UNIT I EQUITY ANALYSIS

Section A —1 Mark Questions:

Q.1. An example of a highly cyclical industry is _________________.

A. The automobile industry
B. The tobacco industry
C. The food industry
D. A and B
E. B and C

Q.2. Demand-side economics is concerned with________________.

A. Government spending and tax levels
B. Monetary policy
C. Fiscal policy
D. A and B
E. A, B, and C

Q.3. The most widely used monetary tool is______________________.

A. Altering the discount rate
B. Altering the reserve requirements
C. Open market operations
D. Altering marginal tax rates
E. None of the above

Q.4. A trough is__________________.

A. A transiti on from an expansion in the business cycle to the start of a contraction
B. A transition from a contraction in the business cycle to the start of an expansion
C. A depression that lasts more than three years.
D. Only something used by farmers to feed pigs and not an investment term
E. None of the above

Q.5. A peak is ____________________.

A. A transition from an expansion in the business cycle to the start of a contraction
B. A transition from a contraction in the business cycle to the start of an expansion
C. A depression that lasts more than three years.
D. Only something used by farmers to feed pigs and not an investment term
E. None of the above

Q.6. GDP refers to __________________.

A. The amount of personal disposable income in the economy.
B. The difference between government spending and government revenues.
C. The total manufacturing output in the economy.
D. The total production of goods and services in the economy
E. None of the above
Q.7. If the economy were going into a recession, an attractive industry to invest in
would be the ____________ industry.
A. Automobile
B. Medical services
C. Construction
D. A and C
E. B and C

Q.8. The stock price index and contracts and new orders for non defense capital
goods are
A. Leading economic indicators.
B. Coincidental economic indicators.
C. Lagging economic indicators.
D. Not useful as economic indicators.
E. None of the above.

Q.9. A firm in the early stages of the industry life cycle will likely have ________
A. High market penetration.
B. High risk.
C. Rapid growth
D. A and C
E. B and C

Q.10. Assume that the government decides to increase the budget deficit. This
action will most likely cause ___________to increase
A. Interest rates
B. Government borrowing
C. Unemployment
D. Both A and B
E. None of the above

Q.11. Supply-side economists wishing to stimulate the economy are most likely to
recommend
A. A decrease in the money supply.
B. A decrease in production output.
C. An increase in the real interest rate
D. A decrease in the tax rate.
E None of the above.

0.12. Which of the following are not examples of defensive industries?

A. Food producers.
B. Durable goods producers.
C. Pharmaceutical firms.
D. Public utilities
E. B and C
Q.13. The industry life cycle is described by which of the following stage(s)?
A. Start-up.
B. Consolidation.
C. Absolute decline.
D. A and B.
E. A, B and C.

Q.14. In the start-up stage of the industry life cycle

A. It is difficult to predict which firms will succeed and which firms will fail.
B. Industry growth is very rapid.
C. Firms pay a high level of dividends.
D. A and B.
E. B and C.

Q.15. A variety of factors relating to industry structure affect the performance of

the firm, including
A. Threat of entry.
B. Rivalry between existing competitors.
C. The state of the economy.
D. A and C.
E. A and B.

Q.16. The process of estimating the dividends and earnings that can be expected
from the firm based on determinants of value is called
A. Business cycle forecasting.
B. Macroeconomic forecasting.
C. Technical analysis.
D. Fundamental analysis.
E. None of the above.

Q.17. A top-down analysis of a firm's prospects starts with

A. An examination of the firm's industry.
B. An evaluation of the firm's position within its industry.
C. A forecast of interest rate movements.
D. An assessment of the broad economic environment.
E. The application of the CAPM to find the firm's theoretical return_

Q.18. During which stage of the industry life cycle would a firm experience stable
growth in sales?
A. Consolidation
B. Relative Decline
C. Maturity
D. Start-up
E. Stabilization
Q.19. According to Michael Porter, there are five determinants of competition. An
example of ____________is when new entrants to an industry our pressure on
prices and profits.
A. Threat of Entry
B. Rivalry between Existing Competitors
C. Pressure from Substitute Products
D. Bargaining power of Buyers
E. Bargaining power of Suppliers

Q.20. The most popular approach to forecasting the overall stock market is to use
A. The dividend multiplier.
B. The aggregate return on assets.
C. The historical ratio of book value to market value.
D. The aggregate earnings multiplier.
E. Tobin's Q.

Q.21. In the dividend discount model, ____________which of the following are not
incorporated into the discount rate?
A. Real risk-free rate
B. Risk premium for stocks
C. Return on assets
D. Expected inflation rate
E. None of the above

Q.22. ____________is equal to the total market value of the firm's common stock
divided by (the replacement cost of the firm's assets less liabilities).
A. Book value per share
B. Liquidation value per share
C. Market value per share
D. Tobin's Q
E. None of the above.

Q.23. _____________ are analysts who use information concerning current and
prospective profitability of firms to assess the firm's fair market value.
A. Credit analysts
B Fundamental analysts
C. Systems analysts
D. Technical analysts
E. Specialists

Q24. Which of the following would tend to reduce a firm's P/E ratio?
A. The firm significantly decreases financial leverage.
B. The firm increases return on equity for the long term
C. The level of inflation is expected to increase to double-digit levels
D. The rate of return on Treasury bills decreases
E. None of the above
Q.25. The dividend discount model
A. Ignores capital gains.
B. Incorporates the after-tax value of capital gains.
C. Includes capital gains implicitly.
D. Restricts capital gains to a minimum.
E. None of the above.

Q.26. Many stock analysts assume that a mispriced stock will

A. Immediately return to its intrinsic value.
B. Return to its intrinsic value within a few days.
C. Never return to its intrinsic value.
D. Gradually approach its intrinsic value over several years.
E. None of the above.

Q.27. The most appropriate discount rate to use when applying a FCFF valuation
model is the _______________.
A. Required rate of return on equity
B. WACC
C. Risk-free rate
D. A or C depending on the debt level of the firm
E. None of the above

Q.28. The____________ stock. is defined as the present value of all cash proceeds
to the investor in the stock.
A. Dividend payout ratio
B. Intrinsic value
C. Market capitalization rate
D. Plowback ratio
E. None of the above

Q.29. All else equal, if there is an increase in the required rate of return, a stock's
value as estimated by the constant growth dividend discount model (DOM) will:
A. Decrease
B. Increase or decrease, depending upon the relationship between ke and ROE.
C. Increase.

Q.30. A company whose stock is selling at a P/E ratio greater than the P/E ratio of a
market index most likely has _____________.
A. An anticipated earnings growth rate which is less than that of the average firm B.
A dividend yield which is less than that of the average firm
C. Less predictable earnings growth than that of the average firm
D. Greater cyclicality of earnings growth than that of the average firm
E. None of the above.
Q.31. Other things being equal, a low ___________would be most consistent with
a relatively high growth rate of firm earnings and dividends.
A. Dividend payout ratio
B. Degree of financial leverage
C. Variability of earnings
D. Inflation rate
E. None of the above

Q32. Because the DDM requires multiple estimates, investors should

A. Carefully examine inputs to the model.
B. Perform sensitivity analysis on price estimates.
C. Not use this model without expert assistance.
D. Feel confident that DDM estimates are correct.
E. Both A and B.

Q.33. Dividend discount models and P/E ratios are used by _____________to try
to find mispriced securities.
A. Technical analysts
B. Statistical analysts
C. Fundamental analysts
D. Dividend analysts
E. Psychoanalysts

Q.34. Low P/E ratios tend to indicate that a company will _________, ceteris
paribus.
A. Grow quickly
B. Grow at the same speed as the average company
C. Grow slowly
D. P/E ratios are unrelated to growth
E. None of the above

Q.35. Technical analysts believe that the current price fully reflects all information.
Because all information is already reflected in the price, it represents the fair
value, and should form the basis for analysis.

Q.36. Another important idea in technical analysis is that history does not trends
to repeat itself.

Q.37. Areas of congestion and previous high above the current price mark the
resistance levels. A break above resistance would be considered bullish.

Q.38. The price relative is a line formed by dividing the security by a benchmark.

Q.39. Technical analysts consider the market to be 80% logical and 20%
psychological.
Q.40. "Bar charts" provide a visual representation of the price activity in a stock
over a given period of time.

0.41. If the stock closes higher than its opening price, a hollow candlestick is drawn
with the bottom of the body representing the opening price and the top of the
body representing the closing price.

Q.42. A Head and Shoulders reversal pattern forms after an uptrend, and its
completion marks a trend________________

Q.43. A double bottom pattern becomes official when the reaction high is
penetrated to the upside, ideally accompanied by expanding _______________

Q.44. The head and shoulders pattern is not complete and uptrend is not reversed
until neckline support is broken. Ideally, this should also occur in a convincing
manner with an expansion in volume.

