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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.

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.

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.”

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

When interest rates rise, bond prices tend to fall.

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.

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.

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.

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.

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.

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%.

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

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.

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.

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

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.

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.

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.

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.

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

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.

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.

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.

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.

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.

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.

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.

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

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.

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%.

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.

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.

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.

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.

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

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%.

Annualized return converts the return to a uniform period, enabling comparison between investments with different holding periods.

Credit risk, also known as default risk, refers to the possibility that a bond issuer will not be able to make expected interest rate payments and/or principal repayment. Debt instruments are subject to credit risk as they have pre-committed payouts. The credit rating provided by credit rating agencies is used to measure the credit risk in an instrument. A lower credit rating represents a higher credit risk, resulting in higher interest rate expectations by investors.

The calling feature in bonds is most prevalent when interest rates are expected to fall.

Valuation is considered a subjective exercise because the inputs required for valuation, such as earnings, assets, and growth projections, are subjective in nature and can vary based on individual judgment and assumptions. Additionally, valuation is not a timeless concept and can change dramatically if the circumstances of a business change. It is influenced by various factors, making it subjective rather than a precise and objective measure. Complicated quantitative models may provide a false impression of preciseness, but ultimately valuation remains a subjective process.

The Treynor Ratio measures the risk premium earned per unit of Bet

Reinvestment risk arises from the probability that income flows received from an investment may not be able to earn the same interest as the original interest rate. It occurs when intermediate cash flows may be reinvested at a lower return compared to the original investment. Reinvestment rates can be high or low depending on the levels of interest rates at the time when the coupon income is receive

Anchoring bias is a cognitive bias where individuals rely too heavily on the first piece of information offered when making decisions. Investors may hold on to outdated information, ignoring new information that is available. This bias can impact decision-making, such as holding on to losing stocks in expectation of a price rebound based on past prices, rather than considering current information.

CAGR (Compounded Annual Growth Rate) is the accepted standard measure of return in financial markets.

Valuation parameters in an investment research checklist are used to assess the business’s intrinsic value, determine market mispricing, and justify the margin of safety. The other options are either incorrect or not related to the purpose of considering valuation parameters.

Country risk refers to the risk related to a country as a whole, where the country may not be able to honor its financial commitments. When a country defaults on its obligations, it can affect the performance of all other securities issued in that country as well as other countries with relations to it. Country risk applies to all types of securities issued in that country.

The main measure of liquidity in the traded value turnover ratio is the traded value of the shares.

The winner’s curse refers to the tendency to ensure winning a competitive bid even after overpaying for the asset. While it may be a behavioral win, financially it may result in a loss.

The Net Asset Value (NAV) approach is commonly used in industries such as Real Estate, Shipping, Aviation, and others that are highly asset-oriente

The major sections of a research report include company business, peer group analysis, shareholding pattern, key strengths, key concerns, industry overview, company fundamentals, key financial indicators, and financials. The other options are either incorrect or not related to the major sections.

The EV to Capital Employed ratio and Return on Capital Employed (ROCE) are used together to assess the return on invested capital and facilitate investment decision making. The EV to Capital Employed ratio helps determine the market value of assets relative to the capital employed, while ROCE evaluates the profitability of the business. By considering both ratios, investors can gauge the adequacy of the return on capital investe

Qualitative parameters that can be included in an investment research checklist include understanding the business, details of technology collaboration, revenue model, competitive advantage, risks, quality of management, et The other options are either incorrect or related to different types of parameters.

Stock turnover ratio is calculated by dividing the number of shares traded during a given period by the number of outstanding free float shares.

Business risk is indeed also known as operating risk, as it is caused by factors that affect the company’s operations.

Ownership bias, also known as the endowment effect, reflects the tendency to place a higher value on a position than others woul

The price-to-earnings (P/E) ratio is calculated by dividing the current price of the stock by the earnings per share (EPS). It indicates how much investors are willing to pay for each unit of earnings generated by the company.

The gambler’s fallacy is the mistaken belief that if something happens more frequently than normal during some period, then it will happen less frequently in the future, or vice versa, based on past events.

When interest rates rise, the price of bonds typically falls. This is because existing bonds with lower interest rates become less attractive compared to newly issued bonds with higher interest rates, leading to a decrease in demand for existing bonds and a corresponding decrease in their price.

