NISM PMS Dist XXI-A Mock Exam FinanceInsights has created a mock test for the NISM PMS Distributor XXI-A exam. Questions are based on NISM PMS Distributor XXI-A Workbook Version - June 22. This mock test is based on the structure of the PMS Distributor XXI-A exam. There are 80 multiple choice questions carrying 1 mark each and 3 case studies (2 case studies of 5 questions of 1 mark each and 1 case study of 5 questions of 2 marks each), adding to a total of 100 marks. The exam should be completed in 2 hours. The passing score is 60 marks i.e. 60%. There is negative marking of 25% of marks assigned to the question for each wrong answer. Click Next to continue. 1. A security has generated these returns: in year 2017, 15.5%; in year 2018, 9.5%; in year 2019, -6.9%. Calculate the annualized return. 5.60% 5.90% 6.10% 2. Anchor investor means a qualified institutional buyer who makes an application for a value of Rs ______ in a public issue made through the book building process in accordance with Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations. 1 crore 5 crore 10 crore 100 crore 3. Portfolio return = 38%; Market portfolio return = 22%; Tbills rate = 6%; Standard deviation of portfolio = 34%; Standard deviation of market portfolio = 23%. Based on Modigliani and Modigliani measure, has the managed portfolio under-performed or outperformed the market portfolio? Managed portfolio has outperformed market portfolio by 5.6%. Managed portfolio has outperformed market portfolio by 5.9%. Managed portfolio has outperformed market portfolio by 6.2%. 4. The formula for Weighted Average Cost of Capital (WACC) is-- [Cost of equity + Equity / (Equity + Debt)] + [Cost of debt x (1 - Tax) x Debt / (Equity + Debt)] [Cost of equity x Equity / (Equity + Debt)] / [Cost of debt x (1 - Tax) x Debt / (Equity + Debt)] [Cost of equity x Equity / (Equity + Debt)] + [Cost of debt x (1 - Tax) x Debt / (Equity + Debt)] 5. ____________ phase is the stage when investors in their early-to-middle earning years attempt to accumulate assets to satisfy near-term needs, e.g., children's education or down payment on a home. (from NISM) a. Accumulation b. Spending c. Gifting d. Consolidation 6. An investor has invested Rs. 100,000 in a security for five years. Yearly return generated by this investment is as stated above. Calculate the CAGR of this investment. 9.34% 9.43% 9.73% 7. According to Companies Act 2013, an offer to subscribe to securities, made to less than ___ persons, is called private placement of securities. 100 200 300 8. Portfolio return = 38%; Market portfolio return = 22%; Tbills rate = 6%; Standard deviation of portfolio = 34%; Standard deviation of market portfolio = 23%. Based on Modigliani and Modigliani measure, has the managed portfolio under-performed or outperformed the market portfolio? Managed portfolio has outperformed market portfolio by 5.6%. Managed portfolio has outperformed market portfolio by 5.9%. Managed portfolio has outperformed market portfolio by 6.2%. 9. Securities Exchange Board of India (Portfolio Managers) Regulation, 2020 prescribes discretionary portfolio managers to disclose performance using ’____Weighted Rate of Return’ for the immediately preceding three years. Money Time 10. The portfolio manager shall take adequate steps for redressal of grievances of the investors within ________ of the date of the receipt of the complain. a fortnight one month three months 11. Clients' KYC information must be shared with _____ in the manner mentioned in the Rules as per the KYC template for ‘individuals’ finalised by ______. CKYCS; CERSAI CKYCR; CERSAI CKYCR; CERSI 12. Free cash flows to a firm after paying off debt obligations and obligations to preference shareholders is termed as --- FCFE FCFF 13. Annualized standard deviation of portfolio = 7.25%; Annualized return for the portfolio = 15.50%; Risk free rate is 5.50%. Calculate the Sharpe ratio. 1.38 1.42 1.45 14. Two portfolios have given the following returns: 1. HPR of 12% in first year and 9% in second year; 2. HPR of -5% in first year and 25% in second year. Calculate the Geometric Mean Return of each portfolio. 