Q.45, A flag is a small rectangle pattern that slopes against the previous trend. If
the previous move was up, then the flag would slope down.

Q.46. A lone connecting the peaks is horizontal while the line connecting the
troughs rises and converges with the top line as a series of rising troughs meets
resistance at the same level. Volume often remains moderate to low throughout
the formation of the triangle with marked increases on the ______________

Q.47. Rounding Top is a rally to a new high on strong volume, several weeks of
light trade with limited upside progress, several more weeks of light trade with a
decided downward bias, followed by a sharp move lower on strong volume.

Q.48. A rectangle is a continuation pattern that forms as a trading range during a

pause in the trend. The pattern is easily identifiable by four comparable highs and
four comparable lows.

Q.49. Like the head and shoulders bottom which it so closely resembles, the triple
bottom is considered to be a reliable pattern.

0.50. Resistance is the price level at which buying is thought to be strong enough
to prevent the price from rising further.

Q.51. When a resistance level is successfully penetrated, that level becomes a

support level. Similarly, when a support level is successfully penetrated, that level
becomes a resistance level

Q.52. In order to reduce the lag in simple moving averages, technicians often use
exponential moving averages which are also called exponentially weighted moving
averages.
Q.53. A price break upwards through an MA is generally a buy signal, and a price
break downwards through an MA is generally a sell but not a short sell signal.

Q.54. One of the means of using RSI is to look at divergence between price
peaks/troughs and indicator peaks / troughs. If the price makes a new higher peak
but the momentum does not make a corresponding higher peak this indicates
there is less power driving the new price high.

Q.55. On Balance Volume Technical Indicator (OBV) is a momentum technical

indicator that relates current volume to earlier volume levels.

Q.56. The interpretation of Fibonacci Arcs involves anticipating support and

resistance as prices approach the arcs. A common technique is to display both
Fibonacci Arcs and Fibonacci Fan Lines and to anticipate support/resistance at the
points where the Fibonacci studies cross.

Q.57. The third stage of a primary bull market is marked by excessive speculation
and the appearance of deflationary pressures.

Q.58. The practical goal of any analytical method is to identify market lows
suitable for buying (or covering shorts), and market high suitable for selling (or
selling short). The Elliott Wave Principle is not suited to these functions.

Section B — 2 Marks Questions:

Q.59. How many stocks are included in Nifty

A. 20
B. 30
C. 40
D. 50

Q.60. The sensex has 30 scrips like the Dow Jones Industrial Average in the U.S.

Q.61. The composition of the stocks in the index should reflect the market
movement as well as the macroeconomic changes.

Q.62. The market capitalization of the stock indicates the outstanding number of
shares is multiplied by the price.

Q.63. This index is built by India Index Services Product Ltd (IISL) and Credit Rating
Information Services of India Ltd. (CRISIL). The CRISIL has a strategic alliance with
Standard and Poor rating Services. Hence, the index is named as
____________Nifty.
Q.64. In a wealth index the prices are ____________by market capitalization. In
such an index, the base period values are adjusted for subsequent rights and bonus
offers. This gives an idea about the real wealth created for shareholders over a
period of time.

Q.65. A firm in an industry that is very sensitive to the business cycle will likely
have a stock beta_______________
A. Greater than 1.0
B. Equal to 1.0
C. Less than 1.0 but greater than 0.0
D. Equal to or less than 0.0
E. There is no relationship between beta and sensitivity to the business cycle.

Q.66. Assume that the reserve bank decreases the money supply. This action will
cause ______________to decrease.
A. Interest rates
B. The unemployment rate
C. Investment in the economy
D. Trade balance
E. None of the above

Q.67. If the currency of your country is depreciating, the result should be to

______________exports and to ______________imports.
A. Stimulate, stimulate
B. Stimulate, discourage
C. Discourage, stimulate
D. Discourage, discourage
E. Not affect, not affect

Q.68. Increases in the money supply will cause demand for investment and
consumption goods to _____________in the short run and cause prices to
____________in the long run.
A. Increase ,increase.
B. Increase ,decrease
C. Decrease, increase
D. Decrease, increase
E. Be unaffected, be unaffected

Q.69. If interest rates increase, business investment consumer durable

expenditures are likely to _______________
A. Increase, increase
B. Increase, decrease
C. Decrease, increase
D. Decrease, decrease
E. Be unaffected, be unaffected.
Q.70. Fiscal policy generally has a ______________direct impact than monetary
policy on the economy, and the formulation and implementation of fiscal policy is
________________than that of monetary policy.
A. More, quicker
B. More, slower
C. Less, quicker
D. Less, slower
E. Cannot tell from the information given.

Q.71. Which of the following are key economic statistics that are used to describe
the state of the macro economy?
I. Gross domestic product
II. The unemployment rate
III. Inflation
IV. Consumer sentiment
V. The budget deficit

A. I, II, and V
B. I, Ill, and V
C. I, II, and III
D. 1,11,111, and V
E. I, II, III, IV, and V

Q.72. A company paid a dividend last year of $1.75. The expected ROE for next
year is 14.5%. An appropriate required return on the stock is 10%. If the firm has a
plowback ratio of 75%, the dividend in the coming year should be
A. $1.80
B. $2.12
C. $1.77
D. $1.94
E. None of the above

Q.73. Suppose that the average P/E multiple in the oil industry is 20. Dominion Oil
is expected to have an EPS of $3.00 in the coming year. The intrinsic value of
Dominion Oil stock should be _______________
A. $28.12
B. $35.55
C. $60.00
D. $72.00
E. None of the above

Q.74. An analyst has determined that the intrinsic value of Dell stock is $34 per
share using the capitalized earnings model. If the typical P/E ratio in the computer
industry is 27, then it would be reasonable to assume the expected EPS of Dell in
the coming year is________________
A. $3.63
B. $4.44
C. $14.40
D. $1.26
E. None of the above

Q.75. High P/E ratios tend to indicate that a company will ________ceteris paribus.
A. Grow quickly
B. Grow at the same speed as the average company
C. Grow slowly
D. Not grow
E. None of the above

Q.76. The Gordon model

A. Is a generalization of the perpetuity formula to cover the case of a growing
perpetuity.
B. Is valid only when g is less than k.
C. Is valid only when k is less than g.
D. A and B.
E. A and C.

Q.77. You wish to earn a return of 11% on each of two stocks, C and D. Stock C is
expected to pay a dividend of $3 in the upcoming year while Stock D is expected to
pay a dividend of $4 in the upcoming year. The expected growth rate of dividends
for both stocks is 7%. The intrinsic value of stock_________________
A. Will be greater than the intrinsic value of stock D
B. Will be the same as the intrinsic value of stock D
C. Will be less than the intrinsic value of stock D
D. Cannot be calculated without knowing the rate of return
E. None of the above is a correct answer.

Q.78. If the expected ROE on reinvested earnings is equal to k, the multistage DDM
reduces to
A. VO= ( Expected Dividend Per Share in Year 1)/k
B. VO= ( Expected EPS in Year 1)/k
C. VO = (Treasury Bond Yield in Year 11/k
D. VO = (Market return in Year 1)/k
E. None of the above

Q.79. Low Tech Company has an expected ROE of 10%. The dividend growth rate
will be ____________if the firm follows a policy of paying 40% of earnings in the
form of dividends.
A. 6.0%
B. 4.8%
C. 7.2%
D. 3.0%
E. None of the above
Q.80. A preferred stock will pay a dividend of $3.00 in the upcoming year, and
every year thereafter, i.e., dividends are not expected to grow. You require a
return of 9% on this stock. Use the constant growth DDM to calculate the intrinsic
value of this preferred stock.
A. $33.33
B. $0.27
C. $31.82
D. $56.25
E. None of the above

Q.81. Suppose that the average P/E multiple in the oil industry is 16. Mobil Oil is
expected to have an EPS of $4.50 in the coming year. The intrinsic value of Mobil
Oil stock should be__________________
A. $28.12
B. $35.55
C. $63.00 D. $72.00
E. None of the above

Q.82. An analyst has determined that the intrinsic value of IBM stock is $80 per
share using the capitalized earnings model. If the typical P/E ratio in the computer
industry is 22, then it would be reasonable to assume the expected EPS of IBM in
the coming year is _____________
A. $3.64
B. $4.44
C $14.40
D. $22.50
E. None of the above

Q.83. What is the market capitalization rate for Risk Metrics?

