NISM Series XXI-B: Portfolio Managers Cert. Mock Test (Set 2)

Explanation:

The Law of One Price asserts that identical goods should have the same price in different markets. This principle ensures that no two identical goods can be traded at different prices. It promotes fair and efficient markets by preventing price disparities for the same product in various locations.

Explanation:

The SEBI (Prohibition of Insider Trading) Regulations code of conduct shall specify the period, which in any event shall not be less than six months, within which a designated person who is a connected person of the listed company and is permitted to trade in the securities of such listed company, shall not execute a contra trade.

Explanation:

The market price of the bond can be calculated using the present value of future cash flows. In this case, with a 12% semi-annual coupon and a 5-year remaining maturity, the bond’s market price is approximately Rs. 1038, considering a yield to maturity (YTM) of 11% and the 30/360 day count convention.

Explanation:

Explanation:

Explanation:

The disclosure document contains details with respect to –

1. Risk arising from the investment approach, investment objective, investment strategy and asset allocation

2. Risk arising out of non-diversification, if any

3. Statement to the effect that securities investments are subject to market risks etc

(Details of business risk of group companies is not required to be mentioned in disclosure document)

Explanation:

Explanation:

When we calculate portfolio’s return in excess of the risk-free return and divide the excess return by the portfolio’s standard deviation, this risk adjusted return is called Sharpe ratio.

For computing Sortino Ratio, portfolio’s return in excess of the risk-free return is divided by the portfolio’s semi-standard deviation. Thus, Sortino Ratio adjusts portfolio’s excess return to the downside risk.

Like Sharpe and other risk adjusted return ratio, higher level of Sortino Ratio indicates superior performance.

Explanation:

Explanation:

Explanation:

In the case of non-individual entities, Income Tax rules require the submission of details related to the Ultimate Beneficial Owner (UBO). The UBO is the person who ultimately owns or controls the entity, and disclosing this information is crucial for transparency and compliance with regulatory requirements, helping prevent misuse of entities for illegal activities.

Explanation:

Explanation:

Portfolio beta equals the weighted-average of the beta of all the individual stocks in a portfolio. To calculate beta of individual stocks one will need the return of that stock as compared to the return of the market. Thus all the above inputs will be required for calculation of portfolio beta.

Explanation:

Explanation:

Pension Funds: A fund established to facilitate and organize the investment of the retirement funds contributed by the employees and employers.

The pension fund is a common asset pool meant to generate stable growth over the long term, and provides a retirement income for the employees.

Explanation:

The face value of the bond is Rs 1000 and its being sold at Rs. 1000. So the bond is being sold at par. Since the bond is sold at par, the YTM of the bond is equal to the coupon value of the bond. If the bond would’ve traded at premium/discount, the YTM would’ve been lesser/more than the coupon rate.

So the YTM will be 10%

Explanation:

Government securities are considered risk-free or gilt-edged instruments because they carry practically no risk of default. The government, being the issuer, is generally considered financially stable, reducing the likelihood of payment default on these securities. This low default risk makes them a reliable and secure investment, often referred to as “risk-free.”

Explanation:

The funds or securities can be withdrawn or taken back by the client before the maturity of the contract. However, the terms of premature withdrawal would be as per the agreement between the client and the portfolio manager.

It should also include the withdrawal fees in terms of percentage as well as the amount. Portfolio managers cannot impose a lock in on the investment of their clients.

Explanation:

Under the SEBI Act, 2003, inducing any person to artificially inflate or depress the price of securities is considered fraud. This provision is in place to maintain the integrity and fairness of the securities market, preventing manipulation and ensuring a transparent and trustworthy trading environment.

Explanation:

Commission received from business is considered part of income from “Business and profession”. This category encompasses earnings from various commercial and professional activities, including commissions, fees, and other income derived from engaging in business or professional services. It is distinct from capital gains, salary, and other sources of income.