10%; 9% 10.5%; 9.5% 11%; 10% 15. A _______ is an entity that is vested with the responsibility of holding funds and securities of its large clients, typically institutions such as banks, insurance companies, and foreign portfolio investors. depository custodian depository participant 16. The portfolio manager is required to report any suspicious transaction within ________ working days to Financial Intelligence Unit - India. 7 15 30 17. A portfolio has generated a return of 22%. The market benchmark return for the same period is 15%. The beta of the portfolio is 1.5. Treasury bond yield is 6%. Calculate the Jensen Alpha return. 1% 2% 3% 18. Portfolio return = 16.78%; Risk free return = 5.50%; Portfolio beta = 1.2. Calculate the Treynor ratio. 0.094 0.098 1.02 19. An investor achieves 15% pre tax return on XYZ and is subject to capital gains tax of 15%. Calculate post tax return. 12.75% 12.85% 13.05% 20. A portfolio with a high Treynor ratio indicates that it _____risk premium for every unit of market risk. higher lower 21. For KYC purposes, all relevant documents by NRIs must be attested by _____. Consulate office Overseas branches of scheduled commercial banks registered in India Both Either 22. As per fundamental analysis, to decide whether to buy a company's stock, you must compare the market price of the share to its ______. notional value average value intrinsic value 23. What is the expected return of the three stock portfolio described below? (from NISM) Common Stock Weight Expected Return - Ando Inc. 25% 12% Bee Co. 50% 10% Cool Inc. 25% 16% a. 12.44% b. 12.22% c. 12.33% d. 12% 24. _____________ was inserted in the Income Tax Act, 1961 to provide a ‘safe harbour’ to overseas funds availing fund management services from India based managers. (from NISM) a. Section 9A b. Section 11 c. Section 12 d. Section 42 25. NRIs require permission from RBI to open demat account. TRUE FALSE 26. GIPS®️ is a registered trademark owned by _____ Institute. ICAI ICSI CFA 27. The compensation for postponement of consumption is the pure time value of money and is referred as ____ risk-free rate. nominal real 28. An Indian investor has invested Rs. 50 lacs in a US equity fund when Rupee was 70 per US dollar. The fund has generated a return of 15%. During the period rupee appreciated to 65 per US dollar. What is the return investor has made? 6.79% 7.50% 15.05% 29. Cross sectional risk diversification is reducing risk by holding equities _________. across many companies in a single sector in many different kinds of businesses 30. Infrastructure funds are typically categorised as Category __ AIFs. I II III 31. Operating expenses (excluding brokerage) charged by portfolio managers, over and above the fees charged for Portfolio Management Service, cannot exceed ____ per annum of the client’s average daily Assets under Management (AUM). 0.25% 0.50% 1% 32. A bond with a call option gives the ______the right to redeem all or part of the outstanding bonds before the specified maturity date. issuer bond holder 33. Speculative loss can be set off or adjusted against short term capital gains. Unadjusted loss can be carried forward for 8 years. TRUE FALSE 34. An investor has invested Rs. 75,000 in this portfolio by making contributions at the beginning of the year as above. What is the MWRR (Money Weighted rate of return) generated by the portfolio? 13.15% 14.15% 15.15% 35. Which technical analysis method uses normal distribution to calculate the deviation of the market price from the moving average? Trend-Line Analysis Moving-Average Analysis Bollinger-Band Analysis 36. Two portfolios have given the following returns: 1. HPR of 25% in first year and -10% in second year; 2. HPR of 18% in first year and 12% in second year. Calculate the Arithmetic Mean Return of each portfolio. 8%; 15% 9%; 16% 10%; 17% 37. T-bills are issued only by state governments. TRUE FALSE 38. Psychographic analysis of investors reveals their --- a) demographics (age, income, etc.) b) biases (likes, dislikes, etc.) c) irrational behaviour a) and b) b) and c) a) and c) b) and c) all of the above 39. Transfer of GDR (purchased in INR) by a non-resident to a resident is taxed in India as capital gain at the rate of ___. 