A. 13.6%
B. 13.9%
C. 15.6%
D. 16.9%
E. None of the above

Q.84. The market capitalization rate on the stock of Flex Steel Company is 12%. The
expected ROE is 13% and the expected EPS are $3.60. If the firm's plowback ratio is
50%, the P/E ratio will be______________
A. 7.69
B. 8.33
C. 9.09
D. 11.11
E. None of the above

Q.85. A firm has a return on equity of 20% and a dividend payout ratio of 30%. The
firm's anticipated growth rate is _______________
A. 6%
B. 10%
C. 14%
D. 20%
E. None of the above

Q.86. The goal of fundamental analysts is to find securities

A. Whose intrinsic value exceeds market price.
B. With a positive present value of growth opportunities.
C. With high market capitalization rates.
D. All of the above.
E. None of the above.

Q.87. Hammer candlesticks form when a security moves significantly lower after
the open, but rallies to close well above the intraday low.

0.88. Three Black Crows is a bearish reversal pattern consisting of three

consecutive black bodies where each day closes near below the previous low, and
opens within the body of the previous day.

Q.89. This is the third stage of stock movement when intelligent investors who
picked up the scrip early enough begin booking their profits by selling to their
more amateurish brethren who have got into the act late.

Q.90. A _______________is a reversal pattern which occurs following an extended

uptrend. This bearish pattern is named for the pair of peaks which from when price
is unable to achieve a new high. The sell or signal is when price breaks below the
reaction low which formed between the two peaks.

Q.91. The "Average True Range (ATR)" method uses the value of the ATR indicator
to determine where the next _______________should occur.

Q.92. Assume that at the end of the next year, Bolton Company will pay a $2.00
dividend per share, an increase from the current dividend of $1.50 per share. After
that, the dividend is expected to increase at a constant rate of 5%. If you require a
12% return on the stock, the value of the stock is _______________.
A. $28.57
B. $28.79
C. $30.00
D. $31.78
E. None of the above

Q.93. Investors want high plowback ratios

A. For all firms.
B. Whenever ROE > k.
C. Whenever k > ROE.
D. Only when they are in low tax brackets.
E. Whenever bank interest rates are high.

Q.94. Which of the following combinations will produce the highest growth rate?
Assume that the firm's projects offer a higher expected return than the market
capitalization rate.
A. A high plowback ratio and a high P/E ratio
B. A high plowback ratio and a low P/E ratio
C. A low plowback ratio and a low P/E ratio
D. A low plowback ratio and a high P/E ratio
E. Neither the plowback ratio nor the P/E ratio is related to a firm's growth.

Q.95. A stock has a required return of 14% percent, a constant growth rate of 5%
and a retention rate of 60%. The firm's P/E ratio should be:
A. 4.44.
B. 6.66.
C. 5.55

Q.96. The market capitalization rate on the stock of Fast Growing Company is 20%.
The expected ROE is 22% and the expected EPS are $6.10. If the firm's plowback
ratio is 90%, the P/E ratio will be ________________
A. 7.69
B. 8.33
C. 9.09
D. 11.11
E. 50

Section C— 4 Marks Questions:

Q.97. Low Fly Airline is expected to pay a dividend of $7 in the corning year.
Dividends are expected to grow at the rate of 15% per year. The risk-free rate of
return is 6% and the expected return on the market portfolio is 14%. The stock of
low Fly Airline has a beta of 3.00. The intrinsic value of the stock is ____________
A. $46.67
B. $50.00
C. $56.00
D. $62.50
E. None of the above
UNIT II - ALTERNATIVE PRODUCTS IN WEALTH MANAGEMENT

Section A —1 Mark Questions:

Q.1. Which of the following actions will not close a long position in a call option?
1. Selling a call with the same strike price, expiration, and underlying asset.
2. Exercising the call
3. Allowing the calf to expire.
4. Buying a put with the same strike price, expiration, and underlying asset

Q.2. Which of the following is a major difference between swaps and futures
contracts?
1. Swaps are usually marked to market, whereas futures contracts are not.
2. A futures contract involves only one future transaction, whereas a swap typically
involves several future transactions
3. Both (1) & (2)
4. None of the above

Q.3. Suppose you sell a call and buy one share of stock. What is your cash payoff
when the option expires? (Ignore the costs of the call and the share of stock)
1. Receive X if St = X and receive St if St > X
2. Receive St if St = X and receive —(St —X) if St > X
3. Receive (St — X) if St = X and receive X if St > X
4. Receive St if St = X and receive X if St > X

Q.4. Financial derivatives include______________

1. Stocks
2. Bonds
3. Futures
4. All of the above

Q.5. The price specified on an option that the holder can buy or sell the underlying
asset is called the ______________
1. Premium
2. Call
3. Put
4. Strike price

Q6. If a bank has more rate-sensitive assets than rate-sensitive liabilities

1. It reduces interest rate risk by swapping rate-sensitive income for fixed rate
income.
2. It reduces interest rate risk by swapping fixed rate income for rate-sensitive
income
3. It increases interest rate risk by swapping rate-sensitive income for fixed rate
income
4. It neutralizes interest rate risk by receiving and paying fixed-rate streams.

Q.7. A call option written against stock owned by the writer is said to be
1. Naked
2. In the money
3. Out of the money
4. Covered

Q.8. The best way to protect a stock portfolio in a bear market is to____________
1. Buy stock index calls
2. Buy stock index puts
3. Write stock index calls
4. Write stock index puts

Q.9. A combination of one put and one call on the same stock with the same
exercise price and date is known as a________________
1. Strip
2. Strap
3. Straddle
4. Spread

Q.10. A combination of two calls and one put is called a_______________

1. Strip
2. Strap
3. Straddle
4. Spread

Q.11. A call option described as at the money would find______________

1. The market price of the stock is above the strike price
2. The market price of the stock is below the strike price
3. The option has been exercised
4. The market price of the stock equals the strike price

Q.12. As the volatility of the stock price increases, the option

premium______________
1. Decreases
2. Is worthless
3. Increases
4. Doesn't change

Q.13. Interest rate swaps are _______________

1. Exchanges of equity securities for debt securities.
2. Agreements between two counterparties to exchange interest rate payments over
some future period
3. Agreements involving swapping of option contracts
4. Agreements that allow both counterparties to convert floating interest rates to
fixed interest rates

Q.14. The primary risk(s) in swaps is________________

1. Interest rates will not change
2. One of the parties will default
3. They are highly liquid and the market price will change
4. All of the above

Q.15. Considering interest rate swaps, the swap rate is____________

1. The benchmark rate plus a premium
2. The rate being offered on U.S. Treasury securities of similar maturities
3. Another name for the swap spread
4. A measure of overall risk in the economy

Q.16. Unlike mutual funds, hedge funds_____________

1. Allow private investors to pool assets to be managed by a fund manager.
2. Are commonly organized as private partnerships
3. Are subject to extensive SEC regulations
4. Are typically only open to retail investors

Q.17. The risk profile of hedge funds_________ , making performance

evaluation_________________
1. Can shift rapidly and substantially; challenging
2. Can shift rapidly and substantially; straightforward
3. Is stable; challenging
4. Is stable; straightforward

Q.18. Hedge funds are____________ transparent than mutual funds because of

______________ strict SEC regulation on hedge funds
1. More; More
2. More; Less
3. Less; Less
4. Less; More

Q.19. A hedge fund pursuing a ________________strategy is attempting to exploit

temporary misalignments in relative pricing
1. Directional
2. Non-directional
3. Stock or bond
4. Arbitrage or speculation
Q.20. A hedge fund attempting to profit from a change in the spread between
mortgages and Treasuries is using a _____________ strategy
1. Market neutral
2. Directional
3. Relative value
4. Divergence

Q.21. Hedge funds exhibit a pattern known as a

1. January effect
2. Santa effect
3. Size effect
4. Book-to-market

Q.22. With regard to hedge funds, '2 and 20' is best explained as____________
1. 2 year lock-up and 20 per cent commission
2. 2 per cent annual fee and 20 per cent performance fee
3. 2 per cent commission and 20 month lock-up
4. 2 per cent performance fee and $20m high-water mark

Q.23. Which one of the following definitions of hedge fund strategies is not
correct?
1. Arbitrage takes advantage of pricing anomalies in the prices of the same or similar
financial instruments
2. A market neutral strategy aims to make a return regardless of how overall market
prices move
3. Fixed income arbitrage makes a return by looking at similar fixed income
instruments and working out which rise in price
4. Relative value exploits price differentials in identical financial instruments

Q.24. A business angel is best described in which one of the following statements?
1. A philanthropic benefactor of a firm who supports the firm with cash injections to
enable it to pursue goals other than shareholder wealth maximisation
2. A friendly firm which agrees to a merger with a company so that another firm
cannot take control of that company
3. A wealthy individual, generally with substantial business and entrepreneurial
experience, who invests primarily in start-up, early stage or expanding firms
4. A person with an extensive knowledge of business who is hired for the purpose of
taking control of a firm in very poor circumstances

Q.25. Which one of the following statements is untrue?