The Sum-Of-The-Parts (SOTP) valuation method involves valuing each business separately and then adding the individual valuations to arrive at the total value of a company. This method is used when a company operates multiple businesses under one umbrella, such as conglomerates. Each business vertical is treated as an independent entity and valued separately, and the valuations are then summed up to determine the total value of the company.

ROI for a single period is calculated as net profit divided by the investment, multiplied by 100.

Business risk, also known as operating risk, is the risk inherent in the operations of a company. It is caused by factors that affect the company’s operations, such as the cost of raw materials, employee costs, introduction and position of competing products, marketing and distribution costs, et Holding a diversified portfolio is an efficient way to diversify this risk.

Traded value turnover ratio measures the liquidity of a stock by dividing the traded value of the shares by the market capitalisation of the company.

Confirmation bias, also called my side bias, is the tendency to search for, interpret, or prioritize information in a way that confirms one’s beliefs or hypotheses.

Reinvestment risk increases when interest rates fall because the reinvestment of periodic cash flows at lower rates will result in lower returns.

Interest rates and bond prices have an inverse relationship. When interest rates fall, or are expected to fall, bond prices go up. Conversely, when interest rates rise, or are expected to rise, bond prices decline. This relationship exists because investors demand a higher return for taking on the risk of holding a bond when interest rates are higher, and vice vers

Herd mentality is a bias where investors follow the investment choices made by others, often due to a belief that others may have better information. This behavior can lead to bubbles and crashes in the market.

Jensen’s Alpha refers to the excess return earned on investment compared to its benchmark.

Some potential reasons for failure of a research report include unnecessary details, long sentences, no proper structure, inconsistent views, and complex language. The other options are either incorrect or not mentioned as reasons for failure.

If a stock has exceeded its target price, an analyst may recommend selling the stock. Buying or holding the stock would not be appropriate when the target price has been surpasse

When assessing the return on capital (ROCE) and return on equity (ROE), it is important to focus on the variations between these two ratios. ROCE reflects the true return on the capital invested in the business, while ROE can be manipulated by high leverage. Wide variations between ROCE and ROE may indicate potential issues or the need for further investigation into the financial performance and capital structure of the company.

The earnings yield is calculated by dividing the earnings per share (EPS) by the price of the stock and expressing the result as a percentage. In this case, the earnings yield would be (13 / 195) * 100 = 6.67 percent.

Leverage ratio is a quantitative parameter of business analysis. Qualitative parameters focus on non-numeric aspects, while quantitative parameters involve numerical analysis.

Call risk refers to the possibility that a debt security will be called prior to its maturity. It is most prevalent when interest rates are falling, as companies trying to save money will usually redeem bond issues with higher coupons and replace them with issues with lower interest rates. Call risk usually goes hand in hand with reinvestment risk.

Dividend is indeed a small component of the total returns from equity.

Liquidity risk refers to the absence of liquidity in an investment. It implies that the investor may not be able to sell their investment when desired, or they may have to sell it below its intrinsic value, or incur high costs to carry out transactions. Investments in assets such as corporate bonds, property, and art are subject to liquidity risk, as finding a buyer and determining the price can be a lengthy process in the absence of an active market.

Systematic risk, also known as undiversifiable risk, refers to risks that impact multiple investment categories and cannot be eliminated through diversification. It is caused by factors that affect the economy or markets as a whole, such as changes in government policy, external factors, wars, or natural calamities. Inflation risk, exchange rate risk, interest rate risk, and reinvestment risk are examples of systematic risks.

The prevalent recommendations used by research analysts to rate stocks are Buy, Overweight, Hold, Underweight, and Sell. The other options mentioned are not related to stock ratings.

Unsystematic risk, also known as diversifiable risk, refers to risks that are specific to individual securities or

Stock turnover ratio is calculated using the number of shares traded divided by the number of outstanding free float shares.

A higher Jensen’s Alpha indicates superior performance.

Annual reports are considered an authentic source for analysts to check facts on a company. Research reports, media reports, and business portals can provide additional information but may not be as authoritative as the annual reports.

Sharpe Ratio factors in the difference in risk by measuring the risk premium earned per unit of standard deviation.

The EV to Capital Employed ratio is calculated by dividing the enterprise value by the capital employed, which is the sum of total equity and total debt.