10% without indexation 20% with indexation normal rates 40. In case of interval funds, the maximum duration of the interval period is -- 5 days 10 days 15 days 41. The Investment Policy Statement (IPS) forms the basis for -- a) strategic asset allocation b) tactical asset allocation both a) and b) 42. Under the typical assumption that a stock’s dividend will grow at a constant rate, what will be the intrinsic value of the stock if D1=Rs. 3, k = 9%, g=6%? (from NISM) a. Rs. 95 b. Rs. 105 c. Rs. 110 d. Rs. 100 43. Which of the following is the function of the secondary markets? (from NISM) a. Provide liquidity for securities issued b. Provide a platform for making public issues c. Provide information about public companies d. All the above 44. The following is not a purpose for which derivatives are used (from NISM) Long term investing Arbitrage Hedging Speculation 45. Calculate the value of a perpetual bond whose parameters are: Coupon is 8%; Face Value is Rs 100 and the investor would like to have an annual yield of 6%. Rs 133.13 Rs 133.33 Rs 133.63 46. Short-term capital loss can be set-off _____ against short term capital gains or long term capital gains only against short term capital gains only against long-term capital gains 47. A PMS company cannot operate in India if it is incorporate outside India. TRUE FALSE 48. Open interest is the total number of ________ derivative contracts. outstanding settled 49. Unlisted preference shares are treated as long-term capital asset if they are held for more than ____ immediately preceding the date of transfer. 12 months 24 months 36 months 50. An Indian company can never be a non-resident person. TRUE FALSE 51. A Limited Liability Partnership (LLP) is termed as a body corporate in respect of offering PMS services. TRUE FALSE 52. A portfolio manager cannot participate in securities lending on behalf of his clients. TRUE FALSE 53. The _________ portfolio manager individually and independently manages the funds of each investor. discretionary non-discretionary 54. Can the liability of a client exceed the value of his portfolio? Yes, if the portfolio manager has used derivatives for speculation Yes, if the portfolio manager has taken loan against the client's shares No 55. As per Section 6(1A) of the Income tax Act, an Indian citizen is deemed as resident in India irrespective of his stay in India if his total income, excluding income from foreign sources, [hereinafter referred to as ‘Indian Income’] exceeds Rs. _____ lakhs during the previous year and he is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature. 15 30 50 56. Credit Default Swaps (CDS) help unbundle _______ risk in a debt security. interest rate credit 57. In case of an index fund scheme or exchange traded fund, the total expense ratio of the scheme including the investment and advisory fees shall not exceed ____ per cent of the daily net assets. 0.75 1.00 1.25 58. Tactical asset allocation (TAA) is ______asset allocation decision. long-term short-term 59. The difference between the yield on a government security and the corporate security for the same maturity is called “____ spread”. credit debit loan risk 60. Alternative Investment Fund or AIF is a ______ pooled investment vehicle which collects funds from sophisticated investors, privately publicly 61. Company specific risks are known as _____ risks. systematic unsystematic 62. The market value of an investor’s portfolio on 1 April, 2017 was Rs.1,00,000. On 31 March, 2019 the market value of the portfolio stood at Rs.1,20,000. The investor received dividend of Rs 5,000 during this period. What is the holding period return of the portfolio? 