1. A management buyout occurs when a company is dissatisfied with its
management team and pays them to leave the company
2. Companies financed by private equity or venture capital may be sold on to
another private equity investor or venture capitalist.
3. Venture capital finance usually refers to start up capital for companies in their
early days
4. Venture capital projects often fail and the venture capital is lost

Q.26. L.M.E. usually refers to ____________

1. London Metro Exchange
2. London Minerals Exchange
3. London Metal Exchange
4. Local metal exchange of India

Q.27. A private equity firm invests 30 million of equity into a business and later
sells the company, realizing 75 million proceeds
1. 3.5X
2. 2X
3. 4X
4. 2.5X

Q.28. Conventional small businesses have an easier time obtaining external equity
capital than high-technology firms.
1. True
2. False

Q.29. In private venture capital firms, limited partners provide the funding and the
general partner manages the fund
1. True
2. False

Q.30. There is less risk involved in financing a business's early operations,

therefore, lower rates of return are expected
1. True
2. False

Q.31. To attract venture capital funding, an investment must have significant

capital appreciation potential
1. True
2. False

Q.32. Early stage financing is typically

1. Easier to obtain than expansion financing
2. Called seed or start-up capital
3. Where venture capitalists are highly involved
4. Used as working capital to support initial growth

Q.33. Which type of risk-capital market is available as a funding source only for
high-potential ventures?
1. Informal risk capital market
2. Private venture capital companies
3. Small business investment companies
4. Public equity market
Q.34. The objectives of venture capitalists and entrepreneurs
1. Are the same
2. Are frequently at odds
3. Are brought into sync by common problems
4. None of the above

Q.35. In the venture-capital process, _______ is (are) absolutely essential for

preliminary screening
1. Debt financing
2. A business plan
3. A sales-orientation
4. Endowment funds

Q.36. The due diligence phase of the venture-capital process includes

1. Outlining the principle terms
2. A detailed review of the company's history
3. Preparation of an investment memorandum
4. A preliminary study of the business plan

Q.37. The valuation approach that gives the lowest value of the business is
1. Book value
2. Liquidation value
3. Present value of future cash flows
4. Earnings approach

Q.38. Venture capitalists provide financing for new firms from the seed and start-
up stage all the way to mezzanine and bridge financing. In exchange for financing,
entrepreneurs give:
1. Control to a court appointed trustee.
2. A high interest rate debt instrument and control.
3. An equity position and usually board of director positions
4. High salaries to venture capitalists as CEOs and CFOs.

Q.39. The fact that companies often falter because the people who start the firms
can't adjust quickly enough to their new roles and because the firma lacks a 'track
record" with outside buyers and sellers, is referred to as the:
1. Load of newness
2. Burden of novelty
3. Liability of newness
4. Burden of freshness

Q.40. A would-be acquirer's offer to buy stock directly from shareholders is

referred to as __________
1. A white knight
2. A joint venture
3. A tender offer
4. A takeover
 Section A - 2 Marks Questions:

Q.41. Venture Capitalist is not interested in keeping his investment in the project
on a __________ basis
1. Permanent
2. Temporary
3. Seasonal
4. None of the above

Q.42. Securitized assets carry a unique form of risk called _______

1. Default risk
2. Inflation risk
3. Interest-rate risk
4. Prepayment risk

Q.43. In some instances, a bank will sell loans and agree to give the loan purchaser
recourse to the seller for all or a portion of those loans that become delinquent. In
this case, the purchaser, in effect, gets a _________
1. Call option
2. Put Option
3. Forward Contract
4. Futures Contract

Q.44. When two banks simply agree to exchange a portion of their customers' loan
repayments, they are using _________
1. A credit option
2. A standby letter of credit
3. A credit linked note
4. A credit swap

Q.45. Which of the following is a risk of using credit derivatives?

1. Credit derivatives do not protect against credit risk exposure
2. The partner in the swap or option contract may fail to perform
3. Regulators may decide to lower the amount of capital needed for banks using
these derivatives
4. Regulators may decide that these derivatives make the bank more stable and
efficient.

Q.46. A bank is about to make a $50 million project loan to develop a new oil field
and is worried that the petroleum engineer's estimates of the yield on the field are
incorrect. The bank wants to protect itself in case the developer cannot repay the
loan. Which type of credit derivative contract would you most recommend for this
situation?
1. Credit linked note
2. Credit option
3. Credit risk option
4. Total return swap
Q.47. A bank plans to offer new subordinated notes in the open market next
month but knows that its credit rating is being reviewed by a credit rating agency.
The bank wants to avoid paying sharply higher credit costs. Which type of credit
derivative contract would you most recommend for this situation?
1. Credit linked note
2. Credit option
3. Credit risk option
4. Total return swap

Q.48. A bank is concerned about excess volatility in its cash flows from some
recent business loans it has made. Many of these loans have a fixed rate of interest
and the bank's economics department has forecast a sharp increase in interest
rates. The bank wants more stable cash flows. Which type of credit derivative
contract would you most recommend for this situation?
1. Credit linked note
2. Credit option
3. Credit risk option
4. Total return swap

Q.49. A bank has a limited geographic area. It would like to diversify its loan
income with loans in other market areas but does not want to actually make loans
in those areas because of their limited experience in those areas. Which type of
credit derivative contract would you most recommend for this situation?
1. Credit swap
2. Credit linked note
3. Credit option
4. Credit risk option

Q.50. The principal sellers of credit derivatives include all of the following except:
1. Insurance companies
2. Securities dealers
3. Fund management firms
4. Banks

Q.51. Loans that are to be securitized pass to _______. This helps ensure that if the
lender goes bankrupt it does not affect the credit status of the pooled loans
1. The originator
2. The special purpose entity
3. The trustee
4. The servicer

Q.52. When an issuer of securitized loans divides them into different risk classes or
tranches, they are providing an:
1. Internal credit enhancement
2. External credit enhancement
3. Internal liquidity enhancement
4. External liquidity enhancement

Q.53. When an issuer of securitized loans includes a standby letter of credit with
the securitized loans, they are providing an:
1. Internal credit enhancement
2. External credit enhancement
3. Internal liquidity enhancement
4. External liquidity enhancement

Q.54. When an issuer of securitized loans sets aside a cash reserve to cover loan
defaults, they are providing an:
1. Internal credit enhancement
2. External credit enhancement
3. Internal liquidity enhancement
4. External liquidity enhancement

Q.55. In a collateralized mortgage obligation (CMO) a tranche:

1. Promises a different return (coupon) to investors
2. A liquidity enhancement
3. Carries a different risk exposure
4. 1 and 3 above

Q.56. Regular collateralized debt obligations (CDO) have been surpassed by:
1. Credit swaps
2. Credit options
3. Credit default swaps
4. Synthetic collateralized debt obligations

Q.57. What is the advantage of credit swaps for each partner?

1. Broaden the number of markets
2. Broaden the variety of markets from which they collect loan revenues and
principal
3. Spread out the risk in the loan portfolio
4. All of above

Q.58. Which of the following is a characteristic of a single-tranche collateralized

debt obligation (CDO)?
1. The entire portfolio risk is transferred to the investors
2. Typically, the structure incorporates credit default swaps (CDSs)
3. The structure has very limited customization potential
4. All of above

Q.59. A client has transferred her assets from a separate account into a fund of
funds' commingled pool. Which of the following most accurately describes the
likely effects of this transition on the risk profile of the client's portfolio?
1. Increased transparency and increased operational risk
2. Increased transparency and decreased operational risk
3. Decreased transparency and increased operational risk
4. Decreased transparency and decreased operational risk

Q.60. Which of the following statements about the Alternative Investment Market
(AIM) is not correct?
1. The AIM is a stepping stone for companies planning a full listing in the future
2. No minimum trading record is required in order to obtain an AIM listing
3. The most popular listing method on the AIM is an offer for sale at fixed price.
4. The AIM has lower compliance costs compared to a full listing

Q.61. Which of the following is TRUE of mezzanine debt?

