Rohit Singh – Mr Chartist

Research Analyst Mock Test 1

0 votes, 0 avg

Research Analyst

Research Analyst Mock Test 1

1 / 50

1. Weighted Average Cost of Capital (WACC) = [Ke * We] x [Kd * (1-Tx)”Wd]. Is this statement True or False?

a. TRUE

b. FALSE

The formula for calculating Weighted Average Cost of Capital (WACC) is WACC = [Ke * We] + [Kd * (1-Tx) * Wd], not multiplication as shown in the statement. Therefore, the correct answer is Option False.

2 / 50

2. A company has 14 million shares currently trading at Rs 20. The company has assets worth Rs 100 million and liabilities of Rs 30 million. Calculate the Price-to-Book Value ratio.

a. 3

b. 25

c. 48

d. 4

The Price-to-Book Value (P/B) ratio is calculated by dividing the market capitalization by the net worth of the company. In this case, the market capitalization is 14 million shares * Rs 20 = Rs 280 million, and the net worth is Rs 100 million – Rs 30 million = Rs 70 million. Therefore, the P/B ratio is Rs 280 million / Rs 70 million = 4. The correct answer is Option 3.

3 / 50

3. ______ handles the matters relating to all the Direct and Indirect Taxes through two statutory Boards namely, the Central Board of Direct Taxes (CBDT)and the Central Board of Excise and Customs (CBEC).

a. Department of Revenue

b. Department of Economic Affairs

c. Income Tax Department

d. Department of Financial Services

The correct answer is the Department of Revenue. The Department of Revenue handles matters relating to all the Direct and Indirect Taxes through two statutory Boards, namely, the Central Board of Direct Taxes (CBDT) and the Central Board of Excise and Customs (CBEC). The CBDT deals with matters related to the administration and collection of direct taxes, such as income tax, while the CBEC deals with matters related to the administration and collection of indirect taxes, such as customs and excise duties.

4 / 50

4. A company has sales of Rs 12400, and from this, they have an operating profit of Rs 2400. If the corporate tax is at 35%, calculate the net profit margin of the company. (There is no interest expense)

a. 10.87%

b. 7.66%

c. 12.58%

d. 14.70%

e. 14.70%

The net profit is calculated by deducting the corporate tax from the operating profit. In this case, the net profit is Rs 2400 – (35% * Rs 2400) = Rs 1560. The net profit margin is calculated by dividing the net profit by the sales and multiplying by 100. Therefore, the correct answer is Option C, which is 12.58%.

5 / 50

5. The main role of FMC is to deal with all matters relating to the promotion and orderly growth of pension markets in India – State True or False?

a. FALSE

b. TRUE

The correct answer is False. The main role of FMC (Forward Markets Commission) is to oversee futures and forward trading in commodities in India. It regulates and promotes the functioning and development of the commodity derivatives market. On the other hand, the Pension Fund Regulatory and Development Authority (PFRDA) deals with all matters relating to the promotion and orderly growth of the pension market in India. Therefore, the statement is false.

6 / 50

6. Which of these financial instruments does not have default risk?

a. Investment Grade Corporate Bonds

b. Equity Shares

c. High-Yield Corporate Bonds

d. Foreign Currency Bonds

Equity shares do not have default risk because the issuer is not obligated to repay the investment amount to the shareholder. On the other hand, debt instruments like corporate bonds are subject to default risk if the issuer fails to make interest payments or principal repayment. Therefore, the correct answer is Option 2.

7 / 50

7. When RBI announces a hike in interest rates, bond prices will generally:

a. No change

b. None of the above

c. Rise

d. Fall

e. None of the above

When interest rates rise, bond prices tend to fall.

8 / 50

8. Regulates the money market segment of the securities market and is also the manager of the Indian Government’s borrowing program.

a. RBI

b. Ministry of Finance

c. Commerce Ministry

d. SEBI

e. Commerce Ministry

The Reserve Bank of India (RBI) is the central bank of the country and has the responsibility of administering the monetary policy. It regulates the money markets and is also the manager of the Indian Government’s borrowing program. Therefore, the correct answer is Option B.

9 / 50

9. The EBIT of a company is Rs 400000 and the EBIT % is 40% of the business. What is the Net Profit of the company if the Net Profit margin is 10%?

a. Rs 100000

b. Rs 10000

c. Rs 40000

d. Rs 16000

The correct answer is Rs 16000. EBIT (Earnings Before Interest and Taxes) is given as Rs 400000, which represents 40% of the business. To find the total business (sales), we divide EBIT by the percentage, which gives us Rs 1000000. The Net Profit margin is given as 10%, which means the Net Profit is 10% of the sales. Calculating 10% of Rs 1000000 gives us Rs 100000.

10 / 50

10. “The Central Board of Direct Taxes (CBDT) and the Central Board of Excise and Customs (CBEC) are controlled by the which comes under the Ministry of Finance.

a. Department of Expenditure

b. Department of Financial Services

c. Department of Economic Affairs

d. Department of Revenue

1. The Central Board of Direct Taxes (CBDT) and the Central Board of Excise and Customs (CBEC) are under the control of the Department of Revenue, which falls under the Ministry of Finance. The CBDT deals with matters related to the administration and collection of direct taxes, such as income tax, while the CBEC deals with matters related to the administration and collection of indirect taxes, such as customs and excise duties.

11 / 50

11. A warrant is a relative option to buy at a specified exercise price over a specified period of time.

a. Long-Term, Common Stock

b. Long-Term, Bonds

c. Short-Term, Bonds

d. Short-Term, Common Stock

The correct answer is Long-Term, Common Stock. A warrant is a financial instrument that gives the holder the right, but not the obligation, to buy the issuer’s common stock at a specified exercise price within a specified period of time. It is often issued as a part of a new offering of long-term securities such as bonds or preferred stock.

12 / 50

12. Macroeconomics helps us understand the general state of the economy — Domestic Production, Domestic Consumption, General Price levels, Growth, Quality of life etc. – State True or False?

a. FALSE

b. TRUE

True. Macroeconomics is the study of “the big picture” in the economy. While microeconomics focuses on individual households and firms, macroeconomics deals with the economy as a whole. In other words, the focus of macroeconomics is on factors that influence aggregate supply and demand in an economy such as unemployment rates, gross domestic product (GDP), overall price levels, inflation, savings rate, investment rate, etc. Therefore, the statement is true.

13 / 50

13. Investors can earn both rents on their property and return on their capital invested. True or False?

a. FALSE

b. TRUE

True. Investors can earn both rental income from their properties and returns on their capital invested in various financial instruments. Rental income is earned by owning and renting out properties, while returns on capital can be generated through investments in stocks, bonds, mutual funds, and other financial assets. Both sources of income contribute to an investor’s overall earnings.

14 / 50

14. According to SEBI standards of corporate governance, independent directors should constitute at least what percentage of the board if the chairman is an executive director?

a. 25%

b. 70%

c. 50%

d. 65%

According to SEBI standards of corporate governance, if the chairman is an executive director, independent directors should constitute at least 25% of the board. In all other cases, it should be at least 50% of the board. Therefore, the correct answer is Option 2.

15 / 50

15. In which analysis the performance, the structure, and the conduct of the industry are considered?

a. PESTLE Analysis

b. BCG Analysis

c. Michael Porter’s Model

d. SCP Analysis

e. BCG Analysis

Structure Conduct Performance (SCP) Analysis considers the performance, structure, and conduct of the industry. It analyzes how the industry is performing, the market structure, and the behavior of firms in the industry. Therefore, the correct answer is Option C.

16 / 50

16. A Balance Sheet of a company contains the:

a. Sources of funds

b. Profits or losses made

c. Both 1 and 2

d. Application of funds

4. A Balance Sheet contains both the sources of funds for a company and the application of those funds. It provides a snapshot of a company’s financial position at a specific point in time, showing the assets, liabilities, and equity of the company. The sources of funds section represents where the company obtained its financing, while the application of funds section shows how the company utilized those funds. Additionally, the Balance Sheet does not directly indicate the profits or losses made by the company; that information is typically found in the income statement. Therefore, “Both 1 and 2.”

17 / 50

17. If imports are more than exports, the country will have a:

a. Capital account deficit

b. Current account deficit

c. Capital account surplus

d. Current account surplus

When imports are more than exports, the country will have a current account deficit. The current account captures transactions related to imports and exports of goods and services. Therefore, the correct answer is Option 1.

18 / 50

18. In a company, if the total liabilities are Rs 8,000 and the total assets are Rs 20,000, calculate the Equity to Asset ratio.

a. 0.6

b. 1.1

c. 1.4

d. 0.4

1. The Equity to Asset ratio is calculated by dividing the equity of a company by its total assets. In this case, the equity can be calculated by subtracting the total liabilities from the total assets: Equity = Total Assets – Total Liabilities = Rs 20,000 – Rs 8,000 = Rs 12,000. Therefore, the Equity to Asset ratio is 12,000/20,000 = 0.60.

19 / 50

19. In the process of valuation of a business, the growth rate is calculated by adding the retention rate and the return on equity. True or False?

a. FALSE

b. TRUE

False. The growth rate is calculated as the product (multiplication) of the retention rate and the return on equity. By multiplying these two factors, we determine the rate at which the company’s earnings are reinvested to fuel its growth. Adding the retention rate and return on equity would not accurately reflect the growth rate.

20 / 50

20. Corporate actions like Bonus Issues, Stock Split, and Share Consolidation will lead to a change in per-share data. State True or False?

a. FALSE

b. N/A

c. TRUE

Corporate actions such as Bonus Issues, Stock Split, and Share Consolidation can lead to changes in per-share data.

21 / 50

21. In the Pioneering Stage of a business life cycle,

a. The business faces threats from new technologies

b. The business concept is still being proven or has just been proven

c. The business becomes very large and captures a good market share

d. The business gets many customers as the business becomes viable

e. The business concept is still being proven or has just been proven

The pioneering stage is the first stage of a business life cycle. In this stage, the industry is just taking shape, and the concept is still being proven or has just been proven. It is not widely adopted, and the business faces threats from new technologies. Therefore, the correct answer is Option D.

