NISM XB CHAPTER 5

The interest income calculated on the market price of a bond is called its—–.

The —– is used only to determine the regular income component of the return and is not the return itself.

The higher the market price relative to the face value and the —– is the dividend yield for a given percentage of dividends declared.

Using the current market price toestimatethe value of an investment is called—-

Which of the following are income oriented asset?

Which of the following are growth oriented asset?

Which of the following represents characteristics of income oriented asset?

Which of the following represents characteristics of growth oriented asset?

The —- in investment is definedas the possibility that actual returns fromthe investment will be different from expected returns.

“—- Risk arises from the decline in value of security cash flows due To falling purchasing power of money

Inflation risk is highest in

—– Refers to the probability that borrowers will not beable to meet theircommitment on paying interest and principal as scheduled.

—- Is an alpha numeric symbo lthat expresses the credit rating agencies assessment of the ability and intention of the borrower to meet the obligation arising from the debt.

—- Refers to the ease with which an investmentcanbe boughtand sold in the market.

Liquidity risk is highest in case of

______ Arises from the probability that income flows received from an investment may not be able to earn the same interest as the original interest rate.

If interest rate rises reinvestment risk—-

If interest rate falls reinvestment risk —-

____Risk arises from the factors that affect the operation of business.

_______ Risk incurred due to changes in the exchange rateof domestic currency relative to foreign currency.

_____Refers to the risk that bond priceswill fall in response to rising interest rate and rise in response to declining interest rate.

Total risk=_____

______Risk is caused due to thefactors that may affect the economy or market as whole and is undiversifiable.

Which of the following are Systematic Risk.

____ Risk is specific to individual securities ora smallclass of investment and is diversifiable.

Which of the following are Unsystematic Risk.

Investment in a government security issued at a fixed interest rate issubject to

Real return=

Debt securities are subject to —— risks.

_____ Provide highest return if invested for longrun.

Which of the following has highest volatility?

Equity investment are subject to—— risk.

Which of the following has highest liquidity risk?

________ Is the process of deciding how to distribute the investor’s savings among the various asset classes with different characteristics for investment purposes.

______ Means having a combination of investments in a portfolio in such away that a fall in the value on one or few will be made up by other investments that are doing well.

Asset allocation that builds purely on the needs and preferences of the individual over the long term is called—–.

_________Strategy can be defined as active management portfolio strategy that rebalance the percentage of asset held in various categories in order to take advantage of market pricing.

____ Strategy is need based and —— strategy is view based.

___ Strategy involves active asset allocation and——strategy involves passive asset allocation.

_____works on the basis of a pre-specified model which does a mechanical rebalancing between asset classes.

The below mentioned asset allocation represent which category of investors: Equity 20% and Debt 80% and Real Estate 0%

The below mentioned asset allocation represent which category of investors: Equity 40% and Debt 50% and Real Estate 0% gold 10%

The below mentioned asset allocation represent which category of investors:Equity- 60% | Debt- 15%|Gold-5% |Real Estate-20%

——— Is the ongoing process of reviewing and valuation of the portfolio composition consisting of various asset classes.

“——— is the action of bringing a portfolio o finvestments that have deviated away from the targeted asset allocation back into its original allocation and to ensure that the allocation is aligned To the investor’s needs.

—- Measures the systematic risk in a stock by measuring the volatility in the price of a stock relative to the overall market.

The market index is assumed to have a beta of—

Stocks with a beta —— than one are likely to be riskier than the market.

Stocks with beta —-than one are less risky than the market.

—— Represents growth oriented asset.

—— Represents income oriented asset.

—— Is held for meeting day to day and emergency requirements.

——- provide fixed return in form of coupon or interst.

Investors tend to choose lower return with certainty over a larger return with risk. This is called as—-

The higher return that a risky asset has to provide to motivate investors to invest is known as—-

Risk Premium=

—– Is a statistical measure of the extent of co-movement exhibited in the return of two asset classes.

Correlation of asset class ranges between

A correlation of — means that they move exactly in opposite directions.