1. Mezzanine debt is senior to debt represented by bank loans
2. Mezzanine debt typically has an equity kicker
3. Mezzanine financing is used to provide temporary, short/term operational cash
4. Mezzanine debt tends to attract the most capital in a robust economy

Q.62. The management company of a venture capital fund generally receives a

fixed fee and a share of the profits, called:
1. Carried interest
2. Spread
3. Private equity
4. Mezzanine financing

Q.63. Wealthy individuals who invest in the new companies are known as _______
1. Angel investors
2. Presidential candidates
3. Stakeholders
4. Financial Gurus

Q.64. For every ten first-stage venture capital investments only two or three may
survive as successful, self-sufficient businesses
1. True
2. False

Q.65. A venture capital fund manager raised $75 million in committed capital. $25
million was actually invested in start-ups in Year 1, and an additional $15 million
was invested in start-ups in Year 2. The management fee was set at 2%. What
management fees did the limited partners pay in Years 1 and 2, respectively?
1. $ 0.5 million; $ 0.3 million
2. $ 0.5 million; $ 0.8 million
3. $ 0.8 million; $ 0.8 million
4. $ 1.5 million; $ 1.5 million
 UNIT III BEHAVIORAL FINANCE IN WEALTH MANAGEMENT

Section A —1 Mark Questions:

State which of these statements are correct

Q.1. EMH assumes that

A. Transaction costs are zero
B. Markets are not segmented
C. Easy (even unlimited) entry into the security market exists
D. Easy exit from the markets
E. All of the above

Q.2. Social investing is

A. Investing in social projects
B. Investing in green projects
C. Investing in tobacco projects

Q.3. Mispricing in security prices are explained by

A. Cognitive psychology applied to financial markets
B. Behavioral finance
C. Modern finance
D. A & B
E. None of the above

Q.4. Bounded rationality takes into account the

A. Cognitive limitations of the decision maker
B. Limitations of both knowledge & computational capacity
C. Is a central theme in behavioral approach
D. All of the above

Q.5. Prospect theory was propounded by

A. Daniel Kahneman
B. Amos Tversky
C. Richard Thaler
D. A & B
E. None of the above

Q.6. Behavioral finance explains why share prices will change

A. When fundamentals change
B. Even though the fundamentals don't change
C. Financial indicators change
D. None of the above

Q.7. Prospect theory states that

A. Gains are more powerful
B. Losses are painful
C. Losses are more painful than happiness from gains.
D. None of the

Q.8. Behavioral finance is study of the

A. Influence of psychology
B. Influence of economics
C. A mixture of psychology and economics

Q.9. Investors are assumed to be rational and thus will select a portfolio
A. Lying on the indifference curve
B. Lying on utility curve
C. Lying on the efficient frontier
D. Where indifference curve intersects the efficient frontiers

Q.10. In general people tend to avoid loss or risk and that is why it is commonly
said that an investor is
A. Risk averter
B. Risk assumer
C. Risk inviter
D. All of the above

Q.11. Investors may react to________ and hence may trade on "noise" rather than
information.
A. Irrelevant information
B. Relevant information
C. Optimal information
D. Inside information

Q.12. Herding implies that managers may select stocks that other managers select
to avoid "falling behind" and "looking bad".
A. True
B. False

Q.13. People often use judgmental.

A. Technical
B. Mechanical
C. Fundamental
D. Heuristics

Q.14. 1st Statement People exhibiting regret aversion avoid taking decisive actions
because they fear that in hindsight whatever course they select will prove less than
optimal. 2nd Statement It implies that anticipation of a future regret can influence
current decision.
A. 1st statement is correct
B. 2nd statement is correct
C. Both are correct
D. None is correct

Q.15. Representativeness implies making decisions based on a small sample size,

or recent history. Therefore when applied to investments it may lead to
overreaction to __________ stocks.
A. Glamour
B. Bad
C. Volatile
D. Docile

Q.16. Much of economic and financial theory is based on the notion that
individuals act __________ and consider all available information in the decision-
making process.
A. Rationally
B. Irrationally
C. Sensibly
D. A & C
E. None of these

Q.17. Market frequently misprices stocks. This mispricing was most often is caused
by human nature of fear and _________
A. Greed
B. Happiness
C. Enjoyment
D. Rationality

Q.18. People have the tendency to believe that the accuracy of their __________
increases with more information?
A. Ability
B. Forecasts
C. Confidence
D. None of these

Q.19. Behavioral finance states that markets always have Prices and there are No
Free Lunches?
A. Correct
B. Incorrect
C. Rational
D. A & C
E. None of these

Q.20. Investors have a tendency to assign too much importance to routine

___________ fluctuations in the market.
A. Price
B. Volume
C. Quantity
D. All of these
Q.21. Strong form of efficiency of stock prices reflect all relevant information
including ___________ information.
A. Insider
B. External
C. Irrelevant
D. Relevant
Section B — 2 Mark Questions:

Q.22. __________ is based on the theories which describe people for the most
part behave logically and rationally?
A. Conventional finance
B. Behavioral Finance
C. Standard Finance
D. None of these

Q.23. Which of the major contributors to the field ________ are Drs. Daniel
Kahneman and Amos Tversky, and economist, Richard Thaler?
A. Finance
B. Biology
C. Psychologists
D. None of these

Q.24. __________ is considered one of the most controversial branches in the

New Finance area and is gaining wider attention from financial economic
community both academically and professionally.
A. Conventional finance
B. Behavioral Finance
C. Standard Finance
D. None of these

Q.25. Standard finance people are modelled as "rational", whereas behavioral

finance people are modelled as ______________
A. Normal
B. Fine
C. Lazy
D. None of these

Q.26. _________ describes the relationship between risk and expected return, and
it serves as a model for the pricing of risky securities
A. Behavioral Finance
B. Capital asset pricing model (CAPM)
C. Efficient market hypothesis (EMH)
D. None of these
Q.27. Much of our behaviour is strongly influenced by __________ people's
behaviour
A. Scientists
B. Relative
C. Others
D. None of these

Q.28. Investors may __________ their skills; attributing success to ability they
don't possess and seeing order in information or data where it doesn't exist.
A. Underestimate
B. Overestimate
C. Confident
D. None of these

Q.29. ____________ refers to the tendency for people to separate their money
into separate accounts based on a variety of subjective criteria, like the source of
the money and intent for each account.
A. Framing
B. Overconfidence
C. Mental Accounting
D. None

Q.30. Conventional theories presume that investors____________ and behavioral

finance presumes that they ___________
A. Are irrational; are irrational
B. Are rational: may not be rational

Q.31. Study of behavioral finance can help practitioners in recognizing their own
__________ and those of others and understand the reasons for mistakes.
A. Mistakes
B. Abilities
C. Misbehaviour
D. None of these

Q.32. People are fearful of ambiguous situations where they feel that they that
have _____________ information about possible outcomes.
A. Incomplete
B. Relevant
C. Irrelevant
D. Sensible

Q.33. ___________ is considered one of the most controversial branches in the

New Finance area and is gaining wider attention from financial economic
community both academically and professionally.
A. Behavioral Finance
B. Conventional finance
C. None of these
D. Standard Finance
Q34. Psychologists have found that people who make decisions that turn out badly
blame themselves more when that decision was unconventional. The name for this
phenomenon is
A. Regret avoidance
B. Framing
C. Mental accounting
D. Overconfidence
E. Obnoxicity

Q.35. Prospect theory states that attitudes to risk are

A. Not symmetric
B. Symmetric
C. Congruent
D. Non congruent
E. None of these

Q.36. Studies of closed-end funds find_________ which_______ the EMH.

A. Prices at a premium to NAV; is consistent with
B. Prices at a premium to NAV; is inconsistent with
C. Prices at a discount to NAV; is consistent with
D. Prices at a discount to NAV; is inconsistent with
E. B and D

Q.37. The disposition effect of prospect theory states that

A. Investors are predisposed to sell past winners in preference to past losers
B. Investors are predisposed to buy past winners in preference to current losers
C. Investors are predisposed to sell winners in stocks in preference to past losers in
bonds
D. Investors are predisposed to buy past winners in bonds in preference to past
losers of stocks.

Q.38. Investors may _________ their skills; attributing success to ability they don't
possess and seeing order in information or data where it doesn't exist
A. Underestimate
B. Overestimate
C. Confident
D. None of these

Q.39. Historically, stocks in general and small stocks in particular have delivered
abnormally high return during a particular. This calender month normally is known
as "effect"
A. January
B. December
C. September
D. Black September

Q.40. The anomalies literature _____________

A. provides a conclusive rejection of market efficiency
B. provides a conclusive support of market efficiency
C. suggests that several strategies would have provided superior returns
D. A and C
E. none of the above

Q.41. Behavioral finance argues that __________

A. even if security prices are wrong it may be difficult to exploit them
B. the failure to uncover successful trading rules or traders cannot be taken as proof
of market efficiency
C. investors are rational
D. A and B
E. all of the above

Q.42. Markets would be inefficient if irrational investors and efficient if

arbitragers were ___________
A. Existed; unlimited
B. Did not exist; unlimited
C. Existed; limited
D. Did not exist; limited
E. None of the above

Q.43. Reseracher report that men trade__________ frequently than women and
the frequent trading leads to_______ returns.
A. Less; superior
B. Less; inferior
C. More; superior
D. More; inferior
E. None of the above

Q.44. Conservatism implies that investors are too __________in updating their
beliefs in response to new evidence and that they initially _______to news.
A. quick; overreact
B. quick; under react
C. slow; overreact
D. slow; under react
E. none of the above