11.82% 12.50% 25% 63. Any difference in rankings of a portfolio based on Sharpe Ratio and Treynor ratio is due difference in portfolio ______. benchmark diversification return 64. According to Michael Porter, one of the five competitive forces determining the intensity of competition in the industry is -- a) bargaining power of the company b) bargaining power of the supplier c) bargaining power of the buyer a) and b) a) and c) b) and c) all of the above 65. In the secondary markets, trades executed on the exchange are settled through a ______, which acts as a counterparty and guarantees the settlement of the trades to both buyers and sellers. clearing corporation custodian stock exchange 66. A bonus issue once announced can be withdrawn. TRUE FALSE 67. Economic value added (EVA) of a company is calculated as-- EBITDA - cost of capital EBIT - cost of capital net profit - cost of capital 68. Where GDRs are converted into shares of the issuing company, then it shall attract capital gain tax in the hands of the holder of GDRs. TRUE FALSE 69. ___-side Analysts 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. Buy Sell 70. The difference between the yield on a government security and the corporate security for the same maturity is called ________. interest rate spread credit spread rating spread 71. Under the Liberalised Remittance Scheme (LRS) an Indian resident can remit upto USD ____ thousand for investments outside India. 100 250 500 72. Under The Prevention of Money Laundering Act, 2002 (PMLA), every reporting entity has to maintain records of its clients for a period of _____. 6 months 1 year 3 years 5 years 73. A portfolio manager has to periodically report to his client over a period not exceeding _____. 3 months 6 months 1 year 74. As per Capital Asset Pricing Model (CAPM), the cost of equity is computed as -- Risk free rate + Beta / (market rate - risk free rate) Risk free rate + Beta x (market rate - risk free rate) Risk free rate - Beta x (market rate - risk free rate) 75. Calculate the YTM of a bond whose tenure is 10 years, maturity date is 1-Jan-2032, settlement date is 1-Jan-2022, coupon is 8%, Market price is Rs 102, FV is Rs 100 and coupon frequency is semi annual. 7.34% 7.52% 7.71% 76. Under The Prevention of Money Laundering Act, 2002 (PMLA), entities have to maintain records of all cash transactions of the value of more than Rs. ____ or its equivalent in foreign currency. 5 lakh 10 lakh 50 lakh 77. Long-term capital gains arising from the sale of unlisted equity shares shall be taxable at the rate of ____ plus surcharge and health & education cess for non-residents. 10% without indexation 20% with indexation 20% without indexation 78. _____ is viewed as an attractive investment in times of economic uncertainty and geopolitical crisis. Equity Debt Gold 79. Calculate the price of the Government of India bond with the following paramters: Coupon - 7.07%; Date of issue: 8/1/18; Maturity: 8/1/28; Coupon payment: half yearly; Minimum amount: Rs 10,000. Rs 93 Rs 100 Rs 107 80. Bailard, Biehl & Kaiser (BB&K) classifies investor personalities by focusing on two aspects: the level of conscientiousness and the method of action. the level of confidence and the method of action. the level of confidence and the level of inertia. 81. Case Study 1: You are an PMS distributor. You are comparing the performance of various funds. The table above gives you the performance of two funds. Comment on their performance by ranking them on various risk and return measures and ratios. The yield on government bond is 5 percent. 1. Rank the funds on the basis of Sharpe Ratio: a. Rank 1 – Fund A & Rank 2 – Fund B b. Rank 1 – Fund A & Rank 2 – Fund B c. Both the funds have generated the same risk-adjusted return d. Cannot calculate the Sharpe Ratio with the given information 82. Case Study 1: You are an PMS distributor. You are comparing the performance of various funds. The table above gives you the performance of two funds. Comment on their performance by ranking them on various risk and return measures and ratios. The yield on government bond is 5 percent. 2. Calculate the Sharpe Ratio of Fund A. (from NISM) 0.2948 0.4844 0.4048 0.5467 83. Case Study 1: You are an PMS distributor. You are comparing the performance of various funds. The table above gives you the performance of two funds. Comment on their performance by ranking them on various risk and return measures and ratios. The yield on government bond is 5 percent. 3. Calculate the Treynor Ratio of Fund A.(from NISM) 0.0948 0.0048 0.0473 0.0467 84. Case Study 1: You are an PMS distributor. You are comparing the performance of various funds. The table above gives you the performance of two funds. Comment on their performance by ranking them on various risk and return measures and ratios. The yield on government bond is 5 percent. 