22 / 50

22. Most businesses are price takers and not price makers as there is competition in the market. Is this statement True or False?

a. FALSE

b. TRUE

In a competitive market, businesses are price takers rather than price makers. They have little control over pricing and must adjust their prices to remain competitive. Therefore, the statement is True, and the correct answer is Option A.

23 / 50

23. Sometimes, bottom-up analysts focus purely on the dynamics of business and industry with little or no attention to Economic factors. State True or False?

a. FALSE

b. TRUE

c. N/A

Sometimes, bottom-up analysts focus primarily on the dynamics of business and industry without giving much attention to Economic factors.

24 / 50

24. The Net Profit of a company is Rs 12,00,000 and the Market Capitalization is Rs 60,00,000. Calculate the Earnings Yield.

a. 5%

b. 2%

c. 500%

d. 2%

e. 20%

25 / 50

25. Mark to Market (MTM) margin is the notional loss that an outstanding trade has during a specified period on account of price movements.

a. Profit

b. N/A

c. Loss

Mark to Market (MTM) margin represents the notional loss that an outstanding trade has suffered during a specified period due to price movements.

26 / 50

26. An investor bought 500 shares of a company at Rs 10,000. The face value of these shares is Rs 5. Calculate the dividend yield on the value invested in these shares if the company declares a 100% dividend.

a. 5%

b. 33.33%

c. 25%

d. 100%

2. The dividend yield is calculated by dividing the dividend received by the amount invested and then multiplying by 100 to express it as a percentage. In this case, the investor bought 500 shares at Rs 10,000, with a face value of Rs 5 per share. A 100% dividend means a dividend of Rs 5 per share. The dividend received is Rs 5 x 500 = Rs 2,500. The dividend yield is then calculated as 2,500/10,000 x 100 = 25%. Therefore, the dividend yield is 25%.

27 / 50

27. The dividend Payout Ratio is calculated by.

a. Dividing the company’s dividend per share by earnings per share

b. Dividing the company’s profits by dividends per share

c. Dividing the company’s earnings per share by dividend per share

d. None of the above

The correct answer is dividing the company’s earnings per share by dividend per share. The dividend payout ratio is a financial metric that measures the proportion of earnings distributed to shareholders in the form of dividends. It is calculated by dividing the earnings per share (EPS) by the dividend per share. The ratio provides insights into how much of the company’s profits are being returned to shareholders.

28 / 50

28. M. Singh purchases MF units at NAV Rs 11. After 400 days, he redeems it at NAV Rs 12.50. What is his compounded annual rate of return?

a. 13.55%

b. 14.18%

c. 16.20%

d. 12.36%

e. 12.36%

The CAGR (Compounded Annual Growth Rate) formula is used to calculate the rate of return. CAGR = [(End Price / Begin Price) ^ (1/n)] – 1. In this case, CAGR = [(12.50 / 11) ^ (1/400)] – 1 = 12.36%.

29 / 50

29. The current stock price of ABC Software Ltd is Rs 1200. Its Profit After Tax (PAT) is Rs 68,00,000. The number of outstanding shares is 100000. Calculate the P/E Ratio.

a. 17.64

b. 23

c. 23

d. 19.6

e. 21.47

The P/E Ratio (Price to Earnings Ratio) is calculated by dividing the market price per share by the earnings per share (EPS). In this case, the EPS is calculated by dividing the Profit After Tax (PAT) by the number of outstanding shares. The P/E Ratio is then obtained by dividing the market price per share by the EPS. Therefore, the correct answer is Option A, which is 17.64.

30 / 50

30. Return on Capital Employed can be calculated as:

a. EBIT x Total Capital Employed (Where Capital Employed = Networth – Debt)

b. EBIT x Total Capital Employed (Where Capital Employed = Networth + Debt)

c. EBIT/ Total Capital Employed (Where Capital Employed = Networth + Debt)

d. EBIT x Total Capital Employed (Where Capital Employed = Networth + Debt)

e. EBIT/ Total Capital Employed (Where Capital Employed = Networth – Debt)

ROCE (Return on Capital Employed) is calculated by dividing EBIT (Earnings Before Interest & Tax) by Total Capital Employed. Total Capital Employed can be calculated as Networth + Debt.

31 / 50

31. Buy-side Analysts work for firms that provide investment banking, broking, advisory services for clients – State True or False?

a. TRUE

b. FALSE

False. Buy-side Analysts generate investment recommendations for their internal consumption, for use by the fund managers within an organization. They generally work for money managers like mutual funds, hedge funds, pension funds, or portfolio managers that purchase and sell securities for their own investment accounts or on behalf of their clients. On the other hand, sell-side Analysts publish research reports on the securities of companies with specific recommendations to buy, hold, or sell. These analysts work for firms that provide investment banking, broking, and advisory services for clients. Therefore, the statement is false.

32 / 50

32. Investors look for businesses with entry barriers.

a. Low

b. High

c. Either high or low depending on the nature of the business

d. None of the above

e. None of the above

Investors typically look for businesses with high entry barriers. Such businesses have a competitive advantage and can maintain pricing power, which allows them to sell products at a premium without fear of losing customers. Therefore, the correct answer is Option A, which is High.

33 / 50

33. Department of Financial Services covers Banks, Insurance, and Financial Services provided by various government agencies and private corporations.

a. Department of Expenditure

b. Department of Revenue

c. Department of Financial Services

d. Department of Economic Affairs

e. Department of Financial Services

The Department of Financial Services covers Banks, Insurance, and Financial Services provided by various government agencies and private corporations.

34 / 50

34. Which committee is responsible for reviewing the financial statements of the company and nominating the auditors?

a. Nomination committee

b. Board committee

c. Remuneration Committee

d. Audit Committee

The audit committee is responsible for reviewing the financial statements of the company and nominating the auditors. Therefore, the correct answer is Option 1.

35 / 50

35. The objective(s) of all the regulators in a financial market is/are.

a. All of the above

b. Ensure orderly growth of financial markets

c. Ensure that intermediaries provide a high standard of services to the market participants

d. Create a fair and competitive marketplace

The correct answer is option 4. The objective of all regulators in a financial market is to create a fair and competitive marketplace, ensure that intermediaries provide a high standard of services to the market participants, and promote and ensure the orderly growth of financial markets. These objectives aim to safeguard the interests of investors, maintain market integrity, and foster stability in the financial system.

36 / 50

36. A company has 200,000 shares. The Price to Book Value ratio of this company is 7, and the Book Value is 5. Calculate the Net Worth of the company.

a. Rs 2,000,000

b. Rs 3,500,000

c. Rs 3,500,000

d. Rs 1,000,000

e. Rs 1,400,000

Book Value is calculated as Net Worth divided by the number of outstanding shares. In this case, Book Value = Net Worth / 200,000 = 5. So, Net Worth = Book Value * Number of Shares = 5 * 200,000 = Rs 1,000,000.

37 / 50

37. A foreign investor has invested in the existing financial instruments of a country. This is known as:

a. Foreign Financial Participation

b. Foreign Portfolio Investment

c. Foreign Direct Investment

d. Foreign Aid

When a foreign investor invests in the existing financial instruments of a country, it is known as Foreign Portfolio Investment (FPI). In FPI, the investment is made in equity or bonds without any management participation. Therefore, the correct answer is Option 2.

38 / 50

38. The work of a research analyst can be hampered by:

a. Inaccessibility of data

b. All of the above

c. Lots of unnecessary and irrelevant information

d. Contradiction of data from multiple sources

The work of a research analyst can be hampered by various factors, including dealing with lots of unnecessary and irrelevant information, contradictions in data from multiple sources, and inaccessibility of data. Therefore, the correct answer is Option 4.

39 / 50

39. The discounted cash flow model can be used only when three things are known with certainty: Stream of future cash flows, timings of these cash flows, and discount rate. True or False?

a. FALSE

b. TRUE

True. The discounted cash flow (DCF) model is a widely used approach for valuation. However, it requires certain key inputs to provide accurate results. The three essential elements that must be known with certainty are the stream of future cash flows, the timings of these cash flows, and the discount rate. Without these inputs, the DCF model cannot effectively estimate the present value of future cash flows. Therefore, the statement is true.

40 / 50

40. Business Risk is an Unsystematic Risk. True or False?

a. TRUE

b. FALSE

False. Business risk is not considered unsystematic risk, as it cannot be diversified away. Business risk refers to the risk inherent in the operations of a company, which is specific to that company or industry. It cannot be eliminated through diversification, unlike unsystematic risk, which is the risk specific to individual securities or a small class of investments and can be reduced by including other assets in the portfolio.

41 / 50

41. If an investor is not able to sell his investment when desired, or it has to be sold below its intrinsic value, or there are high costs to carrying out transactions, then this risk is called as.

a. Liquidity Risk

b. Credit Risk

c. Reinvestment Risk

d. Transactional Loss Risk

e. Credit Risk

The risk described in the question is known as Liquidity Risk. Liquidity risk refers to the risk of not being able to sell an investment when desired, selling it below its intrinsic value, or incurring high costs for executing transactions. Therefore, the correct answer is Option B.

42 / 50

42. Which of the following statements about the limitation of a quantitative approach to fundamental analysis is correct?

a. A quantitative approach cannot be used to analyze the economy

b. Changes in accounting standards, business structures, and regulations limit the effectiveness of quantitative analysis in forecasting future

c. Investing is an intuitive art with a very limited scope for quantitative analysis

d. None of the above

3. Changes in accounting standards, business structures, and regulations limit the effectiveness of quantitative analysis in forecasting future outcomes. While fundamental research involves both quantitative and qualitative studies, applying a pure econometric approach in fundamental analysis suffers from limitations. These limitations arise from the availability of comparable information, which can be affected by changes in accounting standards, business models, and regulations. Therefore, a purely quantitative approach may not capture all the nuances and complexities of the market.

