracking investor complaints known as SCORES (SEBI Complaints Redress System).SCORES allows investors to lodge complaints and track their status efficiently.

The basic market outlook of an investor who holds a long put position is bearish. A long put option gives the investor the right to sell the underlying asset at a specified price (strike price) before or at the expiration date. This strategy is typically used when the investor expects the price of the underlying asset to decrease.

The accumulation phase is the stage when investors in their early-to-middle earning years attempt to accumulate assets to satisfy near-term needs, such as children’s education or down payment on a home. This phase involves actively saving and investing to build wealth for future financial

The investment amount to be saved today to achieve a financial goal is found using the process of discounting the goal amount by the investment rate of return. This involves determining the present value of the future goal amount, considering the expected rate of return on the investment.

=PMT(10.5%/12,20*12,4000000,0,0)

=Rs. 39,935.20

The primary purpose of an Investment Policy Statement (IPS) is to provide clear guidance to the portfolio manager, evaluate the portfolio manager’s performance, and protect against unethical behavior. However, the IPS does not exist to enable the investor to raise their return expectations; instead, it sets realistic and achievable investment objectives.

FMP invest in Bonds whose maturity is inline with the scheme maturity. A Fund manager will hold the bonds till maturity. Hence interest rate risk is less. However FMP’s are subjected to Credit Risk/Default Risk

Beta = Cov(MrPr) / Var(Mr)

Where

Cov(MrPr) = Covariance between the market’s return and the portfolio return

Var(Mr) = Variance in the Market return (Square of Std deviation of Market)

Covariance = Correlation * Std deviation of Market * Std deviation of Portfolio

Covariance = 0.9 * 1.9 * 2.2 = 3.762

Beta = 3.762 / (1.9 * 1.9) = 1.04

Investment in a government security issued at a fixed interest rate is subject to interest rate risk. Interest rate risk refers to the potential impact of changing interest rates on the value of the investment. When interest rates rise, the value of fixed-rate securities may decrease, and vice

An option, which gives the buyer/holder a right to buy the underlying asset, is called a çall option; and an option which gives the buyer/holder a right to sell the underlying asset, is called a ’put option’.

The P/E ratio, or Price/Earnings ratio, compares the price of a stock to its earnings. It is calculated by dividing the market price per share by the earnings per share, providing an indication of how much investors are willing to pay for each dollar of earnings generated by the company.

The minimum stipulated investor contribution in an AIF (Alternative Investment Fund) scheme is Rs. 1 crore. Investors are required to contribute this minimum amount to participate in the AIF scheme.

Fundamental Analysis involves research into the operations and finances of a company, including studying its Balance sheet and Profit and Loss account. It focuses on understanding the intrinsic value of a security based on economic, financial, and other qualitative and quantitative factors.

The duration of a zero coupon bond is equal to its maturity. Duration measures the weighted average time it takes for the bond’s cash flows to be repaid. In the case of a zero coupon bond, there is only one cash flow at maturity, making the duration equal to the maturity.

Dividend Yield = (Dividend in Rs / Current Market Price) * 100
Dividend per share is calculated as below
No of shares outstanding = Share Capital / Face Value
No of shares outstanding = 100 crores / 10 = 10 Crores
Dividend Pershare = Dividend distributed / Number of Shares
Dividend Per share = 100 crores / 10 crores = Rs 10
Dividend Yield = (Rs 10 / Rs 215)*100 = 4.65%

Fund of Funds (FoFs) help investors overcome the difficulty in choosing schemes among multiple schemes in the market. FoFs invest in other mutual funds, offering investors a diversified portfolio without the need to pick individual funds.

The essential characteristic of alternative investments is ‘illiquidity’, i.e. they are not readily convertible into cash as they are either off market investments or because they are complex structures that do not have a ready market.

The unit capital of a closed end fund does not change over the life of the scheme since transactions between investors on the stock exchange does not affect the fund.

On settlement date, both the spot and the futures are at the same level. This is known as the spot-future convergence. The carry cost of buying spot and selling futures on settlement date is zero, since settlement is on the same day as the contract expiration day. Therefore, on expiration day, spot and future prices of the same underlying is identical.

The statement is true for all options. The buyer of an option pays the option premium, and this is the maximum amount they can lose. The premium paid is the buyer’s total financial exposure to the option contract.

Money market mutual funds can invest in treasury bills, certificates of deposit, commercial paper, and other short-term, highly liquid, and low-risk instruments. They aim to provide investors with a low-risk and relatively stable investment option.