Q.45. If information processing were perfect, many studies conclude that

individuals would tend to make________ decision using that information due
to_________
A. less-than-fully rational; behavioral biases
B. fully rational; behavioral biases
C. less-than-fully rational; fundamental risk
D. fully rational; fundamental risk
E. fully rational; utility maximization
Q.46. The assumptions concerning the shape of utility functions of investors differ
between conventional theory and prospect theory. Conventional theory assumes
that utility functions are________ whereas prospect theory assumes that utility
functions are___________
A. concave and defined in terms of wealth; s-shaped (convex to losses and concave
to gains) and defined in terms of loses relative to current wealth
B. convex and defined loses relative to current wealth; s-shaped (convex to losses
and concave to gains) and defined in terms of loses relative to current wealth
C. s-shaped (convex to losses and concave to gains) and defined in terms of loses
relative to current wealth; concave and defined in terms of wealth
D. s-shaped (convex to losses and concave to gains) and defined in terms of wealth;
concave and defined in terms of loses relative to current wealth
E. convex and defined in terms of wealth; concave and defined in terms of gains
relative to current wealth

Q.47. People forget or overlook what they knew and when they knew it. This is
also called ___________?
A. Anchoring
B. Hindsight
C. Framing
D. None of these

Q.48. Many events in the stock markets are based on little information. If decisions
are made on the basis of very limited information by more and more investors
an_____________ is created?
A. Crowd
B. Group pressure
C. Information cascades
D. None of these

Q.49. Ramesh Kumar Gupta has been inherited by 10 crore worth of stocks from
his father. He has looked at the value of the stocks going up as well as going down.
Some of the stocks are really very bad. But he ignores their values. This bias is
referred to as.
A. Reciprocity
B. Endowment bias
C. Momentum
D. None of these

0.50. The efficient market hypothesis ___________

A. implies that security prices properly reflect information available to investors
B. has little empirical validity
C. implies that active traders will find it difficult to outperform a buy-and-hold
strategy
D. B and C
E. A and C
Q.51. Passive investors are:
A. Those investors who remain passive during boom times.
B. Those investors who remain passive during bearish time
C. Those investors who have become wealthy passively by inheritance
D. Those investors who risk their own capital rather than the capital of others.
E. A & b

Q.52. Cognitive errors are the result of

A. Faulty reasoning
B. Lack of information
C. Inability to evaluate information
D. Can be mitigated with education
E. All of the above

Q.53. Kahneman and Tversky (1973) report that_______ and________

A. people give too little weight to recent experience compared to prior beliefs; tend
to make forecasts that are too extreme given the uncertainty of their information
B. people give too much weight to recent experience compared to prior beliefs; tend
to make forecasts that are too extreme given the uncertainty of their information
C. people give too little weight to recent experience compared to prior beliefs; tend
to make forecasts that are not extreme enough given the uncertainty of their
information
D. people give too much weight to recent experience compared to prior beliefs; tend
to make forecasts that are not extreme enough given the uncertainty of their
information
E. none of the above

Q.54. The assumptions concerning the shape of utility functions of investors differ
between conventional theory and prospect theory. Conventional theory assumes
that utility functions are___________ whereas prospect theory assumes that utility
functions are_________
A. concave and defined in terms of wealth; s-shaped (convex to losses and concave
to gains) and defined in terms of loses relative to current wealth
B. convex and defined loses relative to current wealth; s-shaped (convex to losses
and concave to gains) and defined in terms of loses relative to current wealth
C. s-shaped (convex to losses and concave to gains) and defined in terms of loses
relative to current wealth; concave and defined in terms of wealth
D. s-shaped (convex to losses and concave to gains) and defined in terms of wealth;
concave and defined in terms of loses relative to current wealth
E. convex and defined in terms of wealth; concave and defined in terms of gains
relative to current wealth

Q.55. Studies of Siamese twin companies find _________ which______ the EMH.
A. correct relative pricing; supports
B. correct relative pricing; does not support
C. incorrect relative pricing; supports
D. incorrect relative pricing; does not support
E. none of the above

Q.56. Studies of closed-end funds find _______which_______ the EMH.

A. prices at a premium to NAV; is consistent with
B. prices at a premium to NAV; is inconsistent with
C. prices at a discount to NAV; is consistent with
D. prices at a discount to NAV; is inconsistent with
E. B and D

Q.57. Prospect theory states that attitudes to risk are

A. Not symmetric
B. Symmetric
C. Congruent
D. Non congruent
E. None of these

Q.58. The disposition effect of prospect theory states that

A. Investors are predisposed to sell past winners in preference to past losers
B. Investors are predisposed to buy past winners in preference to current losers
C. Investors are predisposed to sell winners in stocks in preference to past losers in
bonds
D. Investors are predisposed to buy past winners in bonds in preference to past
losers of stocks.

Q.59. Daniel Kahneman received noble prize for

A. Retrospect theory
B. Prospect theory
C. Portfolio theory
D. EMH
E. None of these.

Q.60. "people's enjoyment of the thrill activity." Is a statement given by?

A. Kahneman
B. thaler
C. Daniel dorn
D. Davin shanthikumar
E. None of these

Q.61. What does this pattern reflect?

A. Technical uptrend
B. Technical down trend
C. Prices react to information
D. Flow of information is random
E. A and b
F. C and d

Q.62. Semi-strong hypothesis of stock prices

A. Subsumes weak form since price data is publicly available
B. Assumes rational investors seek information impound quickly.
C. Result: prices may rise or fall with few trades: - few chances to make money
D. Quite a bit of information such as stock split and earnings information are
impounded quickly
E. All of the above

Q.63. Representativeness implies drawing conclusions from

A. Too little data
B. Too big data
C. Average data
D. No data
E. None of the above.

Q.64. Behavioral Finance is the study of how emotions and mental errors can cause
A. Stocks and bonds to be only overvalued.
B. Stocks and bonds to be only undervalued.
C. Stocks and bonds to be overvalued or undervalued.
D. A and B

Q.65. Individuals allocate wealth to separate mental compartments and ignore

fungibility and correlation effects. This process is known as
A. Mental accounting
B. Financial accounting
C. Management accounting
D. Behavioral accounting

Q.66. Individuals make decisions in a way that allows them to avoid feeling
emotional pain in the event of an adverse outcome. It is known as
A. Cognitive aversion
B. Regret aversion
C. Regressive perversion
D. Anchoring

Q.67. Strong form of efficiency of stock prices reflect all relevant information
including________________ information.
Q.68. In Sample Neglect and Representativeness_people do not take into
consideration the _________ of the sample and its representativeness.

Q.69. Study of behavioral finance can help practitioners in Recognizing their own
_____________ and those of others and Understand the reasons for mistakes to
Avoid mistakes.

Q.70. Behavioral finance research focuses on how ___________ make decisions to

buy and sell securities, and how they choose between alternatives.

Q.71. Market Efficiency has two meanings first Price equals (fundamental) value.
And second you cannot____________ the market (so buy and hold).

Q.72. Behavioral finance is the study of how _________ affects financial decision
making and financial markets

Q.73. In psychology, heuristics are simple, efficient rules, hard-coded by

evolutionary processes or learned, which have been proposed to explain how
people make decisions, come to judgments, and solve problems, typically when
facing complex problems or __________ information.

Q.74. The concept of __________ is based on a large body of evidence from

cognitive psychological experiments and surveys showing that individuals
overestimate their own abilites or knowledge as well as the precision of their
information.

Q.75. Anchoring is a phenomenon in which, in the absence of better information,

investors assume __________ are about right.

Q.76. People are fearful of ambiguous situations where they feel that they that
have____________ information about possible outcomes

Q.77. The utility function is concave for gains. This means that people feel good
when they gain, but_________ the gain does not make them feel twice as good.

Q.78. Investors have a tendency to assign too much importance to routine

______________fluctuations in the market.

Q.79. People are bad at computation when making decisions .They put undue
weight on__________ events and too little on far-off one.