4. Calculate Sortino ratio for Fund A.(from NISM) 0.09867 0.9845 Cannot calculate Sortino Ratio with the given information 0.6600 85. Case Study 1: You are an PMS distributor. You are comparing the performance of various funds. The table above gives you the performance of two funds. Comment on their performance by ranking them on various risk and return measures and ratios. The yield on government bond is 5 percent. 5. Calculate the Alpha for Fund A. (from NISM) 0.01529208 0.00029208 0.00529208 0.09529208 86. Case Study 2: You are provided with the expected return and standard deviation on the above four assets: 1. If you are a portfolio manager and could invest in only one of the three assets i.e. A, B or C, which one would you pick? (from NISM) A B C Any of them depending upon the risk profile of the investor and investment objectives 87. Case study 2: You are provided with the expected return and standard deviation on the above four assets: 2. If you could combine any of the other three assets with Asset A, which one would you choose?(from NISM) A with B A with C A with D Any of the above 88. Case study 2: You are provided with the expected return and standard deviation on the above four assets: 3. Which of the three assets i.e. B,C & D has the highest Sharpe Ratio? (from NISM) B C D B & C 89. Case study 2: You are provided with the expected return and standard deviation on the above four assets: 4. Within the framework of portfolio theory, would you automatically rule out asset D by dominance, if you could combine it with asset B&C. (from NISM) Yes, as D has the lowest Sharpe ratio Yes, as D has highest standard deviation Yes, as D has lowest return No, information on correlation would be needed before any decision can be made 90. Case study 2: You are provided with the expected return and standard deviation on the above four assets: 5. In what proportion would you combine asset B & C, if you can invest in both of them along with asset A. (from NISM) More than 50 % of asset C as it has higher return More than 50 % of asset B as it has lower standard deviation Depending upon the investment objective Combining B with C will be suboptimal 91. Case study 3: A portfolio manager invested Rs. 100 lakhs of an investor’s wealth in equity shares of 4 companies, A , B, C, and D, and as per the mandate he had to invest equal amounts in each of the stock. The prices of each of the stock at the time of investment was Rs.1000, Rs.500, Rs.200, and Rs.2000. The investor wanted to liquidate the investment at the end of first year. During the year, each of the stocks A,B,C, and D, paid a dividend of Rs.20, Rs.10, Rs.4, and Rs.40 respectively. The prices at which the portfolio manager liquidated the stocks were 1100, 700, 400, and 1600 respectively. The investor has been educated by the Portfolio Manager that he needs to develop his expected return based on CAPM. So the investor collects the necessary information for the estimation. The Betas of the stocks A, B, C, and D are 2.5, 1.2, 1.5, and 2 respectively. The relevant risk free rate for one year investment horizon is 8%, and the market premium is 12% 1. What is the expected rate of return on stocks C and D? from NISM) 14 percent and 16 percent 24 percent and 20 percent 26 percent and 32 percent 14 percent and 32 percent 92. Case study 3: A portfolio manager invested Rs. 100 lakhs of an investor’s wealth in equity shares of 4 companies, A , B, C, and D, and as per the mandate he had to invest equal amounts in each of the stock. The prices of each of the stock at the time of investment was Rs.1000, Rs.500, Rs.200, and Rs.2000. The investor wanted to liquidate the investment at the end of first year. During the year, each of the stocks A,B,C, and D, paid a dividend of Rs.20, Rs.10, Rs.4, and Rs.40 respectively. The prices at which the portfolio manager liquidated the stocks were 1100, 700, 400, and 1600 respectively. The investor has been educated by the Portfolio Manager that he needs to develop his expected return based on CAPM. So the investor collects the necessary information for the estimation. The Betas of the stocks A, B, C, and D are 2.5, 1.2, 1.5, and 2 respectively. The relevant risk free rate for one year investment horizon is 8%, and the market premium is 12%. 