A good research report should possess qualities such as clarity of idea, simplicity of delivery, presenting the argument clearly, and a narrative structure. The option “Create customized reports according to the reader type” is not mentioned in the provided information.

For a private owner, EV (Enterprise Value) represents the true value of the firm. Unlike market capitalization, which only considers the equity value, EV takes into account both the equity and debt of the company. It provides a comprehensive measure of the company’s value from the perspective of a private owner.

Projection bias refers to projecting recent past experiences or events into the distant future, ignoring the distant past. It involves giving more weight to recent events and not considering historical patterns or trends.

Market risk refers to the risk of the loss of value in an investment due to adverse price movements in the market. The price of an asset responds to information that impacts its intrinsic value. For example, changes in interest rates or currency exchange rates can affect the market price of bonds or stocks. Market risk primarily affects investments in marketable securities such as equity, bonds, gold, real estate, et

Political risk refers to the risk associated with unfavorable government actions such as nationalization, changes in tax structures, or licensing regulations. Businesses and securities are exposed to political risk because governments have the power to change laws that affect them. Political risk can have a significant impact on the performance of businesses and securities.

Inflation risk represents the risk that the money received on an investment may be worth less when adjusted for inflation. It arises from the decline in the value of security’s cash flows due to the falling purchasing power of money. It is highest in fixed return instruments such as bonds, fixed deposits, and debentures, where investors are paid a fixed periodic interest and returned the principal amount at maturity. Inflation risk is relatively less for equity shares.

Relative valuation is used to compare the value of assets by looking at how the market prices similar/comparable assets. It provides an estimate of value based on the pricing of similar assets, which can be helpful in determining whether something is cheap or expensive.

The Sharpe Ratio measures the risk premium earned per unit of standard deviation.

Herd Mentality bias can prevent investors from benefiting from market corrections.

The Capital Asset Pricing Model (CAPM) is used to estimate the expected return on investment by considering the risk associated with an asset or security. It helps in determining the appropriate rate of return required by an investor to compensate for the level of risk. The model takes into account factors such as the risk-free rate, beta (systematic risk), and the expected market return to calculate the expected return on an investment.

The Treynor Ratio calculates the risk premium per Bet

Loss-aversion bias refers to an investor’s tendency to strongly prefer avoiding losses to acquiring gains, and the fear of loss leads to inaction.

Quantitative parameters considered under quantitative analysis in an investment research checklist include equity history, revenue growth, leverage ratio, return track record, dividend track record, cash flows, et The other options are either incorrect or related to different types of parameters.

Using a checklist approach in investment research reports helps avoid lazy mistakes or short-cuts, ensures disciplined decision-making, and helps in objective and facts-based decisions. The other options mentioned are either incorrect or not related to the advantages of using a checklist approach.

The time frame typically used for calculating the stock turnover ratio is one year.

According to “The Checklist Manifesto,” errors of ignorance are mistakes made out of ignorance, while errors of ineptitude are mistakes made because of incorrect use of knowledge. The other options mentioned are either incorrect or not related to the distinction made in the book.

Compounded return (CAGR) takes into consideration the time value of money and assumes reinvestment of periodic returns.

The Price/Embedded value ratio measures the relationship between the market price and the present value of expected net future cash flow (adjusted for probability) from the policies currently in force for life insurance businesses. This ratio is specifically used in the case of the life insurance industry to assess the value based on embedded value.

CAGR is computed using the formula: (End Value / Beginning Value)^(1/n) – 1, where n is the holding period in years.

The Net Asset Value (NAV) approach considers the market value of assets minus the value of liabilities in valuation. It differs from the book value approach by using market values of assets rather than their historical cost.

Fact-based sections in a research report are typically filled using information from annual reports, quarterly reports, and calculations. The other options mentioned are not related to fact-based sections.

The EV to Capital Employed ratio measures the relationship between enterprise value and the total capital employed, which includes both equity and debt.

Valuations in the new age economy and businesses often utilize unconventional parameters such as eyeballs, page reviews, footfall, average revenue per user (ARPU), and the number of users. These parameters are used to justify the high valuations seen in these industries. However, it is important to note that ultimately these parameters should translate into profits for owners in the long run. The valuations may be sustained based on market belief and investor interest, but without profitability, they can be susceptible to a downturn, as seen during the dot-com boom in 2000-2001.