Q.80. We like to think we have control over situations, so we often assume that
when something happens to someone it must be their fault: - rather than it being
an unfortunate __________ event.
 Section C — 4 Marks Questions:

Q.81. Behavioral finance and behavioral economics are closely related fields which
apply scientific research on human and social cognitive and emotional biases to
better understand economic decisions and how they affect market prices, returns
and the allocation of resources.
A. True
B. False

Q.82. The premise of behavioral finance is that

A. Conventional financial theory ignores how real people make decisions and that
people make a difference.
B. Conventional financial theory considers how emotional people make decisions but
the market is driven by rational utility maximizing investors.
C. Conventional financial theory should ignore how the average person makes
decisions because the market is driven by investors that are much more sop than the
average person.
D. B and C
E. None of the above

Q.83. Some economists believe that the anomalies in literature are consistent with
investors________ and __________.
A. Ability to always process information correctly and therefore they infer correct
probability distributions about future rates of return; given a probability distribution
of returns, they always make consistent and optimal decisions
B. Inability to always process information correctly and therefore they infer incorrect
probability distributions about future rates of return; given a probability distribution
of returns, they always make consistent and optimal decisions
C. Ability to always process information correctly and therefore they infer correct
probability distributions about future rates of return; given a probability distribution
of returns, they often make inconsistent or suboptimal decisions
D. Inability to always process information correctly and therefore they infer incorrect
probability distributions about future rates of return; given a probability distribution
of returns, they often make inconsistent or suboptimal decisions
E. None of the above

Q.84. Information processing errors consist of

(I) forecasting errors
(II) Overconfidence
(III) Conservatism
(IV) Framing
A. I and II
B. I and III
C. III and IV
D. IV only
E. I, II and III
Q.85. Forecasting errors are potentially important because
A. research suggests that people underweight recent information.
B. research suggests that people overweight recent information.
C. research suggests that people correctly weight recent information.
D. either A or B depending on whether the information was good or bad.
E. None of the above.

Q.86. Debondt and Thaler believe that high PIE result from
A. earnings expectations that are too extreme.
B. earnings expectations that are not extreme enough.
C. stock price expectations that are too extreme.
D. stock price expectations that are not extreme enough.
E. None of the above.

Q.87. Single men trade far more often than women. This is due to greater
____________ among men.
A. framing
B. regret avoidance
C. overconfidence
D. conservatism
E. none of the above

Q.88. ___________ may be responsible for the prevalence of active versus passive
investments management.
A. Forecasting errors
B. Overconfidence
C. Mental accounting
D. Conservatism
E. Regret avoidance

Q.89. An example of_________ is that a person may reject an investment when it

is posed in terms of risk surrounding potential gains but may accept the same
investment if it is posed in terms of risk surrounding potential losses.
A. framing
B. regret avoidance
C. overconfidence
D. conservatism
E. none of the above

Q.90. Statman (1977) argues that __________is consistent with some investors'
irrational preference for stocks with high cash dividends and with a tendency to
hold losing positions too long.
A. mental accounting
B. regret avoidance
C. overconfidence
D. conservatism
E. none of the above

Q.91. Arbitrageurs may be unable to exploit behavioral biases due to________.

(I) Fundamental risk
(II) Implementation costs
(III) Model risk
(IV) Conservatism
(V) Regret avoidance
A. I and II only
B. I, II, and 111
C. I, II, Ill, and V
D. II, III, and IV
E. IV and V

Q.92. __________ are good examples of the limits to arbitrage because they show
that the law of one price is violated.
(I) Siamese Twin Companies
(II) Unit trusts
(III) Closed end funds
(IV) Open end funds
(V) Equity carve outs
A. 1 and II
B. I, II, and III
C. I, III, and V
D. IV and V
E. V

Q.93. The anomalies literature___________.

A. provides a conclusive rejection of market efficiency
B. provides a conclusive support of market efficiency
C. suggests that several strategies would have provided superior returns
D. A and C
E. none of the above

Q.94. Markets would be inefficient if irrational investors _________ and actions of

arbitragers were _____________
A. existed; unlimited
B. did not exist; unlimited
C. existed; limited
D. did not exist; limited
E. none of the above

Q.95. Kahneman and Tversky (1973) report that________ and__________.

A. people give too little weight to recent experience compared to prior beliefs; tend
to make forecasts that are too extreme given the uncertainty of their information
B. people give too much weight to recent experience compared to prior beliefs; tend
to make forecasts that are too extreme given the uncertainty of their information
C. people give too little weight to recent experience compared to prior beliefs; tend
to make forecasts that are not extreme enough given the uncertainty of their
information
D. people give too much weight to recent experience compared to prior beliefs; tend
to make forecasts that are not extreme enough given the uncertainty of their
information
E. none of the above

Q.96. If prices are correct________ and if prices are not correct_________.

A. There are no easy profit opportunities; there are no easy profit opportunities
B. There are no easy profit opportunities; there are easy profit opportunities
C. There are easy profit opportunities; there are easy profit opportunities.
D. There are easy profit opportunities; there are no easy profit opportunities
E. None of the above

Q.97. ___________can lead investors to misestimate the true probabilities of

possible events or associated rates of return.
A. Information processing errors
B. Framing errors
C. Mental accounting errors
D. Regret avoidance
E. all of the above

Q.98. Mr. Nitin Mehta has been investing in the variety of stocks for the last few
years. Now he has shifted his attention to only the Index Number "NIFTY" Mr.
Nitin
A. Has moved from passive investor to active investor
B. Has moved from active investor to passive investor
C. Has moved from a class investor to derivative investor
D. None of these

Q.99. Mr. Amarjeet Singh Lamba has invested in various stocks but for the last 15
years has been concentrating only one stock "Jai Bharat Maruti" and has made
substantial profits on his investments. As per Bailard, Biehl and Kaiser five way
model he is
A. Adventurer
B. Celebrity
C. Individualist
D. Guardian
 UNIT IV -REAL ESTATE VALUATION AND ANALYSIS

Section A — 1 Mark Questions:

Q.1. What characteristics make real estate unique as compared to other

investment alternatives?
A. Tangible
B. Illiquid
C. High transaction costs
D. All of the above

Q.2. One of the beneficial features of real estate is that it produces relatively
consistent total returns that are a hybrid of income and capital growth.
A. False
B. True

Q.3. Real estate is basically defined as movable property such as land and
everything permanently attached to it as fixture e.g. building
A. False
B. True

Q.4. Some of the disadvantages of investing in real estate are

A. Burden of management
B. High transaction cost
C. Huge investment required
D. All of the above

Q.5. __________ is an investment in a fund that purchases physical property on

behalf of its clients. It creates ownership in a pooled vehicle. It can be open-ended
or closed-ended.
A. Direct real estate
B. Pooled investment in direct real estate
C. Listed real estate securities (REITs)
D. REIT Preferred Stock

Q.6, ____________ is the principal benchmark used to measure the performance of

direct real estate investment in the United States. It's a quarterly benchmark for
real estate covering a sample of commercial properties owned by large U.S.
institutions.
A. NAREIT
B. NHB Residex
C. CNX Realty Index
D. NCREIF
Q.7. __________ is the principal benchmark used to represent indirect investment
real estate. It is a real time market-cap weighted index of all REITs actively traded
on the New York Stock Exchange and American Stock Exchange.
A. NAREIT
B. NHB Residex
C. CNX Realty Index
D. NCREIF

Q.8. _____________ was set up by National Housing Board to track the movement
of prices in the residential housing segment in India. The index has been
constructed using the weighted average methodology with Price Relative Method.
A. NAREIT
B. NHB Residex
C. CNX Realty Index
D. NCREIF

Q.9. NHB Residex and CNX Realty Index are

A. Stock exchanges in India
B. Real estate Indices in India
C. Commodities exchanges of India
D. ETF exchanges in India

Q.10. Which of the following are not true about Equity financing?
A. It gives the investor a share in the property because the money he lends to the
company gets added to its capital
B. Profit sharing with the investors is one of the popular ways of repayment for
equity finances
C. Lack of flexibility, transparency, and simplicity limits the appeal of equity financing
D. It is one of the most difficult methods of financing investments in the real estate
i. None of the above
ii. A, B
iii. D
iv. All of the above

Q.11. ____________ is generally a type of subordinate debt financing that provides

financing between the senior loan and the equity in a venture or project.
A. Equity financing
B. Mezzanine financing
C. Debt financing
D. Home loan

Q.12. Buyer's investment in the property is called _________ and the borrowed
money to buy that property is called __________
A. Equity, Mortgage
B. Down payment, EMI
C. Investor's stake, Lender's stake
D. Debt, Outstanding principal
Q.13. _________ is a loan given for implementing repair works and renovations in
a home that has already been purchased by the buyer.
A. Home purchase loan
B. Home improvement loan
C. Home extension loan
D. Refinance loan

Q.14. __________ is a loan given for expanding or extending an existing home that
has already been purchased by the buyer.
A. Home purchase loan
B. Home improvement loan
C. Home extension loan
D. Refinance loan

Q.15. ________ is the process of retiring a mortgage or debt over a specified time
period. An amortization usually calls for the systematic repayment of principal plus
interest at some specified rate.
A. Interest Payment
B. Principal re-payment
C. Loan pre-payment
D. Amortization

Q.16. Loan-to-value ratio is a percentage of the original or proposed loan to the

value of a property.
A. False
B. True

Q.17. ________ is the analysis of an environment of buyers/sellers and/or

landlords/tenants. It usually relates to a certain property type or geographic area.
A. Market Study .
B. Marketability Study
C. Feasibility Study