43 / 50

43. SEBI has been appointed under the Companies Act to register companies in India and to ensure that they comply with the provisions of the law. True or False?

a. FALSE

b. TRUE

False. 2. The Securities and Exchange Board of India (SEBI) is a regulatory body established under the Securities and Exchange Board of India Act, 1992. Its primary role is to regulate the securities market in India and protect the interests of investors. SEBI does not register companies or ensure compliance with the Companies Act. Instead, the Registrar of Companies (ROC) is the authority appointed under the Companies Act to register companies and ensure their compliance with the provisions of the law.

44 / 50

44. The Debt to Equity Ratio of a company is 2 : 1. The total size of its Balance Sheet is Rs 27,00,000. Calculate the Debt of the company.

a. Rs 1800000

b. Rs 900000

c. Rs 2700000

d. Rs 600000

The correct answer is Rs 1800000. The size of a Balance Sheet includes both Debt and Equity. In this case, the ratio of Debt to Equity is 2:1. To calculate the Debt, we need to find the total of the parts in the ratio, which is 2 + 1 = 3. The total size of the Balance Sheet is given as Rs 27,00,000. Dividing this by 3 gives us Rs 9,00,000, which represents one part of the ratio. Multiplying this by 2 gives us Rs 18,00,000, which is the Debt component. Therefore, the Debt of the company is Rs 18,00,000.

45 / 50

45. FDI leads to job destruction in the economy. State True or False?

a. TRUE

b. N/A

c. FALSE

FDI (Foreign Direct Investment) can lead to job creation and other benefits in the economy.

46 / 50

46. Editing a research report includes the following EXCEPT.

a. Spelling checks

b. Validation of conclusion

c. Checking the financial figures

d. Validation of conclusion

e. Correction of grammatical errors

When editing a research report, you typically check the financial figures, perform spelling checks, and correct grammatical errors. However, validation of the conclusion is not a part of the editing process. Therefore, the correct answer is Option D.

47 / 50

47. The Total Assets of a company are Rs 124000 and the Total Liabilities are Rs 79000. Calculate the Equity to Asset Ratio.

a. 2.5

b. 1.64

c. 0.54

d. 0.36

The correct answer is 0.36. The Equity to Asset Ratio is calculated by dividing the Equity by the Total Assets. In this case, the Total Assets are given as Rs 124000 and the Total Liabilities are given as Rs 79000. To find the Equity, we subtract the Total Liabilities from the Total Assets, which gives us Rs 45000. Dividing the Equity (Rs 45000) by the Total Assets (Rs 124000) gives us 0.36. Therefore, the Equity to Asset Ratio is 0.36.

48 / 50

48. The views mentioned in a research report should be consistent with the views of:

a. The compliance team

b. Individual research analysts

c. The research entity

d. The research entity’s chief person

As per SEBI (Research Analyst) Regulation 18, a research analyst or research entity should not issue a research report that is not consistent with the views of the individuals employed as research analysts regarding a subject company. Therefore, the correct answer is Option 1.

49 / 50

49. Rahul invests Rs. 75,000 at a rate of 6% p.a. Calculate the future value of his investment after 10 years.

a. Rs. 98,540

b. Rs. 1,12,500

c. Rs. 1,34,250

d. Rs. 1,48,650

The formula for calculating the future value (FV) is FV = PV * (1 + r)^n. Substituting the given values: PV = Rs. 75,000, r = 6% = 0.06, n = 10. FV = Rs. 75,000 * (1 + 0.06)^10 = Rs. 1,34,250. Therefore, the correct answer is Option 1.

50 / 50

50. Which of these can be considered ‘Threats’ in the SWOT analysis of a company?

a. Pressure on the Government to ban the company’s products

b. The financial position of the company is very weak

c. No succession planning in the company

d. The patents held by the company are expiring

In SWOT analysis, ‘Threats’ are risks that come from the external environment. Among the given options, pressure on the Government to ban the company’s products is an external threat, while the other three options represent internal weaknesses. Therefore, the correct answer is Option 4.

Your score is

The average score is 0%

LinkedIn Facebook Twitter VKontakte

Case Study – 5

0 votes, 0 avg

Investment Advisor Level 2

Case Study – 5

1 / 4

1. What is the corpus requirement to ensure that he is able to sustain the same standard of living for 15 years after retirement?

Mr. Z, aged 52 years, is working in a leading company. His net savings are Rs. 50,000 p.m. Based on salary growth and other factors, he expects this to rise by 20% p. till his retirement at age 60. This does not include monthly contributions of Rs. 9,000 (Rs.4000 own contribution; Rs.5000 employer contribution) to various funds towards retirement corpus. These are expected to grow by 20% p. till retirement. The retirement corpus by the end of the year will be Rs. 12 lakhs, entirely in debt, which will yield 8 % p. on average. Besides his own residential house and the retirement corpus, his savings and investments will amount to Rs.50 lakhs by the end of the year, 30% of which will be in equity. He has a practice of investing, at the end of each year, his disposable savings into debt and equity in the ratio of 80:20. In the long run, he expects equity to yield 15% and debt to yield 8.5%. At the end of age 55, he expects an outflow of funds amounting to Rs5lakhs, which he hopes to meet out of annual savings. He expects inflation of 10% and post-retirement investment return on his portfolio at 11%. His current expenses are Rs40,000 per month. Assume zero date as the end of age 5Calculations are to be done on annual basis. Ignore taxation and interest income on savings and contributions during the year.

a. Rs. 13,861,919

b. Rs. 14,496,632

c. Rs. 15,254,894

d. Rs. 15,239,389

The corpus requirement will be calculated based on the given expenses, inflation rate, and post-retirement investment return.

To calculate the corpus requirement to ensure that Mr. Z is able to sustain the same standard of living for 15 years after retirement, you can follow these steps using Excel formulas:

Determine the annual expenses after retirement:
– Let’s assume the annual expenses after retirement are in cell E17.
– In cell E17, enter the formula “=E16*12” to calculate the annual expenses (assuming the monthly expenses are in cell E16).

Calculate the corpus requirement:
– Let’s assume the corpus requirement is in cell E18.
– In cell E18, enter the formula “=E17*((1-(1+E12)^-E13)/E12)” to calculate the corpus requirement (assuming the annual expenses after retirement are in cell E17, the inflation rate is in cell E12, and the number of years in retirement is in cell E13).

The resulting value in cell E18 will represent the corpus requirement to ensure that Mr. Z is able to sustain the same standard of living for 15 years after retirement, considering the provided inflation rate and annual expenses after retirement.

2 / 4

2. If he re-invests the entire retirement corpus in debt, what percentage of Mr. Z’s portfolio will be in debt when he retires?

a. 74.21%

b. 76.29%

c. 70.51%

d. 72.76%

When the entire retirement corpus is reinvested in debt, the percentage of the portfolio in debt will be calculated based on the allocation.

To calculate the percentage of Mr. Z’s portfolio that will be in debt when he retires, assuming he reinvests the entire retirement corpus in debt, you can follow these steps using Excel formulas:

Calculate the total savings and investments at the end of Age 55, including the retirement corpus:
– Let’s assume the retirement corpus is in cell K11 and the total savings and investments at the end of Age 55 (excluding the retirement corpus) is in cell L11.
– In cell L11, enter the formula “=L10+K11” to calculate the total savings and investments.

Calculate the debt portion of the portfolio when he retires, assuming the entire retirement corpus is reinvested in debt:
– Let’s assume the debt portion is in cell M11.
– In cell M11, enter the formula “=L11*0.8” to calculate the debt portion (assuming the total savings and investments are in cell L11 and the ratio of debt to total savings is 80:20).

Calculate the percentage of the portfolio in debt:
– Let’s assume the percentage is in cell N11.
– In cell N11, enter the formula “=(M11/L11)*100” to calculate the percentage.

The resulting value in cell N11 will represent the percentage of Mr. Z’s portfolio that will be in debt when he retires, assuming he reinvests the entire retirement corpus in debt.

3 / 4

3. At the end of Age 55, what percentage of Mr. Z’s portfolio will be in debt (excluding retirement corpus)?

a. 69.49%

b. 71.79%

c. 66.99%

d. 68.29%

The percentage of the portfolio in debt will be calculated based on the given allocation of savings and investments.

To calculate the percentage of Mr. Z’s portfolio in debt (excluding retirement corpus) at the end of Age 55, we can use the following steps:

Subtract the retirement corpus from the total savings and investments at the end of Age 55 to exclude it from the calculation.

Calculate the debt portion of the remaining portfolio.

Divide the debt portion by the total savings and investments (excluding retirement corpus).

Multiply the result by 100 to get the percentage.

Using Excel formulas, you can follow these steps:

Subtract the retirement corpus from the total savings and investments at the end of Age 55:
– Let’s assume the retirement corpus is in cell K11 and the total savings and investments at the end of Age 55 is in cell L11.
– In cell M11, enter the formula “=L11-K11” to calculate the remaining portfolio.

Calculate the debt portion of the remaining portfolio:
– Let’s assume the debt portion is in cell N11.
– In cell N11, enter the formula “=M11*0.8” to calculate the debt portion (assuming the remaining portfolio is in cell M11 and the ratio of debt to total savings is 80:20).

Calculate the percentage of the portfolio in debt:
– Let’s assume the percentage is in cell O11.
– In cell O11, enter the formula “=(N11/M11)*100” to calculate the percentage.

The resulting value in cell O11 will represent the percentage of Mr. Z’s portfolio in debt (excluding retirement corpus) at the end of Age 55.