Explanation:

For calculating net worth, all the assets the investor owns, i.e. the house, the car, the investments in stocks, bonds & mutual fund, balance in the saving accounts, value of the jewels owned and the value of all other financial assets and real assets are to be recorded at the estimated market value.

Then all the liabilities need to be subtracted from the assets. Liabilities may include the outstanding car loan amount, credit card loans, home loan and any other amount he owes like the personal loan, education loan etc.,. The difference between the value of assets and the liability is net worth.

In the above question the assets are 1 crore (House) and Rs. 40 Lakhs (Other financial Assets) = Rs 1.40 crore

Liabilities are : Outstanding home loan (Rs 20 lakhs) and car loan (Rs 3 lakhs) = Rs 23 lakh

Net worth = 1.40 crore Less Rs 23 Lakhs = Rs 1.17 crore

Explanation:

The statement is false. Savers and investors both can have short-term or long-term goals. Savers generally accumulate funds for various purposes, which can include both short-term and long-term goals. Investors, on the other hand, deploy funds with the expectation of generating returns, and their goals can also vary in terms of duration.

Explanation:

An offer to subscribe to securities made to less than 100 persons is termed private placement of securities. Private placements involve selling securities directly to a limited number of investors, often institutions or high-net-worth individuals, without the need for a public offering. This method is typically used for raising capital in a more targeted manner.

Explanation:

Pricing of investment in unlisted space is not continuous. It is performed at regular intervals or when the need for the same arises for buying or selling. Since these investments do not trade in stock exchange, they are relatively less liquid in comparison to listed investments. Hence, investors may demand an extra compensation for the same called “illiquidity risk premium”. Buying and selling of unlisted investments takes longer time compared to the listed investments.

Explanation:

The highest value that a portfolio or account has reached is known as the “High Water Mark.” This term is used in the context of performance fees, where fund managers may only charge fees on profits exceeding the highest historical value (high water mark) to align their interests with those of the investors.

Explanation:

Diversification is a key principle in risk management. By investing in assets with lower correlation, their price movements are less likely to be synchronized. When one investment performs poorly, another may perform well, helping to offset losses and reduce overall portfolio risk

Explanation:

Higher the risk, higher the return – Eg. Equities are high risk investments buy can fetch extremely good returns. On the other hand – Lower the risks, lower the returns- Eg. Bank FDs in nationalised banks are very safe but give a very low interest return

Explanation:

Exchange-traded derivatives are standardized financial contracts that are traded on organized exchanges. The correct statement is that exchange-traded derivatives typically do not provide customized products. They have standardized terms, including contract size, expiration date, and other features, making them more liquid and easily tradable. This standardization reduces the flexibility for customization compared to over-the-counter (OTC) derivatives.

Explanation:

When a company needs to increase its public shareholding to comply with regulatory requirements, it often opts for a Further Public Offer (FPO). An FPO involves issuing additional shares to the public, allowing the company to raise capital and increase the percentage of shares held by the public. This helps the company meet regulatory obligations, such as maintaining a minimum public float or complying with other market regulations.

Explanation:

Explanation:

Government securities constitute the largest segment of the Indian fixed income market. These securities are issued by the government to raise funds and are considered low-risk investments. They include instruments such as government bonds and treasury bills. The Indian government securities market is significant in terms of both issuance and trading volume, playing a crucial role in the fixed income landscape.

Explanation:

Before issuing a certificate of registration, the regulator will ensure whether –

In addition to the Principal Officer and Compliance Officer, the PMS applicant has in its employment at least one person who has a graduation from a university or an institution recognized by the Central Government or any State Government or a foreign university; and an experience of at least two years in related activities in the securities market including in a portfolio manager, stock broker, investment advisor or as a fund manager.

Explanation:

The statement is true. The Sovereign Gold Bonds (SGBs) issued by the Reserve Bank of India (RBI) do not provide the benefit of indexation. Indexation is a method used to adjust the purchase price of an investment for inflation, which can be relevant for tax calculations. However, SGBs are designed to offer returns based on the actual appreciation in the price of gold, and they do not provide indexation benefits for tax purposes.