The Price/Adjusted book value ratio considers the fair value of assets minus the fair value of liabilities, taking into account off-balance sheet items as well. It provides a valuation metric that factors

The main objective of stock exchanges is to provide liquidity, which refers to the ease of buying and selling shares in the market.

ROI numbers should be used with caution for investments with unknown future returns and for equity and mutual funds.

Looking at consolidated numbers in valuation allows for the evaluation of the financial performance of the entire group or conglomerate. It provides a holistic view that includes the results of all the business units and subsidiaries under the umbrella of the company. This helps in assessing the overall financial health, profitability, and value of the company as a whole.

When valuing a business with high earning power, an important consideration is the Return on Equity (ROE). In such cases, the book value (BV) of shares becomes less important compared to the profitability and return generated by the business. ROE reflects the return on the capital invested by shareholders and is a more relevant measure in assessing the value of the business in this scenario.

The demand and supply of securities in the market is not a valuation parameter for business analysis. The other options mentioned are commonly used valuation parameters.

Confirmation bias leads to searching, interpreting, or prioritizing information that confirms one’s beliefs or hypotheses.

Both amortization of capital expenses and depreciation are non-cash charges. They represent the allocation of expenses over time and do not involve the actual outflow of cash. Interest on foreign exchange borrowing, on the other hand, represents an actual cash expense.

The investor expects both to preserve the capital invested and earn a return from the investment.

Confirmation bias leads to searching, interpreting, or prioritizing information that confirms one’s beliefs or hypotheses.

Anchoring bias is a cognitive bias where individuals rely too heavily on the first piece of information offered when making decisions. Investors may hold on to outdated information, ignoring new information that is available. This bias can impact decision-making, such as holding on to losing stocks in expectation of a price rebound based on past prices, rather than considering current information.

Business risk is indeed also known as operating risk, as it is caused by factors that affect the company’s operations.

Dividend is indeed a small component of the total returns from equity.

Stock turnover ratio is calculated using the number of shares traded divided by the number of outstanding free float shares.

The main objective of stock exchanges is to provide liquidity, which refers to the ease of buying and selling shares in the market.

Projection bias refers to projecting recent past experiences or events into the distant future, ignoring the distant past. It involves giving more weight to recent events and not considering historical patterns or trends.

The main measure of liquidity in the traded value turnover ratio is the traded value of the shares.

Stock turnover ratio is calculated by dividing the number of shares traded during a given period by the number of outstanding free float shares.

Herd mentality is a bias where investors follow the investment choices made by others, often due to a belief that others may have better information. This behavior can lead to bubbles and crashes in the market.

Herd Mentality bias can prevent investors from benefiting from market corrections.

The calling feature in bonds is most prevalent when interest rates are expected to fall.

The time frame typically used for calculating the stock turnover ratio is one year.

Traded value turnover ratio measures the liquidity of a stock by dividing the traded value of the shares by the market capitalisation of the company.

Jensen’s Alpha refers to the excess return earned on investment compared to its benchmark.

Systematic risk, also known as undiversifiable risk, refers to risks that impact multiple investment categories and cannot be eliminated through diversification. It is caused by factors that affect the economy or markets as a whole, such as changes in government policy, external factors, wars, or natural calamities. Inflation risk, exchange rate risk, interest rate risk, and reinvestment risk are examples of systematic risks.

The time frame typically used for calculating the stock turnover ratio is one year.

Reinvestment risk arises from the probability that income flows received from an investment may not be able to earn the same interest as the original interest rate. It occurs when intermediate cash flows may be reinvested at a lower return compared to the original investment. Reinvestment rates can be high or low depending on the levels of interest rates at the time when the coupon income is receive

Loss-aversion bias refers to an investor’s tendency to strongly prefer avoiding losses to acquiring gains, and the fear of loss leads to inaction.

The main measure of liquidity in the traded value turnover ratio is the traded value of the shares.

CAGR is computed using the formula: (End Value / Beginning Value)^(1/n) – 1, where n is the holding period in years.

Political risk refers to the risk associated with unfavorable government actions such as nationalization, changes in tax structures, or licensing regulations. Businesses and securities are exposed to political risk because governments have the power to change laws that affect them. Political risk can have a significant impact on the performance of businesses and securities.