4 / 4

4. On retirement, how much will Mr. Z have in his retirement corpus?

Case- Mr. Z, aged 52 years, is working in a leading company. His net savings are Rs. 50,000 p.m. Based on salary growth and other factors, he expects this to rise by 20% p. till his retirement at age 60. This does not include monthly contributions of Rs. 9,000 (Rs.4000 own contribution; Rs.5000 employer contribution) to various funds towards retirement corpus. These are expected to grow by 20% p. till retirement. The retirement corpus by the end of the year will be Rs. 12 lakhs, entirely in debt, which will yield 8 % p. on average. Besides his own residential house and the retirement corpus, his savings and investments will amount to Rs.50 lakhs by the end of the year, 30% of which will be in equity. He has a practice of investing, at the end of each year, his disposable savings into debt and equity in the ratio of 80:20. In the long run, he expects equity to yield 15% and debt to yield 8.5%. At the end of age 55, he expects an outflow of funds amounting to Rs5lakhs, which he hopes to meet out of annual savings. He expects inflation of 10% and post-retirement investment return on his portfolio at 11%. His current expenses are Rs40,000 per month. Assume zero date as the end of age 5Calculations are to be done on annual basis. Ignore taxation and interest income on savings and contributions during the year.

a. Rs. 48,65,917

b. Rs. 46,65,905

c. Rs. 50,65,910

d. Rs. 44,81,442

The retirement corpus will be calculated based on the given savings, contributions, and investment returns.

To calculate Mr. Z’s retirement corpus using Excel formulas, we will follow these steps:

Create a table with the following columns:
– Year
– Net Savings
– Contributions
– Total Savings
– Equity Portion
– Debt Portion
– Equity Returns
– Debt Returns
– Total Returns
– Inflation-adjusted Returns
– Retirement Corpus

In the “Year” column, starting from zero (age 52), list the years until retirement (age 60).

In the “Net Savings” column, enter the formula to calculate the net savings for each year:
– In cell B2, enter “=50000*(1+0.20)^A2” (assuming the Year column is in column A).
– Drag the formula down to fill the column with values for each year.

In the “Contributions” column, enter the formula to calculate the contributions for each year:
– In cell C2, enter “=9000*(1+0.20)^A2” (assuming the Year column is in column A).
– Drag the formula down to fill the column with values for each year.

In the “Total Savings” column, enter the formula to calculate the total savings for each year:
– In cell D2, enter “=B2+C2” (assuming the Net Savings and Contributions columns are in columns B and C, respectively).
– Drag the formula down to fill the column with values for each year.

In the “Equity Portion” column, enter the formula to calculate the equity portion of the total savings for each year:
– In cell E2, enter “=D2*0.3” (assuming the Total Savings column is in column D).
– Drag the formula down to fill the column with values for each year.

In the “Debt Portion” column, enter the formula to calculate the debt portion of the total savings for each year:
– In cell F2, enter “=D2-E2” (assuming the Total Savings and Equity Portion columns are in columns D and E, respectively).
– Drag the formula down to fill the column with values for each year.

In the “Equity Returns” column, enter the formula to calculate the equity returns for each year:
– In cell G2, enter “=E2*0.15” (assuming the Equity Portion column is in column E).
– Drag the formula down to fill the column with values for each year.

In the “Debt Returns” column, enter the formula to calculate the debt returns for each year:
– In cell H2, enter “=F2*0.085” (assuming the Debt Portion column is in column F).
– Drag the formula down to fill the column with values for each year.

In the “Total Returns” column, enter the formula to calculate the total returns for each year:
– In cell I2, enter “=G2+H2” (assuming the Equity Returns and Debt Returns columns are in columns G and H, respectively).
– Drag the formula down to fill the column with values for each year.

1In the “Inflation-adjusted Returns” column, enter the formula to calculate the inflation-adjusted returns for each year:
– In cell J2, enter “=(1+I2)/(1+0.10)^(A2-52)” (assuming the Year column is in column A).
– Drag the formula down to fill the column with values for each year.

1In the “Retirement Corpus” column, enter the formula to

calculate the retirement corpus for each year:
– In cell K2, enter “=1200000*J2” (assuming the Inflation-adjusted Returns column is in column J).
– Drag the formula down to fill the column with values for each year.

1The retirement corpus at the time of retirement (age 60) will be the value in the last row of the “Retirement Corpus” column.

The correct answer to the question is Rs. 48,65,917, which is the retirement corpus at age 60 (the value in the last row of the “Retirement Corpus” column).

Your score is

The average score is 0%

LinkedIn Facebook Twitter VKontakte

Case Study 4

0 votes, 0 avg

Investment Advisor Level 2

Case Study – 4

1 / 4

1. How would you describe the investment policy Mr. Y is using for the corpus?

Case – Mr. Y, aged 40, has the following goals ahead of him. (1) Son’s post-graduate education: Due in Year Current cost Rs15,00,000 p. to be incurred at the end of each year for 2 years. Likely Inflation 15% p. (2) Daughter’s marriage: Scheduled in end of Year Current cost Rs1,00,00,000. Inflation is assumed to be at 10% p. Mr. Y has provided a corpus of Rs2,00,00,000 towards these two needs. The corpus is invested in a mix of debt and equity yielding 8% p. Ignore taxation.

a. A little aggressive

b. Very aggressive

c. A little conservative

d. Very conservative

Explanation: The investment policy is determined by the mix of debt and equity. Given the provided details of the corpus being invested in a mix of debt and equity yielding 8% p., it can be described as very conservative.

2 / 4

2. What is the likely outflow on account of the daughter’s marriage in the year it is planned?

a. Rs. 2,05,10,865

b. Rs. 1,94,87,171

c. Rs. 2,14,35,888

d. Rs. 1,77,15,610

Explanation: Calculate the future value with the inflation rate. FV = PV * (1 + r)^n. FV = Rs. 1,00,00,000 * (1 + 10%)^7

3 / 4

3. How much money will need to be set apart from the corpus at the end of Year 5 to finance the son’s post-graduate education? Assume the amount set apart will earn 6% interest.

a. Rs. 59,34,184

b. Rs. 64,12,209

c. Rs. 62,90,235

d. Rs. 60,35,259

Explanation: Use the PV formula with a 6% interest rate. PV = FV / (1 + r)^n. PV = Rs. 15,00,000 / (1 + 6%)^5 + Rs. 15,00,000 / (1 + 6%)^6

4 / 4

4. How much will be left in the corpus after both goals are fulfilled (assume that he does not set apart money in the 6% corpus mentioned in Q1)?

a. Rs. 69,65,820

b. Rs. 75,23,085

c. Rs. 66,42,292

d. Rs. 81,24,932

Explanation: Subtract the amounts for both goals. Rs. 2,00,00,000 – (Rs. 15,00,000 + Rs. 15,00,000 + Rs. 1,00,00,000)

Your score is

The average score is 0%

LinkedIn Facebook Twitter VKontakte

Case Study 3-

0 votes, 0 avg

Investment Advisor Level 2

Case Study 3-

Investment Advisor Level 2

1 / 4

1. Their health Insurance policies cover hospitalization expenses across the world, including Indi They can renew the policy on their own at the end of the year. Which of the following is true?

Case -Mr. and Mrs. Gupta are both Indian Citizens (both 45 years ol who were working with multinational companies in the United States of America for the last 20 years. They have given up their jobs and have returned to India to pursue their own venture in India funded by a Venture fund based in the Silicon Valley. They had a house in the USA which they have given out on rent. They have substantial investments in their retirement investment accounts that are made on a tax deferred basis meaning that investments were made from pre-tax income and the contribution and the income accrued on it is taxed at the time of withdrawal. Both have taken substantial life insurance policies, on their own, in the USA which will payout the sum insured of USD 1 million each if any of them die in the next 15 years. Their employer paid for a health Insurance policy in the USA that continues to be valid till the end of the year but will cease thereafter unless they choose to renew it on their own. They have certain questions regarding their re-location and seek your opinion:

a. It would be advisable to continue the existing health insurance policies. It is not necessary to buy any fresh health insurance in India and incur additional expenditure as the existing policies already cover hospitalization costs in India

b. It would be advisable to continue the existing health insurance policies and also buy an additional fresh health insurance in India to create a no claim history on a health insurance policy in India, even if there is an additional cost involved in buying such a policy

c. They should give up their health insurance policies in the US as it is expensive and buy a fresh health insurance policy in India as it is quite economical

Explanation: It is advisable to continue the existing health insurance policies as they already cover hospitalization costs in Indi There is no need to buy additional health insurance in India unless they prefer to create a separate no claim history in Indi

2 / 4

2. The income accrued on the deferred tax retirement account will be taxed only in the year when such money is withdrawn. Which of the following statements is true?

Case – Mr. and Mrs. Gupta are both Indian Citizens (both 45 years ol who were working with multinational companies in the United States of America for the last 20 years. They have given up their jobs and have returned to India to pursue their own venture in India funded by a Venture fund based in the Silicon Valley. They had a house in the USA which they have given out on rent. They have substantial investments in their retirement investment accounts that are made on a tax deferred basis meaning that investments were made from pre-tax income and the contribution and the income accrued on it is taxed at the time of withdrawal. Both have taken substantial life insurance policies, on their own, in the USA which will payout the sum insured of USD 1 million each if any of them die in the next 15 years. Their employer paid for a health Insurance policy in the USA that continues to be valid till the end of the year but will cease thereafter unless they choose to renew it on their own. They have certain questions regarding their re-location and seek your opinion:

a. If the deferred tax retirement account is notified under newly introduced section 89A, then tax in India will also be paid in the year of withdrawal and credit will be available for the tax paid in the US

b. Tax is payable in India in the year in which the income accrues on the deferred tax retirement account, and credit will be given for the tax payable in the US on such income in the same year

c. No tax is payable in India on the income accrued on the deferred tax retirement account in the US

Explanation: If the deferred tax retirement account is notified under section 89A, the income accrued will be taxable in India in the year of withdrawal, and a credit can be claimed for the tax paid in the US on such income.

3 / 4

3. After they become resident in India as per Indian tax laws, they will have to pay tax in India on their rental income from the US property. Is this statement true?

a. Yes, they will have to pay tax in India on the rental income from the US property but will get credit for the tax paid in the USA

b. No, they will not have to pay any tax in India on the rental income from the US property

c. Yes, they will have to pay tax in India on the rental income from the US property without getting any credit for the tax paid in the US on such rental income

Explanation: After becoming residents in India, they will be subject to tax on their worldwide income. They will have to pay tax in India on the rental income from the US property, but they can claim a credit for the tax paid in the USA to avoid double taxation.

4 / 4

4. Both of them will need to buy Life Insurance policies in India for covering the risk of death. Which of the following is true?

a. They will need to buy fresh Life Insurance policies in India as the Indian law does not allow persons resident in India to buy or maintain a policy of Life Insurance outside India

b. They will need to buy fresh Life Insurance policies in India as, after becoming persons resident in India, they will not be allowed to remit the premiums for keeping the existing Life Insurance policies alive

c. They need not buy fresh Life Insurance policies in India and can either pay the premiums for the existing Life Insurance policy from their rental income in the US or remit it from India

Explanation: They do not need to buy fresh Life Insurance policies in Indi They can either pay the premiums for the existing policies from their rental income in the US or remit it from Indi

Your score is

The average score is 0%

LinkedIn Facebook Twitter VKontakte

Case Study -2

0 votes, 0 avg

Investment Advisor Level 2

Case Study -2

1 / 3

1. If discounted @ 5% p. and assuming that the adjustment is fully required at the beginning of the year, the inflation adjustment required is:

Case- Mr. Smart (60) has just retired from service. He is entitled to a pension of Rs. 4,80,000/- p. received yearly in advance. The pension adjusts partially with inflation to the extent of 50%. Mr. Smart’s wife (Mrs. Smart-58) is entitled to the pension for her lifetime in case of the demise of Mr. Smart before her. Nobody else is dependent on the couple. The couple stays in their own home. Mr. Smart received Rs. 40 lakhs (after tax) as retirement dues. Their current living expenses are equal to the pension amount. Mr. Smart’s employer will continue to provide a family floater Mediclaim policy for both their life time that is considered adequate for their needs. Inflation is to be assumed at 6% p. Life expectancy is to be assumed to be 87 years for Mr. Smart and 85 years for Mrs. Smart. The couple wants to make provision for expenses on social occasions that arise & leisure travel expenditure to the tune of Rs. 1,00,000 p. (inflation 6% p.) apart from compensating for the inflation adjustment shortfall in the pension income. Assume the expenditure arises at the beginning of the each year.

a. 1,91,39,462

b. 76,36,867

c. 80,18,710

Explanation: The correct answer is 80,18,7This represents the amount required for compensating the inflation adjustment based on a discounting rate of 5% at the beginning of the year.

2 / 3

2. The fixed income options available to the couple to earn the highest rate of interest from government schemes would be:

a. Senior Citizen savings Scheme 2019 up to a maximum investment of Rs. 15 lakhs

b. Fixed deposit schemes available from Public sector banks for senior citizens without any limit

c. PM Vaya Vandana Yojana from LIC up to a maximum investment of Rs. 15 lakhs

Explanation: The correct answers are “Senior Citizen savings Scheme 2019 up to a maximum investment of Rs. 15 lakhs”

3 / 3

3. The amount required for compensating the difference required for inflation adjustment based on a discounting rate of 5% is higher than the corpus of Rs. 40 lakhs available with them. This means that:

Case – Mr. Smart (60) has just retired from service. He is entitled to a pension of Rs. 4,80,000/- p. received yearly in advance. The pension adjusts partially with inflation to the extent of 50%. Mr. Smart’s wife (Mrs. Smart-58) is entitled to the pension for her lifetime in case of the demise of Mr. Smart before her. Nobody else is dependent on the couple. The couple stays in their own home. Mr. Smart received Rs. 40 lakhs (after tax) as retirement dues. Their current living expenses are equal to the pension amount. Mr. Smart’s employer will continue to provide a family floater Mediclaim policy for both their life time that is considered adequate for their needs. Inflation is to be assumed at 6% p. Life expectancy is to be assumed to be 87 years for Mr. Smart and 85 years for Mrs. Smart. The couple wants to make provision for expenses on social occasions that arise & leisure travel expenditure to the tune of Rs. 1,00,000 p. (inflation 6% p.) apart from compensating for the inflation adjustment shortfall in the pension income. Assume the expenditure arises at the beginning of the each year.

a. The couple can meet the expense requirements provided the corpus of Rs. 40 lakhs earns @9.22% p.

b. The couple cannot meet their expense requirements for the next 27 years, if the corpus earns 5% p.

c. The couple can meet the expense requirements provided the corpus of Rs. 40 lakhs earns @9.90% p.

d. The couple can easily meet the expense requirements for the next 27 years with the corpus amount of Rs. 40,00,000

Explanation: The correct answer is “The couple can meet the expense requirements provided the corpus of Rs. 40 lakhs earns @9.90% p.” If the inflation adjustment required is higher than the corpus available, the couple can meet their expenses only if the corpus earns a higher return.

Your score is

The average score is 0%

LinkedIn Facebook Twitter VKontakte

Case Study- 1

0 votes, 0 avg

Investment Advisor Level 2

Case Study- 1

1 / 3

1. How would you best categorize Mr. C’s risk profile?

Caselet- Mr. C is a 45 year single earning member of his family with a good income. He is saving for different financial goals, some of which are due for funding now. He has a home loan and a car loan that he is servicing.

a. Moderate

b. Conservative

c. Aggressive

d. Liquidity seeker

Given Mr. C’s situation as a single earning member with different financial goals, a moderate risk profile would be suitable, balancing growth and stability.

2 / 3

2. Mr has to park the funds from fixed deposits that have matured for a short period till it will be used for his daughter’s education. What will you suggest as a suitable investment option?

a. Alternative investments, to increase the corpus

b. Large-cap equity, to capture growth but with lower risk

c. Short-term fixed deposit, to ensure liquidity and some returns

d. Current account, to enable liquidity

A short-term fixed deposit would be the most suitable option to ensure liquidity and earn some returns while preserving the capital for Mr. C’s upcoming financial goal.

3 / 3

3. What are the assets that will be most suitable for Mr. C given his situation?

a. Primarily growth with some income-oriented assets

b. Combination of liquid and income-oriented assets

c. Primarily liquid assets

d. Primarily growth assets

A combination of liquid and income-oriented assets would be suitable for Mr. C to meet his financial goals while maintaining liquidity for immediate needs.

Your score is

The average score is 0%

LinkedIn Facebook Twitter VKontakte

Chapter 19: Comparison of products across categories

0 votes, 0 avg

Investment Advisor Level 2

Chapter 19: Comparison of products across categories

1 / 30

1. What is the minimum investment requirement for Equity Mutual Funds?

a. Minimum investment size is Rs. 1,000/- in a scheme

b. Minimum investment size is Rs. 1 crore

c. Minimum investment size is Rs. 50 lakhs

Explanation: The minimum investment requirement for Equity Mutual Funds can be as low as Rs. 1,000/- in a scheme. This low entry point makes mutual funds accessible to retail investors who can start investing with a small amount.

2 / 30

2. What is the purpose of performance data for investment products?

a. To track changes in interest rates

b. To provide information for comparison and evaluation

c. To identify short-term investment opportunities

d. To determine the market value of investments

Explanation: Performance data for investment products is available to provide information for comparison and evaluation. It allows investors to assess the performance of different investment options and make informed decisions based on risk, return, and liquidity parameters.

3 / 30

3. How is the maximum percentage of scheme investment regulated in Equity Mutual Funds?

a. Regulated by SEBI to avoid portfolio concentration in a single investee company

b. Regulated by SEBI to ensure some amount of broad basing of investment

c. Not regulated by SEBI. Can be and normally is a concentrated portfolio

Explanation: The maximum percentage of scheme investment in a specific company/group/sector is regulated by SEBI for Equity Mutual Funds. SEBI sets guidelines to ensure some level of broad basing of investments, preventing excessive concentration in a single company or group. This regulation helps maintain diversification and reduces the risk associated with concentrated investments.

4 / 30

4. What is the liquidity feature of Mutual Funds and ULIPs?

a. ULIPs require compulsory contributions for at least 5 years and have no redemption for at least 5 years, with discontinuation charges applying if premiums cease before 5 years

b. Open-ended Mutual Funds can be redeemed at any time, subject to possible exit load

c. Both Mutual Funds and ULIPs have the same liquidity features

Explanation: Open-ended Mutual Funds offer liquidity, allowing investors to redeem their units at any time, although an exit load may apply if redeemed within a specified perioIn contrast, ULIPs require compulsory contributions for at least 5 years and do not allow redemption for at least 5 years. Discontinuation charges may apply if premiums cease before the completion of 5 years.

5 / 30

5. How do Portfolio Management Services (PMS) differ from Equity Mutual Funds?

a. PMS involves investment in the individual investors’ demat account

b. PMS allows for customization to meet the needs of individual investors

c. PMS offers complex trading strategies including derivatives investments

Explanation: Portfolio Management Services (PMS) differ from Equity Mutual Funds in that they involve investment in the individual investors’ demat account. PMS offers customized investment solutions to meet the specific needs and objectives of individual investors. This customization distinguishes PMS from the pooled investment structure of mutual funds.

6 / 30

6. What is the purpose of Unit Linked Insurance Plans (ULIP)?

a. Insurance cum Investments

b. Retirement savings

c. Investments only

Explanation: Unit Linked Insurance Plans (ULIP) serve the dual purpose of providing insurance coverage along with investment opportunities. ULIPs allow policyholders to invest a portion of their premium in different investment funds, while also providing life insurance coverage.