2. By how much did stock B exceed the expected return? [Calculate simply based on the return number.] from NISM) 22.40 percent 87.50 percent 19.60 percent 40 percent 93. Case study 3: A portfolio manager invested Rs. 100 lakhs of an investor’s wealth in equity shares of 4 companies, A , B, C, and D, and as per the mandate he had to invest equal amounts in each of the stock. The prices of each of the stock at the time of investment was Rs.1000, Rs.500, Rs.200, and Rs.2000. The investor wanted to liquidate the investment at the end of first year. During the year, each of the stocks A,B,C, and D, paid a dividend of Rs.20, Rs.10, Rs.4, and Rs.40 respectively. The prices at which the portfolio manager liquidated the stocks were 1100, 700, 400, and 1600 respectively. The investor has been educated by the Portfolio Manager that he needs to develop his expected return based on CAPM. So the investor collects the necessary information for the estimation. The Betas of the stocks A, B, C, and D are 2.5, 1.2, 1.5, and 2 respectively. The relevant risk free rate for one year investment horizon is 8%, and the market premium is 12%. 3. What is the expected return of the investor on the entire portfolio, once the investor comes to know about the stocks which the portfolio manager has selected? Round off the answer to two decimal points. from NISM) 15.20 percent 29.10 percent 22.40 percent 29.60 percent 94. Case study 3: A portfolio manager invested Rs. 100 lakhs of an investor’s wealth in equity shares of 4 companies, A , B, C, and D, and as per the mandate he had to invest equal amounts in each of the stock. The prices of each of the stock at the time of investment was Rs.1000, Rs.500, Rs.200, and Rs.2000. The investor wanted to liquidate the investment at the end of first year. During the year, each of the stocks A,B,C, and D, paid a dividend of Rs.20, Rs.10, Rs.4, and Rs.40 respectively. The prices at which the portfolio manager liquidated the stocks were 1100, 700, 400, and 1600 respectively. The investor has been educated by the Portfolio Manager that he needs to develop his expected return based on CAPM. So the investor collects the necessary information for the estimation. The Betas of the stocks A, B, C, and D are 2.5, 1.2, 1.5, and 2 respectively. The relevant risk free rate for one year investment horizon is 8%, and the market premium is 12%. 4. Stock B surpassed the expected rate of return because of? from NISM) The proportion of wealth allocated to each asset it in The market price of its stock The beta of the portfolio Market Premium used in the CAPM 95. Case study 3: A portfolio manager invested Rs. 100 lakhs of an investor’s wealth in equity shares of 4 companies, A , B, C, and D, and as per the mandate he had to invest equal amounts in each of the stock. The prices of each of the stock at the time of investment was Rs.1000, Rs.500, Rs.200, and Rs.2000. The investor wanted to liquidate the investment at the end of first year. During the year, each of the stocks A,B,C, and D, paid a dividend of Rs.20, Rs.10, Rs.4, and Rs.40 respectively. The prices at which the portfolio manager liquidated the stocks were 1100, 700, 400, and 1600 respectively. The investor has been educated by the Portfolio Manager that he needs to develop his expected return based on CAPM. So the investor collects the necessary information for the estimation. The Betas of the stocks A, B, C, and D are 2.5, 1.2, 1.5, and 2 respectively. The relevant risk free rate for one year investment horizon is 8%, and the market premium is 12%. 5. During market boom, which of the above stocks will generate highest return? from NISM) A and D A and B B and D Can't Say Please fill in the comment box below. Share on FacebookTweet Related By Sharmila I am a finance professional; I educate people on how to manage their finances and invest to grow wealth and fulfil their financial goals. View all of Sharmila's posts.

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