Projection bias refers to projecting recent past experiences or events into the distant future, ignoring the distant past. It involves giving more weight to recent events and not considering historical patterns or trends.

The main objective of stock exchanges is to provide liquidity, which refers to the ease of buying and selling shares in the market.

A higher Jensen’s Alpha indicates superior performance.

The Sharpe Ratio measures the risk premium earned per unit of standard deviation.

Herd mentality is a bias where investors follow the investment choices made by others, often due to a belief that others may have better information. This behavior can lead to bubbles and crashes in the market.

Ownership bias, also known as the endowment effect, reflects the tendency to place a higher value on a position than others woul

The gambler’s fallacy is the mistaken belief that if something happens more frequently than normal during some period, then it will happen less frequently in the future, or vice versa, based on past events.

CAGR (Compounded Annual Growth Rate) is the accepted standard measure of return in financial markets.

Anchoring bias is a cognitive bias where individuals rely too heavily on the first piece of information offered when making decisions. Investors may hold on to outdated information, ignoring new information that is available. This bias can impact decision-making, such as holding on to losing stocks in expectation of a price rebound based on past prices, rather than considering current information.

Dividend is indeed a small component of the total returns from equity.

Traded value turnover ratio measures the liquidity of a stock by dividing the traded value of the shares by the market capitalisation of the company.

Unsystematic risk, also known as diversifiable risk, refers to risks that are specific to individual securities or

The investor expects both to preserve the capital invested and earn a return from the investment.

Annualized return converts the return to a uniform period, enabling comparison between investments with different holding periods.

Business risk, also known as operating risk, is the risk inherent in the operations of a company. It is caused by factors that affect the company’s operations, such as the cost of raw materials, employee costs, introduction and position of competing products, marketing and distribution costs, et Holding a diversified portfolio is an efficient way to diversify this risk.

Interest rates and bond prices have an inverse relationship. When interest rates fall, or are expected to fall, bond prices go up. Conversely, when interest rates rise, or are expected to rise, bond prices decline. This relationship exists because investors demand a higher return for taking on the risk of holding a bond when interest rates are higher, and vice vers

Confirmation bias, also called my side bias, is the tendency to search for, interpret, or prioritize information in a way that confirms one’s beliefs or hypotheses.

Liquidity risk refers to the absence of liquidity in an investment. It implies that the investor may not be able to sell their investment when desired, or they may have to sell it below its intrinsic value, or incur high costs to carry out transactions. Investments in assets such as corporate bonds, property, and art are subject to liquidity risk, as finding a buyer and determining the price can be a lengthy process in the absence of an active market.

Stock turnover ratio is calculated by dividing the number of shares traded during a given period by the number of outstanding free float shares.

Compounded return (CAGR) takes into consideration the time value of money and assumes reinvestment of periodic returns.

Sharpe Ratio factors in the difference in risk by measuring the risk premium earned per unit of standard deviation.

The Treynor Ratio calculates the risk premium per Bet

The calling feature in bonds is most prevalent when interest rates are expected to fall.

Country risk refers to the risk related to a country as a whole, where the country may not be able to honor its financial commitments. When a country defaults on its obligations, it can affect the performance of all other securities issued in that country as well as other countries with relations to it. Country risk applies to all types of securities issued in that country.

Reinvestment risk increases when interest rates fall because the reinvestment of periodic cash flows at lower rates will result in lower returns.

Business risk is indeed also known as operating risk, as it is caused by factors that affect the company’s operations.

The winner’s curse refers to the tendency to ensure winning a competitive bid even after overpaying for the asset. While it may be a behavioral win, financially it may result in a loss.

ROI numbers should be used with caution for investments with unknown future returns and for equity and mutual funds.

Market risk refers to the risk of the loss of value in an investment due to adverse price movements in the market. The price of an asset responds to information that impacts its intrinsic value. For example, changes in interest rates or currency exchange rates can affect the market price of bonds or stocks. Market risk primarily affects investments in marketable securities such as equity, bonds, gold, real estate, et

Call risk refers to the possibility that a debt security will be called prior to its maturity. It is most prevalent when interest rates are falling, as companies trying to save money will usually redeem bond issues with higher coupons and replace them with issues with lower interest rates. Call risk usually goes hand in hand with reinvestment risk.

ROI for a single period is calculated as net profit divided by the investment, multiplied by 100.