7 / 30

7. How do Mutual Funds and ULIPs differ in terms of disclosure?

a. Mutual Funds have transparent daily/periodic disclosures and independent media provide value-added comparison services

b. Both Mutual Funds and ULIPs have similar disclosure standards

c. ULIPs have lower disclosure standards and limited availability of value-added comparison services from independent media

Explanation: Mutual Funds have transparent daily/periodic disclosures, and independent media actively track and provide value-added comparison services for mutual fund schemes. In contrast, ULIPs have lower disclosure standards and limited availability of value-added comparison services from independent medi The disclosure requirements for ULIPs may not be as extensive as those for Mutual Funds.

8 / 30

8. Difference between direct equity investment and equity funds

a. Direct equity investment involves investing in specific equity stocks

b. Equity funds invest in specific equity funds schemes

c. Direct equity investment requires personal expertise or the services of a PMS provider or a Registered Investment Advisor

Explanation: Direct equity investment refers to investing directly in specific equity stocks of individual companies. This requires personal expertise in stock selection or seeking the services of a Portfolio Management Service (PMS) provider or a Registered Investment Advisor. On the other hand, equity funds pool investments from multiple investors and invest in a diversified portfolio of equity stocks based on the fund’s investment objective.

9 / 30

9. Which investment instrument has a guaranteed rate of return and varying rate of returns?

a. NPS (National Pension System)

b. ELSS (Equity Linked Savings Scheme)

c. Tax saving bank FD (Fixed Deposit)

d. PPF (Public Provident Fun

Explanation: PPF (Public Provident Fun offers guaranteed returns with a varying rate of returns. The rate of returns for PPF fluctuates for every quarter but is guaranteeThis feature provides more stability and predictability in terms of returns compared to market-linked options.

10 / 30

10. What is the risk associated with Equity Linked Savings Scheme (ELSS)?

a. Negligible as it is a government-regulated scheme

b. Moderate as it invests in a mix of equities and government securities

c. High as the entire investment is in equities

d. Low as it allows a high percentage of investment in equity

Explanation: The risk associated with Equity Linked Savings Scheme (ELSS) is high as the entire investment is in equities. ELSS invests exclusively in equities, which are considered high-risk assets. This higher risk potential is balanced by the potential for higher returns.

11 / 30

11. Nature and purpose of actively managed equity mutual funds

a. To replicate the returns from the chosen benchmark by investing in the securities in the benchmark in the same proportion

b. To replicate the returns from the chosen benchmark by investing in a diversified portfolio of securities

c. The fund manager seeks to generate additional return (alph over the chosen benchmark by actively choosing securities from among the investment universe

Explanation: Actively managed equity mutual funds aim to generate additional returns (alph over the chosen benchmark by actively selecting securities from the investment universe. The fund manager’s expertise and active decision-making play a crucial role in trying to outperform the benchmark.

12 / 30

12. What determines the returns in Mutual Funds and ULIPs?

a. Returns are dependent on market performance in both Mutual Funds and ULIPs

b. Returns are guaranteed in both Mutual Funds and ULIPs

c. Returns are fixed in Mutual Funds and dependent on market performance in ULIPs

Explanation: The returns in both Mutual Funds and ULIPs are dependent on the performance of the underlying investments, which are typically influenced by market conditions. The returns can vary based on the performance of the securities held by the funds or the ULIP’s investment portfolio.

13 / 30

13. Difference in risk between direct equity investment and equity funds

a. Risk in equity funds is spread over many securities, providing diversification

b. Direct equity investment carries concentrated risk on the invested security

c. Direct equity investment and equity funds have similar levels of risk

Explanation: Direct equity investment carries concentrated risk on the invested security since the investment is focused on specific stocks. Any adverse event impacting those stocks could significantly affect the investment. In contrast, equity funds spread the risk by investing in a diversified portfolio of stocks

14 / 30

14. How does the risk differ between Alternative Investment Funds (AIF) Category 3 and Equity Mutual Funds?

a. AIF Category 3 involves complex strategies but common across all investors in a scheme

b. AIF Category 3 has a common investment for all investors in a scheme

c. AIF Category 3 allows customization to meet the needs of individual investors

Explanation: Alternative Investment Funds (AIF) Category 3 have complex strategies but are common across all investors in a scheme. AIF Category 3 funds employ diverse or complex trading strategies, including investment in listed or unlisted derivatives. However, unlike Portfolio Management Services (PMS), AIF Category 3 does not offer customization to meet individual investor needs.

15 / 30

15. Objective of actively managed equity mutual funds regarding returns

a. Actively managed mutual funds attempt to achieve higher returns net of the higher management cost

b. Actively managed mutual funds aim for guaranteed returns

c. Actively managed mutual funds aim to track as closely as possible the benchmark return

Explanation: The objective of actively managed equity mutual funds is to attempt to achieve higher returns net of the higher management cost. Since actively managed funds involve more active decision-making and potentially higher costs, the aim is to generate excess returns (alph above the chosen benchmark.

16 / 30

16. What is the nature of Mutual Funds?

a. Investment in individual investors’ demat account

b. Insurance cum Investments

c. Pooled Investment Scheme managed by Asset Management Companies

Explanation: Mutual Funds are a pooled investment scheme managed by Asset Management Companies. These companies pool funds from multiple investors and invest them in a diversified portfolio of securities, such as stocks and bonds. Investors in mutual funds hold units that represent their share of the overall portfolio.

17 / 30

17. What is the liquidity feature of Equity Linked Savings Scheme (ELSS)?

a. 15-year lock-in period, with partial withdrawal after 5 years

b. Lock-in for the entire tenure of the account

c. 3-year lock-in period, post which it can be withdrawn at any time

d. Lock-in until the age of 60 years, with premature withdrawal options

Explanation: The liquidity feature of Equity Linked Savings Scheme (ELSS) includes a 3-year lock-in perioAfter the lock-in period, the investment can be withdrawn at any time, providing flexibility for the investor.

18 / 30

18. What is the liquidity feature of Fixed Income Tax saving Instruments such as PPF and Tax saving bank FD?

a. PPF has a lock-in period until the age of 60 years

b. Tax saving bank FD has a lock-in period for the entire tenure of the deposit

c. Both PPF and Tax saving bank FD have a lock-in period of 3 years

d. PPF has a lock-in period of 15 years, with partial withdrawal possible after 5 years

Explanation: Fixed Income Tax saving Instruments such as PPF and Tax saving bank FD have different liquidity features. PPF has a lock-in period of 15 years, with partial withdrawal possible after 5 years. Tax saving bank FD has a lock-in period for the entire tenure of the deposit, meaning withdrawal is not allowed until the maturity of the FD.

19 / 30

19. Difference in cost between actively managed mutual funds and index funds

a. Index funds have lower costs

b. Actively managed mutual funds have lower costs

c. Actively managed mutual funds have higher costs due to the active involvement of the fund manager in decision-making

Explanation: Actively managed mutual funds have higher costs compared to index funds. This is because the fund manager is actively involved in the decision-making process, conducting research, and making frequent adjustments to the portfolio. Index funds, on the other hand, aim to replicate the returns of a specific benchmark and require less active management, resulting in lower costs.

20 / 30

20. How are the charges regulated in Mutual Funds and ULIPs?

a. Maximum charges are regulated by IRDAI for ULIPs

b. Maximum charges are regulated by SEBI for Mutual Funds

c. Charges are determined by the insurance company

Explanation: The maximum charges for Mutual Funds are regulated by the Securities and Exchange Board of India (SEBI). SEBI sets guidelines to ensure that mutual fund charges, such as expense ratios and exit loads, are reasonable and in the best interest of investors. Similarly, the maximum charges for ULIPs are regulated by the Insurance Regulatory and Development Authority of India (IRDAI).

21 / 30

21. What services do information aggregators provide for performance data comparison?

a. Tax-saving strategies for maximum returns

b. Market predictions and timing recommendations

c. Value-added services for comparison across various schemes

d. Risk assessment and management tools

Explanation: Information aggregators collect and provide value-added services for the comparison of performance data across various investment schemes. These services help investors assess and compare the performance of different investment options, enabling them to make informed decisions based on their risk, return, and liquidity preferences.

22 / 30

22. What is the nature of investments in Equity Mutual Funds?

a. Funds that undertake diverse or complex trading strategies including investment in listed or unlisted derivatives

b. Pooled Investment Vehicle where investments are in a pooled account with Units allocated to each investor

c. Investment in the individual investors’ demat account

Explanation: Equity Mutual Funds are a pooled investment vehicle where investments from multiple investors are combined in a pooled account. Units of the mutual fund scheme are then allocated to each investor based on their investment amount. This pooling allows investors to benefit from diversification and professional fund management.

23 / 30

23. Which regulatory body mandates the disclosure of performance data for mutual funds?

a. SEBI

b. PFRDA

c. IRDAI

d. RBI

Explanation: The disclosure of performance data for mutual funds is mandated by the Securities and Exchange Board of India (SEBI). SEBI ensures that mutual funds provide accurate and transparent information about their performance, which helps investors make informed decisions.

24 / 30

24. How are withdrawals taxed in Mutual Funds and ULIPs?

a. Withdrawals from Mutual Funds are taxable as per the tax laws

b. Withdrawals from both Mutual Funds and ULIPs are tax-free

c. Withdrawals from ULIPs are tax-free if the sum assured is at least 10 times the annual premium

Explanation: Withdrawals from Mutual Funds are subject to taxation as per the applicable tax laws. The tax rates for equity-oriented mutual funds differ based on the holding period, while debt mutual funds are taxed differently after indexation for the holding perioOn the other hand, withdrawals from ULIPs are tax-free if the sum assured is at least 10 times the annual premium. However, certain conditions and amendments in tax laws may apply.

25 / 30

25. Which parameter is used to compare investment instruments?

a. Risk, Return, and Liquidity

b. Risk, Return, and Tax Benefits

c. Risk, Return, and Investment Horizon

d. Risk, Return, and Market Value

Explanation: Investment instruments can be compared across three broad parameters: Risk, Return, and Liquidity. These parameters help investors evaluate and compare different investment options based on their risk tolerance, expected returns, and liquidity needs.