Explanation:

The market price is determined by the interaction of supply and demand: Technical analysis assumes that market prices are influenced by the constant interplay of supply and demand forces.

Explanation:

The Treynor ratio uses systematic risk (beta) as the denominator, while the Sharpe ratio uses total risk (standard deviation of the portfolio’s returns). Systematic risk is the portion of risk that cannot be eliminated through diversification.

In a poorly diversified portfolio, the systematic risk is not effectively reduced, and the Treynor ratio may penalize the portfolio for its high systematic risk. On the other hand, the Sharpe ratio considers total risk, which includes both systematic and unsystematic risk. A poorly diversified portfolio is likely to have higher unsystematic risk, and the Sharpe ratio may reflect this more accurately.

Explanation:

The agreement between the portfolio manager and the client includes the ‘investment approach’. An investment approach is a broad outlay of the type of securities and permissible instruments to be invested in by the portfolio manager for the customer.
The agreement also includes the areas of investment and restrictions, if any, imposed by the client with regard to the investment in a particular company or industry. Thus, the universe of securities for the purpose of investments is well defined in the agreement.

Explanation:

As per SEBI rules – Except for the portfolio manager who provides only the advisory services, every portfolio manager shall appoint a custodian in respect of securities managed or administered by it. Details of custodian like its Name, Address, SEBI Registration No., Date of Appointment need to be furnished in the application for obtaining registration to the regulator.

Explanation:

The future value of an investment is the function of the cash outflow (one-time or at regular, defined intervals), interest rate, and the tenure (time period).

Explanation:

As per SEBI rules – NRIs have to be KYC compliant in order to make investments in India. All documents must be submitted in English and can be attested by the Consulate office or overseas branches of scheduled commercial banks registered in India

Explanation:

As per SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations , dealing in securities shall be deemed to be a manipulative, fraudulent or an unfair trade practice if it involves –
Entering into a transaction in securities without intention of performing it or without intention of change of ownership of such security; selling, dealing or pledging of stolen, counterfeit or fraudulently issued securities whether in physical or dematerialized form.

Explanation:

As per SEBI rules and code of conduct for Portfolio Managers –
The portfolio manager shall not derive any direct or indirect benefit out of client’s funds or securities.
The money or securities accepted by the portfolio manager shall not be invested or managed by the portfolio manager except in terms of the agreement between the portfolio manager and the client.
The portfolio manager shall not deploy the clients’ funds in bill discounting, badla financing or for the purpose of lending or placement with corporate or non-corporate bodies.
The money received by a portfolio manager from a client for an investment purpose should be deployed by the portfolio manager as soon as possible for that purpose and money due and payable to a client should be paid forthwith.

Explanation:

Investments in risky assets = m * (Portfolio Value – Floor Value)
Where: m is a multiplier with fixed constant value.
= 2 (300 mn – 230 mn)
= 2 x 70 mn = Rs. 140 mn

Explanation:

JANUARY EFFECT : In the US market, it is observed that investors tend to engage in tax selling toward the end of the year to book losses on stocks that have declined and buy back the same stocks or to similar stocks after the new year.
This leads to downward pressure on stock prices towards the end of November and December and positive pressure in early January.

Explanation:

The ‘Volatility’ factor can be measured by parameters like Variance and Beta.

Explanation:

An Indian company is considered a non-resident person if the control and management of its affairs are situated wholly outside India. The residency status of the manager alone does not determine the residency status of the company

Explanation:

Complete diversification means the elimination of all the unsystematic or unique risk (Company or sector specific risk). Once all unsystematic risk is eliminated, only systematic risk is left in the portfolio.

Explanation:

Under the IT Act, 1961, “Association of person” shall be deemed as a person even if it is not formed or established or incorporated with the object of deriving income, profits, or gains.

Explanation:

Instruments with ‘C’ rating are considered to have very high risk of default regarding timely servicing of financial obligations.

Explanation:

Explanation: