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NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)

CERTIFICATION EXAM – PRACTICE TEST NO. 4

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TEST DETAILS – The NISM INVESTMENT ADVISER ( LEVEL 1 ) CERTIFICATION EXAM is a 100 mark exam with 60% as
passing marks. In all 100 questions will be asked with 0.25 negative marking for Wrong Answers. The time
duration is 2 hours.

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NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

PRACTICE TEST NO. 4

Question 1 In a defined benefit plan, Returns in the form of pension for an


individual are-
(a) Known
(b) Not Known
(c) Variable
(d) Fixed plus Variable

Question 2 The basic market outlook of an investor who has a long call is _______.
(a) Neutral
(b) Bullish
(c) Bearish
(d) Side Ways Market

Correct Answer 1 Known

Answer In a defined benefit plan, the pension amount or value of retirement benefit is
Explanation known before hand. Or, the formula based on which the pension amount
would be calculated, is known.

Correct Answer 2 Bullish


NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 3 If the real rate of interest is 5% and rate of inflation is 3%, what is the
nominal rate of return?
(a) 8.15%
(b) 7%
(c) 6%
(d) 1.95%

Question 4 The rate at which RBI lends short term money to the Bank is known
as__________ .
(a) Repo Rate
(b) Reverse Repo Rate
(c) Bank Rate
(d) CRR

Correct Answer 3 8.15%

Answer Nominal Rate = (1+Real Rate)*(1+Inflation Rate) - 1


Explanation Nominal Rate = (1+.05)*(1+.03)-1
= 8.15%

Correct Answer 4 Repo Rate


NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 5 The term for the Senior Citizens Saving Scheme is 5 years but a onetime
extension of ______ years is allowed, if applied within one year of its
maturity.
(a) 2
(b) 2.5
(c) 3
(d) 5

Question 6 Which of the following is a simple level plan with savings?


(a) Term Plan
(b) Health Insurance
(c) Motor Insurance
(d) Endowment Plan

Correct Answer 5 3

Correct Answer 6 Endowment Plan

Answer The Endowment plan is a simple level plan which always gives a return on
Explanation premium paid to the insured.
NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 7 Long term capital gain from sale of shares is ____________________.


(a) Taxed at 10%
(b) Taxed at 20%
(c) Exempt from tax
(d) Taxed at 15% with indexation

Question 8 Which organization’s prime responsibility is to manage its own members?


(a) Exchange
(b) SEBI
(c) SRO
(d) IRDA

Correct Answer 7 Exempt from tax

Answer As per section 10(38) Long term capital gain from sale of shares is exempt
Explanation from tax.

Correct Answer 8 SRO

Answer In the developed world, it is common for market players to create Self
Explanation Regulatory Organizations, whose prime responsibility is to regulate their own
members.
NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 9 In an immediate annuity-


(a) Payouts begins immediately after the investment is made.
(b) Payouts begins after the accumulation period is over.
(c) Payouts begin after 5 years
(d) Payouts begin after specific period of time

Question 10 The Securities and Exchange Board of India regulates -


(a) Brokers
(b) Underwriters
(c) Venture Capital Funds
(d) All of the above

Correct Answer 9 Payouts begins immediately after the investment is made.

Correct Answer 10 All of the above

Answer SEBI regulates capital market intermediaries such as stock exchanges,


Explanation brokers, trustees of trust deeds, merchant bankers, bankers to an issue,
underwriters, portfolio managers, mutual funds, depositories, depository
participants, venture capital funds, and alternative investment funds, Foreign
Institutional Investors, custodians and Registrars & Transfer agents in the
country.
NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 11 ______ risk refers to the risk that bond prices will fall in response to
rising interest rates, and rise in response to declining interest rates.
(a) Credit
(b) Interest Rate
(c) Counterparty
(d) Default

Question 12 Commission received from business forms part of income from


___________.
(a) Business and profession
(b) Capital Gains
(c) Salary
(d) Other sources

Correct Answer 11 Interest Rate

Answer Interest rate risk refers to the risk that bond prices will fall in response to
Explanation rising interest rates, and rise in response to declining interest rates.

Correct Answer 12 Business and profession

Answer Commission received from business forms is always to be considered as


Explanation income from business and profession.
NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 13 What is the due date for the filing of Income tax return for an
individual?
(a) 30th September
(b) 31st July
(c) 31st May
(d) 30th April

Question 14 The premium payable on a ULIP is higher for the same sum assured as a
term policy because __________.
(a) The period of cover is shorter
(b) The pool of insured is smaller
(c) A portion of the premium is used for investment
(d) The risk is higher

Correct Answer 13 31st July

Answer 31st July is the due date for filing of returns for individuals.
Explanation

Correct Answer 14 A portion of the premium is used for investment

Answer ULIP is an insurance product that combines protection and investment by


Explanation allowing the policy holder to earn market-linked returns by investing a
portion of the premium money in various proportions in the equity and debt
markets.
Thus, the premium is higher on a ULIP.
NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 15 Investment in government securities issued at a fixed interest rate is


subject to _________.
(a) Business Risk
(b) Credit Risk
(c) Liquidity Risk
(d) Interest Rate Risk

Question 16 What is the maximum exemption amount for gratuity under the Income
Tax Act?
(a) 3 lakhs
(b) 5 lakhs
(c) 10 lakhs
(d) No limit

Correct Answer 15 Interest Rate Risk

Correct Answer 16 10 lakhs

Answer The maximum amount of exemption for gratuity under the income tax act
Explanation under section 10(10) is 10 lakhs.
NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 17 Which among the following would lead to faster depletion of retirement
surplus ?
(a) Current inflation > Projected return
(b) Current return > Current inflation
(c) Projected inflation > Projected Return
(d) Current inflation > Current return

Question 18 In investment decisions, _______ refers to the marketability of the asset.