A correlation of — means that they move exactly in the same directions.

—- Is an exercise that determines the level of risk that an investor can take.

—– Is a preference of the investor towards risk.

—- Is the ability to take risk which relates to an individual’s financial circumstances and investment knowledge.

An investor with a short to medium term investing horizon who is unwilling to take risks on capital and likes regular income may be said to fit a —- profile.

An investor with a longer term investment horizon but with the need for both income and growth and a moderate level of risk tolerance may be in a — profile

A risk-seeking investor with longer term investing horizon focus on growth and tolerance for short term losses may fit an—- profile.

—- Is a method of portfolio construction that allows investors to focus on long term financial goals while minimizing volatility , costs and taxes.

In core-satellite strategy — should ideally consist of passive investments that track major market indices, such as index funds

In core-satellite strategy — portfolio should include actively managed investments. These investments are tactical in nature and form a smaller part of the total asset allocation of the investor.

—- Portfolios can be focused on earning a return close to what the benchmark for an asset class offers. The booster to the portfolio’s return can be earned from the —- portfolio, which tries to add value over and above the benchmark returns.

Each fund describes the asset classes it would invest in the irproportions and how it would construct its portfolio. This indicative asset allocation is pre-decided at the time of launch and is available in the—–

What are the principles of fund selection?

—- Are the vehicles to mobilize moneys from investors to invest in different market and securities in line with investment objectives agreed upon between mutual fund and investor.

—- Invest the money in the companies represented in an index such as nifty or Sensex in the same proportion as the company’s representation in the index. There is no selection of securities or investment decisions taken by the fund manager as to when to invest or how much to invest in each security.

—- select stocks for the portfolio based on a strategy that is intended to generate higher return than the index.

—– invest in equity shares across various sector sand sizes and industries.

—- Invest in multiple sector sand stocks falling with in a theme.

— invest in a given sector.

Equity funds may focus on a particular size of companies (Based on Market Capitalization) to benefit from the features of such companies.

— invest in companies with high dividend yield

— restrict portfolio to a particular number of selected securities.These funds have selection risk.

— passive funds based on equity indices

— Invest in companies whose earnings are expected to grow at an above average rate

—– scheme follows a value strategy and identify stocks of good quality companies whose real worth has not been realised yet.

—scheme should follow a contrarian investment strategy.

Features of Equity Linked Savings Scheme(ELSS)

—- Are very short term maturity. They invest indebt securities withless than 91 days to maturity.

— Invest in medium-term and long-term securities issued by the government and banks and corporates and benefit of higher coupon and high interest rate risk due to long term orientation.

—- invest in government securities of medium and long-term maturities.

— Invest largely in floating rate debt securities.

—- seek higher interest income by investing in debt instruments that have lower credit ratings.

—- Seek flexible and dynamic managementof interest rate risk and credit risk and moves across the yield curve depending on the changes in the interest rates.

Features of fixed maturity plans:

For A scheme to be defined as equity fund it must have minimum ——- % investment in Indian equities.

—- That can change proportion between debt and equity depending upon market outlook.

—- Invest in debt securities with a derivative instrument or equity shares. Structured portfolio such that amount invested + interest = investor’s principal.

—- Invests in funds of same fund house or various fund houses.

— Take equal and opposite exposure in different markets, earn a return due to difference in price in the two markets

—- Open-ended funds that track a market index and listed on the exchange.

—- An index fund that invests in gold, gold receipts or gold deposit schemes of banks.

—– Invests directly or indirectly in real estate assets or other permissible assets in accordance with the SEBI (Mutual Funds) regulations, 1996.

In case of real estate mutual fund at least —-percent of the portfolio should be held in physical assets.

—- to invest a fixed sum of money at regular interval so vera period of time in a mutual fund scheme. It enables investors to build a corpus over time even with small sums invested.

Since the same amount is being invested in each instalmentand investors buy more units when the price is low and less units when the price is high. Overtime the average cost of acquisition per unit comes down. This is called—-

— Enables recurring redemptions from as chemeovera periodof time at the applicable NAV on the date of each redemption.

_____ Combines redemption from one schemeand an investment to an other scheme of the same mutual fund.

Arrange the following in increasing order of risk? (I) Sector fund (II)International Fund (III)Thematc Fund (IV)Dynamic Fund

Range the following in decreasing orderof risk : (I)Liquid Fund (II) Gilt Fund (III) Fixed Maturity Fund (IV) Ultra Short Term Fund

Which of the following has lowest risk?

Which of the following has shortest tenure (Maturity)?

Which of the following has EEE tax status?

Which of the following has guaranteed income?

Which of the following is more liquid?

Yield is known in case of which of the following?

The ——- selected by the fund must reflect the fund’s investment objective to be relevant.

—- Compares the excess return fund makes over and above arisk-free rate with its risk as measured by the standard deviation.

—– Is a measurement of the returns earned inexcess ofthat which could have been earned on a risk-free investment per each unit of risk measured by its Beta coefficient.

Sharpe ratio=

Treynor Ratio=

_______ refers to the favoured investment strategy of a fund manager to achieve the investment objective.

______Is a measure of how cheaper expensive a security is compared to some measure of profit or value.

P/E Ratio=

Trailing P/E=

Forward P/E=

_______ Tells us how much investor is willing to pay per rupee of earnings.

To determine whether a particular P/E is high or low what are factors to be considered:

Peg ratio=

—- Helps investors determine the degree of reliability of that growth assumption.

7 If the peg ratio is —-. It means that the market is valuing a stock in accordance with the stock’s estimated EPS growth

Price to Book Value Ratio=

Dividend yield=

Stocks with —– dividend yield appeal to investors whoare income seeking and are averse to risky investments

Stocks with low pe multiples are seen as—–

Stocks whose market price is lower than book value are considered —–

_____ Is the final value of all goods and services produced by a country in a given time period.

Industrial performance is estimated mainly on the basis of the—

—– Means that the country is importing more from the rest of the world than it exports to it, so it is a net debtor of foreign currency.

— Refers to the change in thevalue of all goods in the basket.

— Refers to the change in the value of all goods in the basket, excludes food and fuel items, because the prices of these items tend to be more volatile.

: Investors cultivate a belief that they have the ability to out perform the market based on some investing successes. Which type of biasness it represent?

This bias leads investors to choose what they are comfortable with. This may be asset classes they are familiar with, stocks or sectors that they have greater information about and so on. Which type of biasness it represent?

New information is labelled as incorrect or irrelevant and ignored in the decision making process. Investors who wait for the ‘right price’ to sell even when new information indicate that the expected price is no longer appropriate , are exhibiting which biasness?

Holding on to losing stocks, avoiding riskier asset classes like equity when there is a lot of information and discussion going around on market volatility are manifestations of which bias?

An outcome of uncertainty and a belief that others may have better information, which leads investors to follow the investment choices that others make, which biasness it represents?

A bear market or a financial crisis lead people to prefer safe assets.Similarly a bull market make people allocate more than what is advised to risky assets. What type of bias is this?

In a higher interest rate secnario,Which types of Debt Mutual Funds must be invested in

Bond prices and interest rate have inverse relationship.

If Interest Rate Increased by RBI, Mutual Fund Long term Debt Funds NAV increases

The higher the inflation the greater the erosion in real values of fixed returns investments.

SIP allows investors to benefit from the volatility in the market.

AMFI’s guidelines are only recommendations for ‘best practice’ and are not binding on the fund houses for compliance.

SEBI mandates that all Fund Returns should be benchmarked to an Index.

If the PEG ratio is less than 1, it means that eps growth is potentially able to surpass the market’s current valuation and the stock’s price is undervalued.

If PEG ratios is more than 1 can indicate – that the stock is currently overvalued.

The dividend yield of a share is directly related to its share price.

Diversification does not eliminate risk or guarantee a return; it reduces the volatility in the returns of a portfolio.

Dividend received by investors from mutual funds are exempt from tax.