26 / 30

26. Which type of investor are Mutual Funds suitable for?

a. Any investor looking for investment options

b. High net worth individuals only

c. Investors seeking pure insurance coverage

Explanation: Mutual Funds are suitable for any investor looking for investment options. They offer a wide range of schemes and cater to investors with varying risk appetites and investment goals. Mutual Funds provide opportunities for individuals to invest in diverse asset classes and benefit from professional fund management.

27 / 30

27. What are the returns offered by Fixed Income Tax saving Instruments such as PPF and Tax saving bank FD?

a. Guaranteed returns with varying rates

b. Market-linked returns with tax advantages

c. No guaranteed returns, but can be moderately high to high

d. Fixed returns for the entire duration

Explanation: Fixed Income Tax saving Instruments such as PPF and Tax saving bank FD offer guaranteed returns with varying rates. PPF provides guaranteed returns with a varying rate of returns, while Tax saving bank FD offers fixed returns for the entire duration of the deposit. These instruments provide more stability and predictability in terms of returns compared to market-linked options.

28 / 30

28. What are the fees payable by investors in Equity Mutual Funds?

a. Maximum fee payable is regulated by SEBI and varies depending on the size of the fund

b. Fees are charged as per the agreement between the AIF and its investors

c. Upfront charges not alloweOperating expenses are capped at 0.50%

Explanation: In Equity Mutual Funds, the maximum fee payable is regulated by SEBI and varies depending on the size of the funSEBI sets guidelines to ensure that mutual fund fees are reasonable and in the best interest of investors. This regulation helps protect investors from excessive fees and promotes

29 / 30

29. Level of attention/expertise needed for direct equity investment and equity funds

a. Direct equity investment requires minimal attention and expertise compared to equity funds

b. Direct equity investment requires personal expertise or the services of a PMS provider or a Registered Investment Advisor

c. Equity funds allow investors to invest in mutual fund schemes of the desired investment type, including index funds

Explanation: Direct equity investment requires personal expertise in stock selection or the services of a Portfolio Management Service (PMS) provider or a Registered Investment Advisor. Investors need to actively manage their direct equity investments. In contrast, equity funds provide the expertise of professional fund managers, making it easier for investors to participate in equity markets without the need for individual stock selection and monitoring.

30 / 30

30. What are the risk and return characteristics of NPS (National Pension System)?

a. Moderate risk and moderately high returns

b. Low risk and moderate returns

c. Low risk and guaranteed returns

d. High risk and high returns

Explanation: NPS (National Pension System) has moderate risk and moderately high returns. It allows a varying degree of investments in equity, which introduces a level of risk. However, by choosing a higher proportion of government securities, the risk can be made low. The returns are market-linked and can be moderate to moderately high, depending on the chosen/allowed equity and Alternative Investment Fund investments.

Your score is

The average score is 0%

LinkedIn Facebook Twitter VKontakte

Chapter 18: Risk Profiling for Investors

0 votes, 0 avg

Investment Advisor Level 2

Chapter 18: Risk Profiling for Investors

1 / 36

1. According to SEBI Investment Adviser Regulation 16, what information should be obtained for risk profiling?

a. Age, investment objectives, and time frames

b. All of the above

c. Income, existing investments, and ability to take risks

d. Loans and innate ability to take risks

Explanation: For risk profiling, the Investment Adviser is required to obtain relevant information such as age, investment objectives, time frames, income, existing investments, ability to take risks, and details of loans. This comprehensive information helps assess the client’s risk profile and suitability of investment products.

2 / 36

2. Which investment is suitable for regular income?

a. Deposits

b. Real estate

c. Equity shares and equity funds

d. Cash

Explanation: Deposits, debt instruments and debt funds, along with real estate, are suitable investments for regular income. These investments provide stable returns and income to meet recurring expenses.

3 / 36

3. When should a portfolio be rebalanced?

a. When the investor needs immediate liquidity

b. When the market is experiencing volatility

c. When there are short-term opportunities for higher returns

d. When it is not aligned with the investor’s risk and return requirements

Explanation: A portfolio should be rebalanced when it is not aligned with the investor’s risk and return requirements. Rebalancing is based on the investor’s goals, risk tolerance, and investment timeframe, rather than short-term market movements or liquidity needs. It aims to maintain a suitable asset allocation and ensure the portfolio’s alignment with the investor’s objectives.

4 / 36

4. Risk tolerance is the assumed level of risk that a client is willing to accept. What does risk tolerance typically measure?

a. The willingness to take risks

b. The ability to take risks

c. The financial resources to take risks

d. The knowledge about investment markets

Explanation: Risk tolerance typically measures the willingness of a client to take risks. It reflects their psychological disposition and attitude towards risk. While the ability to take risks depends on factors such as financial resources, risk tolerance focuses on the client’s willingness to accept risk in pursuit of potential returns. By understanding a client’s risk tolerance, advisors can align investment strategies with their preferences and goals.

5 / 36

5. Which type of asset allocation uses pre-defined models to allocate assets among different asset classes?

a. Strategic asset allocation

b. Tactical asset allocation

c. None of the above

d. Dynamic asset allocation

Explanation: Dynamic asset allocation uses pre-defined models to allocate assets among different asset classes. Triggers for reallocation may be defined in terms of asset class valuations or portfolio performance. This approach removes the subjective element from asset allocation decisions.

6 / 36

6. Moderate investors understand that they have to take investment risks in order to meet their long-term goals. What is their likely willingness to take risk with their available assets?

a. Significant portion

b. All

c. None

d. Small portion

Explanation: Moderate investors have some experience in investing and understand the need to take investment risks to achieve their long-term goals. They are likely to be willing to take a risk with a small portion of their available assets.

7 / 36

7. What is the distribution of an investor’s portfolio between different asset classes called?

a. None of the above

b. Risk profiling

c. Asset allocation

d. Security selection

Explanation: The distribution of an investor’s portfolio between different asset classes is called asset allocation. Asset allocation involves determining the optimal allocation between various asset classes to achieve the desired risk-return profile and diversify the portfolio.

8 / 36

8. What is the purpose of including different asset categories in a portfolio?

a. Diversification

b. Minimizing risk

c. Maximizing returns

d. Achieving short-term goals

Explanation: Including different asset categories in a portfolio serves the purpose of diversification. Diversification involves having a combination of investments in a portfolio in such a way that a fall in the value of one or a few assets can be compensated by the positive performance of other investments. This helps reduce the risk of loss and stabilize the portfolio’s returns.

9 / 36

9. Which type of asset allocation considers the returns required from the portfolio to achieve financial goals and the investor’s risk profile?

a. Strategic asset allocation

b. Dynamic asset allocation

c. Tactical asset allocation

d. All of the above

Explanation: Strategic asset allocation considers the returns required from the portfolio to achieve financial goals, given the time horizon and risk profile of the investor. It is a long-term plan that is periodically reviewed for continued relevance to the individual’s goals. Tactical asset allocation is based on market expectations, while dynamic asset allocation uses pre-defined models and removes the subjective element from asset allocation decisions.

10 / 36

10. What is the primary focus of rebalancing the portfolio?

a. Aligning it to the risk and return requirements of the investor

b. Selling underperforming assets for immediate liquidity

c. Timing the market for short-term gains

d. Maximizing tax benefits and deductions

Explanation: The primary focus of rebalancing the portfolio is to align it to the risk and return requirements of the investor. It ensures that the portfolio remains in line with the investor’s goals, risk tolerance, and changing needs and situation. Rebalancing is not driven by short-term market timing but by maintaining a suitable asset allocation.

11 / 36

11. According to SEBI Investment Adviser Regulation 16, what requirements are there for tools or questionnaires used in risk profiling?

a. All of the above

b. Fit for the purpose and identification of limitations

c. Fair, clear, and not misleading

d. Not vague or containing leading questions

Explanation: Tools or questionnaires used for risk profiling should be fit for the purpose and any limitations of such tools should be identified and mitigated to the extent possible. Additionally, the questionnaires should be fair, clear, and not misleading. They should not be vague, contain leading questions, or use difficult/complex language. Compliance with these requirements ensures the accuracy and effectiveness of risk profiling tools.

12 / 36

12. Why might an investor need to change their investments in the portfolio?

a. To increase risk and potential returns

b. To reduce taxes on investment gains

c. If the investments are no longer suitable for the goals

d. To chase short-term market trends for quick gains

Explanation: An investor may need to change their investments in the portfolio if they are no longer suitable for the goals. As financial circumstances or investment objectives change, adjustments may be required to ensure the portfolio remains aligned with the investor’s goals and risk tolerance. This allows for better goal achievement and overall portfolio performance.

13 / 36

13. What does asset allocation and diversification aim to achieve in a portfolio?

a. Maximum capital growth

b. High-income generation

c. Short-term liquidity

d. Risk reduction and stable returns

Explanation: Asset allocation and diversification aim to reduce the risk of loss in a portfolio and stabilize its returns. By spreading investments across different asset classes, the overall portfolio’s return becomes less susceptible to the performance of a single asset class. This strategy helps protect the portfolio from significant declines and provides a more balanced and stable investment outcome.

14 / 36

14. What can a periodic review of investments help identify?

a. Tax-saving strategies for maximum returns

b. Short-term market trends for quick gains

c. Opportunities for high-risk investments

d. Problem areas and the need for corrective actions

Explanation: A periodic review of investments helps identify problem areas in the portfolio and enables early corrective actions. It allows the investor to assess the performance of investments and take appropriate measures if goals are not being met or if adjustments are needeThis review ensures that the investor stays on track towards their financial goals.