(a) Value
(b) Profitability
(c) Price
(d) Liquidity

Correct Answer 17 Current inflation > Current return

Answer When the current inflation would be greater than the current return on
Explanation investments, the retirement surplus would be depleting faster as returns would
not be enough to protect against inflation.

Correct Answer 18 Liquidity

Answer Within Investment decisions, liquidity describes the marketability of the


Explanation investment to some extent.
NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 19 What is the right conferred upon the holder of an investment product to
appoint the person entitled to receive the monies in case of the death
known as?
(a) Execution
(b) Nomination
(c) Transfer
(d) Gift

Question 20 A Professional Indemnity Policy protects the insured from the risk
arising out of _____________.
(a) Negligence
(b) Intentional Misconduct
(c) Undisclosed conflict of interest
(d) Misrepresentation of professional competence

Correct Answer 19 Nomination

Answer Nomination is the right conferred upon the holder of an investment product to
Explanation appoint the person entitled to receive the monies in case of the death.

Correct Answer 20 Negligence


NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 21 Which of the following is a requirement for the risk to be insurable?


(a) Large number of exposure units
(b) Determinable and measurable
(c) Accidental and unintentional
(d) All of the above

Question 22 For an individual, which of the following is the amount payable for
advance tax?
(a) 15% by 30th September
(b) 15% by 15th June
(c) 30% by 15th September
(d) 30% by 30th June

Correct Answer 21 All of the above

Correct Answer 22 30% by 15th September

Answer An individual is liable to pay 30% of the advance tax liability by 15th
Explanation September, 60% by 15th December and 100% by 15th March .
NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 23 Which of the following is a capital asset?


(a) Gold Bonds
(b) Jewellery
(c) Stock-in-trade
(d) Apparels

Question 24 In a Post Office Monthly Income Scheme (POMIS), interest rate is –
(a) 8.4% p.a. payable monthly with no bonus on maturity.
(b) 8 % p.a. payable monthly with 10% bonus on maturity.
(c) 8.5% p.a. payable monthly with 10% bonus on maturity.
(d) 8 % p.a. payable monthly with 20% bonus on maturity.

Correct Answer 23 Jewellery

Correct Answer 24 8.4% p.a. payable monthly with no bonus on maturity.

Answer Interest rate is 8.4% p.a. payable monthly with no bonus on maturity.
Explanation
NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 25 Correlation Coefficient of Zero means ___________.


(a) Returns always change in the same direction
(b) Returns always change in the opposite direction
(c) No linear relationship between the returns
(d) None of the above

Question 26 _________ works on the basis of a pre-specified model which does a


mechanical rebalancing between asset classes.
(a) Dynamic Asset Allocation
(b) Strategic Asset Allocation
(c) Tactical Asset Allocation
(d) Periodic Asset Allocation

Correct Answer 25 No linear relationship between the returns

Correct Answer 26 Dynamic Asset Allocation

Answer Dynamic asset allocation (DAA) works on the basis of a pre-specified model
Explanation which does a mechanical rebalancing between asset classes.
NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 27 Interest on a NSC _________.


(a) Is paid out annually
(b) Is compounded and paid out quarterly
(c) Is accumulated and paid at the end of the term
(d) None of the above

Question 28 For a high severity risk, which of the following would be the best option?
(a) Avoid
(b) Retain
(c) Transfer
(d) Reduce

Correct Answer 27 Is accumulated and paid at the end of the term

Answer Interest on NSC -National Savings Certificate, is accrued and paid towards
Explanation the end of the term.

Correct Answer 28 Avoid

Answer High severity risks should always be avoided.


Explanation
NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 29 _____________ invest in stocks of companies undergoing events such as,


a turnaround, merger and acquisition, takeover etc. a.
(a) Special situations funds
(b) Thematic Equity Funds
(c) Sector Funds
(d) Value Funds

Question 30 Beta of the market is always 0.5 .


(a) FALSE
(b) TRUE

Correct Answer 29 Special situations funds

Answer Special situations funds invest in stocks of companies undergoing special


Explanation situations, such as, a turnaround, merger and acquisition, takeover, and the
like.
The idea is to buy these companies when they are under-valued, and make
profits when the share price of such companies rises on the occurrence of the
special event.

Correct Answer 30 FALSE

Answer Beta of the market is always 1 .


Explanation
NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

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NISM SERIES X A : INVESTMENT ADVISER (LEVEL 1)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

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