15 / 36

15. What is the process of dividing the portfolio among different asset classes to protect its overall return from the effect of a fall in one or few assets called?

a. Asset allocation

b. Concentrated investing

c. Risk management

d. Diversification

Explanation: The process of dividing the portfolio among different asset classes to protect its overall return from the effect of a fall in one or few assets is called asset allocation. Asset allocation ensures that not all assets in the portfolio rise or fall together, reducing the impact of market fluctuations and increasing the chances of stable returns.

16 / 36

16. What is the benefit of diversification in a portfolio?

a. Maximizing returns

b. Generating regular income

c. Achieving high liquidity

d. Reducing the risk of loss

Explanation: Diversification in a portfolio helps reduce the risk of loss. By holding a combination of different investments, a fall in the value of one or a few assets can be offset by the positive performance of other investments. Diversification provides stability to the portfolio’s returns and lowers the overall risk.

17 / 36

17. Which of the following is a parameter for risk profiling?

a. Investment objectives

b. All of the above

c. Income

d. Age

Explanation: Parameters for risk profiling include various factors such as age, investment objectives, income, and other relevant information. Age can influence risk tolerance, investment objectives help determine the client’s goals, and income plays a role in assessing the client’s financial capacity. Therefore, all the options are correct.

18 / 36

18. Which investment is suitable for growth and appreciation in value?

a. Cash

b. Bank deposits

c. Debt instruments and debt funds

d. Equity shares and equity funds

Explanation: Equity shares and equity funds, along with real estate and gold, are suitable investments for growth and appreciation in value. These investments have the potential for higher returns over the long term, although they also come with higher risks.

19 / 36

19. What are model portfolios?

a. Pre-defined investment plans for all investors

b. None of the above

c. Securities selected within an asset class

d. Asset allocation mix suitable for different investment objectives

Explanation: Model portfolios are the asset allocation mix that is most appropriate for different investment objectives, return expectations, risk appetite levels, and liquidity needs. Investment advisers work with model portfolios to suggest the optimal allocation for their clients based on their specific investor information.

20 / 36

20. Risk tolerance is typically measured using questionnaires that estimate the ability and willingness to take risks. How are the responses of investors converted into a score to classify their risk preferences?

a. By analyzing their financial circumstances

b. By converting their questionnaire responses

c. By calculating their net worth

d. By evaluating their earning potential

Explanation: The responses of investors to risk tolerance questionnaires are converted into a score that helps classify their risk preferences. These questionnaires assess the ability and willingness of individuals to take risks. By analyzing and evaluating the responses, a numerical score or risk profile is generated, which categorizes the investors based on their risk preferences. This score provides insights into their risk tolerance levels and guides investment decisions.

21 / 36

21. Which type of asset allocation involves making decisions based on the likely behavior of the market?

a. Strategic asset allocation

b. Dynamic asset allocation

c. None of the above

d. Tactical asset allocation

Explanation: Tactical asset allocation involves making decisions based on the likely behavior of the market. Investors who make tactical asset allocation calls adjust their portfolio allocation based on their expectations of market conditions. This type of asset allocation is suitable for seasoned investors operating with large investible surpluses.

22 / 36

22. What is the purpose of reviewing the relevance of goals in the investment portfolio?

a. To maximize returns and achieve short-term gains

b. To ensure goals are still valid and aligned with the investor’s needs

c. To track market trends and make speculative investments

d. To identify underperforming assets for liquidation

Explanation: Reviewing the relevance of goals in the investment portfolio helps ensure that the goals are still valid and aligned with the investor’s needs and priorities. It allows for adjustments or realignment of goals if necessary. This review helps keep the investment strategy focused and in line with the investor’s objectives.

23 / 36

23. Why would an investor consider rebalancing their portfolio?

a. To liquidate underperforming assets

b. To adjust the risk and return profile based on changing needs and situation

c. To minimize taxes on investment gains

d. To time the market and maximize profits

Explanation: An investor would consider rebalancing their portfolio to adjust the risk and return profile based on changing needs and situation. Rebalancing ensures that the portfolio remains aligned with the investor’s goals and risk tolerance. It is not done to time the market or maximize short-term profits but to maintain a suitable asset allocation and manage the portfolio in line with the investor’s objectives.

24 / 36

24. Why is periodic review of investments necessary?

a. To assess goal relevance, target achievement, and investment performance

b. To change investments for short-term gains

c. To maximize returns and minimize risk

d. To track market trends and make quick decisions

Explanation: Periodic review of investments is necessary to assess the relevance of goals, determine if they are on track for achievement within the required time frame, evaluate the performance of investments, and determine if any changes need to be made based on the suitability for the goals. Reviewing investments helps identify problem areas and enables early corrective actions.

25 / 36

25. What does rebalancing the portfolio involve?

a. Increasing risk tolerance

b. Maximizing short-term returns

c. Selling all investments and starting anew

d. Modifying exposure to different asset classes

Explanation: Rebalancing the portfolio involves modifying the exposure to different asset classes in an investor’s portfolio. It aims to align the portfolio with the risk and return requirements of the investor and reflect any changes in their needs and situation. Rebalancing is not done to benefit from short-term movements in asset prices but to maintain an appropriate asset allocation.

26 / 36

26. How can rebalancing the portfolio help manage risk?

a. By maximizing short-term returns

b. By liquidating underperforming assets

c. By investing in high-risk assets

d. By maintaining an appropriate asset allocation

Explanation: Rebalancing the portfolio helps manage risk by maintaining an appropriate asset allocation. By periodically adjusting the exposure to different asset classes, the portfolio remains aligned with the investor’s risk and return requirements. This ensures that risk is managed in a way that is suitable for the investor’s goals and risk tolerance.

27 / 36

27. What is the purpose of constructing an investment portfolio?

a. To accumulate wealth

b. To achieve maximum returns

c. To meet various goals

d. To minimize risk

Explanation: An individual creates a portfolio of investments to meet their various goals. The investments selected have to balance the required return with an appropriate level of risk. A portfolio helps in diversifying investments and catering to different needs such as growth, income, liquidity, and capital protection.

28 / 36

28. Which investment is suitable for capital preservation?

a. Equity shares and equity funds

b. Bank deposits

c. Ultra-short term funds

d. Cash

Explanation: Cash, bank deposits, and ultra-short term funds are suitable for capital preservation. These investments offer stability and protection of the invested capital.

29 / 36

29. Which type of investor prefers to keep their money in bank accounts or invest in safe income-yielding instruments?

a. All investors

b. Moderate investors

c. Aggressive investors

d. Conservative investors

Explanation: Conservative investors prefer to keep their money in bank accounts or invest in safe income-yielding instruments. They are averse to taking risks and are typically new to risky investment instruments.

30 / 36

30. How often should the portfolio of investments be reviewed as part of the financial planning process?

a. Ideally at least once a year

b. Only when major life events occur

c. Once every few years

d. Every month for quick adjustments

Explanation: The portfolio of investments should ideally be reviewed at least once a year as part of the financial planning process. Regular review helps ensure that the portfolio remains aligned with the investor’s goals, risk tolerance, and changing financial situation. It allows for timely adjustments and corrections to keep the investment strategy on track.

31 / 36

31. Risk appetite is influenced by various factors. Which of the following factors affects risk appetite according to Table 18.1?

a. Knowledge about markets

b. all of the above

c. Capital base

d. Earning Members

32 / 36

32. Which investment is suitable for liquidity?

a. Cash

b. Equity shares and equity funds

c. Real estate

d. Bank deposits

Explanation: Cash, bank deposits, and short-term mutual fund schemes provide liquidity. These investments can be easily converted into cash without significant penalties or loss of value.

33 / 36

33. How often is it recommended to review the risk profile of a client?

a. Quarterly

b. Monthly

c. Annually

d. Periodicity can vary, with special events triggering a review

Explanation: While the periodicity of risk profile review can vary, it is recommended to review the risk profile of a client on special events such as a change in family composition, change in income/expenses, or change in assets/liabilities. This ensures that the risk profile remains up to date and relevant to the client’s changing circumstances.

34 / 36

34. What is the risk associated with a concentrated portfolio?

a. Inability to generate income for regular expenses

b. Decline in portfolio value due to a fall in one category of investment

c. Fluctuating value of investments

d. Limited access to funds for urgent needs

Explanation: The risk of a concentrated portfolio is that a fall in one category of investment can lead to a decline in the portfolio value. When investments are concentrated in a single asset class, such as equities, real estate, or gold, the overall portfolio’s return becomes vulnerable to the performance of that specific asset class. Diversification through asset allocation helps mitigate this risk.

35 / 36

35. A person is offered a chance to play a game in which a coin will be tosseThe person pays Rs. 1,00,000 for one chance to play the game. The person can choose to call “heads” or “tails”. If the coin comes on the person’s choice, he wins Rs. 1,10,000. As per statistical analysis of the above game, the person stands to win Rs. 5,000/- every time he plays the game. What is the net payoff amount?

a. Rs. 5,000

b. Rs. 55,000

c. Rs. 1,10,000

d. Minus Rs. 50,000

Explanation: The net payoff amount for playing the game is calculated by considering the probability of winning and losing. The person has a 50% probability of losing Rs. 1,00,000, which equals Minus Rs. 50,000. Additionally, there is a 50% probability of gaining Rs. 1,10,000, which equals Rs. 55,000. The net payoff amount is the difference between the gains and losses, resulting in Rs. 5,000.

36 / 36

36. What factors determine the suitable asset allocation for an individual?

a. Current market conditions and sector performance

b. Expected returns and liquidity needs

c. Age and income level

d. Investment period and risk tolerance

Explanation: The suitable asset allocation for an individual depends on their investment period and risk tolerance. Factors such as age, income level, and specific financial goals also play a role in determining the optimal asset allocation. A person close to retirement may have a higher allocation to safer investments, while someone with a longer investment horizon and higher risk tolerance may prefer higher allocations to growth assets like equities.

Your score is

The average score is 0%

LinkedIn Facebook Twitter VKontakte