Q.18. _________ is the study of specific product type within a defined market. It
usually is both site specific and property type specific.
A. Market Study
B. Marketability Study
C. Feasibility Study

Q.19. __________ is a comparative study of cost versus the value if the project is
undertaken.
A. Market Study
B. Marketability Study
C. Feasibility Study

Q.20. Real estate demand is inversely related to interest rates, assuming other
factors influencing real estate are constant.
A. False
B. True

Q.21. Assuming stable supply of real estate product, the price of the product
increases as its demand decreases.
A. True
B. False

Q.22. Interest rates, economic cycle, geographic location, and income levels of
people — all influence real estate valuations.
A. True
B. False

Q.23. REIT (Real Estate Investment Trust) can invest in vacant land and engage in
property development activity.
A. True
B. False

Q.24. The annual net income of a REIT (Real Estate Investment Trust)
A. Is exempted from corporate taxes because it is distributed to shareholders as
dividends
B. Is taxable before being distributed to shareholders as dividends

Q.25. REIT (Real Estate Investment Trust) shareholders pay taxes on dividends and
capital gains
A. False
B. True

Q.26. Alike stock dividends, REIT (Real Estate Investment Trust) dividends are
exempted from taxes
A. False
B. True

Q.27. Real Estate Mutual Fund cannot invest in open plots of land or unties-
construction property.
A. True
B. False

Q.28. Which of the following statements is not true about real estate brokers?
A. Brokers serve as an intermediary in a transaction
B. Brokers receive compensation in the form of commission for their services
C. Brokers may specialize in certain property types
D. Brokers take ownership of the property that is being transferred from a seller to a
buyer

Q.29. _________ is the umbrella organization for the organized real estate
developers and builders in India.
A. HUDCO
B. CREDAI
C. NHB

Q.30. ________ is a fully owned organization of the Government of India,

instituted with the objective of providing long-term finance for construction of
houses, undertaking urban development programs and infrastructure facilities
A. HUDCO
B. CREDAI
C. NHB

Q.31. _______ is the apex level financial institution for the housing sector in the
country. It works as a facilitator in promoting Housing Finance Institutions and
providing financial and other support to such institutions.
A. HUDCO
B. CREDAI
C. NHB

Q.32. CREDAI stands for

A. Confederation of Real Estate Developer's Associations of India
B. Commission of Real Estate Developer's Associations of India
C. Credit Agency of India
D. Credit Authority of India

Q.33. Under the Income Tax Act, the owner of a house property is taxed on the
income from the house (any building or land appurtenant) under the head
A. Profits and Gains of business or profession
B. Capital Gains
C. Income from house property
D. Income from other sources

Q.34. Deductions under what section are applicable when calculating income from
a Let out house property applicable?
A. u/s 24
B. u/s 54
C. u/s 72
D. u/s 80

Q.35. When calculating income from a let out house property, standard deduction
is applicable u/s
A. 24(a)
B. 24(b)

Q.36. When calculating income from a let out house property, standard deduction
is applicable u/s 24(a)
A. True
B. False
Q.37. When calculating income from a let out house property, deduction on
interest on borrowed capital is applicable u/s
A. 24(a)
B. 24(b)

Q.38. When calculating income from a let out house property, deduction on
interest on borrowed capital is applicable u/s 24(b)
A. False
B. True

Q.39. 'Carpet Area' is the term used in real estate to signify the area between the
walls on which carpet can be laid. Higher the carpet area, better space you get.
A. True
B. False

Q.40. The loss, if any, from the house property after considering the section 24(a)
and (b) deductions can be offset against income in any other head of the current
FY.
A. True
B. False
C. May be, depending on the case

Q.41. The loss, if any, from the house property which cannot be set off against the
current FY's income can be carried forward to subsequent FYs subject to a
maximum of four FY's for set off against the income from house property of
subsequent FYs.
A. True
B. False
C. May be, depending on the case.

Q.42. Capital gains that you make when selling the house can be exempted from
tax by buying another house if they are long term capital gains.
A. True
B. False
C. May be, depending on the case.

Q.43. Which of the following factors influence real estate valuation?

A. Social
B. Economic
C. Environmental
D. Governmental
E. All of the above

Section B — 2 Marks Questions:

Q.44. What are some of the advantages of investing in real estate

A. Inflation hedge
B. Market volatility
C. Financial leverage
D. Tax advantages
i. A, B, C
ii. C, D
iii. A,C,D
iv. ALL of the above

Q.45.___________ trade like stocks and own a portfolio of underlying real estate
or real estate mortgages.
A. Retail real estate investments
B. Mixed-use real estate investments
C. Real Estate Investment Trusts (REITS)
D. None of the above

Q.46. ___________ has income throughout investment period and occupies first
position in capital stack but it has liquidity issues.
A. Mezzanine
B. First Mortgage Debt
C. REIT Unsecured debt
D. Commercial Mortgage-backed Securities

Q.47. ________ aretranched securities that have as collateral loans secured by

commercial property. it gives ownership in a pooled vehicle. It can be open-ended
or closed-ended.
A. Mezzanine
B. First Mortgage Debt
C. REIT Unsecured debt
D. Commercial Mortgage-backed Securities

Q.48. _________ are investments that occupy a middle position in the capital
stack, as a subordinated debt or preferred equity position. It gives ownership in a
pooled vehicle. It can be open-ended or closed-ended.
A. Mezzanine
B. First Mortgage Debt
C. REIT Unsecured debt
D. Commercial Mortgage-backed Securities

Q.49. _________ have the advantages of easier portfolio diversification, daily

liquidity and pricing, transparency of reporting and attractive dividend yields.
A. Direct real estate
B. Pooled investments in direct real estate
C. Listed real estate securities (REITs)
D. REIT Preferred Stock

Q.50. Determinants of real estate value are

A. Demand & Supply
B. Layout & Location
C. Safety & Security
D. SEBI Regulations
i. A, B
ii. A, B, C
iii. None of the above
iv. All of the above

Q.51. _________ is a loan to finance the purchase of real estate, usually with
specified payment periods and interest rates. The borrower gives the lender a lien
on the property as collateral for the loan.
A. Lease
B. Mortgage
C. Lien
D. Power of attorney

Q.52. __________ a method of using property as security for the payment of a

debt. In case the borrower fails to repay the loan, lender has the right to acquire
the property and sell it.
A. Lease
B. Mortgage
C. Lien
D. Power of attorney

Q.53. __________ is a legal document which confers a right on one person to use
or occupy property belonging to another person for a fixed or indefinite period of
time. The consideration for this arrangement is called _________
A. Mortgage; EMI
B. Lien; Rent
C. Mortgage; Rent
D. Lease; Rent

Q.54. Which of the following statements are false

A. Debt securities are contractual obligations to repay corporate borrowing.
B. Equity securities are shares of common stock and preferred stock that represent
non contractual claims to the residual cash flow
C. There are two types of collateral for debt i.e. security over a specified asset or
security over the business as a whole.
D. Debt against property never gives financial leverage.
i. A, B, C
ii. A, C
iii.D
iv. None of the above

Q.55. The company may take debt because

A. It may not have enough equity to buy the property.
B. It may choose to borrow to expand business
C. It may choose to borrow to take tax advantage
D. It knows that debt is always beneficial
i. None of the above
ii. A, B
iii. A, B, C
iv. All of the above

Q.56. In the case of ________ the rate of interest remains fixed throughout the
loan term. The mortgage rate does not vary according to the market conditions.
A. Fixed Mortgage rate
B. Permanent interest rate
C. Flexible Mortgage rate

Q.57. Which of the following are true about Reverse Mortgage

A. It is also called lifetime mortgage
B. It is used to release the home equity in the property as one-time payment or
multiple instalments
i. A, B
ii. None of the above
iii. A
iv. B

Q.58. Which of the following represents the real estate life-cycle correctly?
A. Stability -> Growth -> Decline -> Revitalization
B. Revitalization -> Growth -> Decline -> Stability
C. Growth -> Stability -> Decline -> Revitalization
D. Growth -> Decline -> Revitalization -> Stability

Q.59. _________ REIT (Real Estate Investment Trust) refers to a corporate entity
that is engaged in the acquisition, management, renovation, building and sale of
real estate. They are preferred by professional money managers because they are
likely to offer higher rewards.
A. Equity
B. Mortgage
C. Hybrid

Q.60. ________ REIT (Real Estate Investment Trust) is a company that specializes in
underwriting, acquiring and holding debt obligations guaranteed by real estate
properties. It is essentially loan portfolios as opposed to ownership of the asset.
A. Equity
B. Mortgage
C. Hybrid

Q.61. Following are some of the advantages that REITs (Real Estate Investment
Trust) offer to investors:
A. Liquidity
B. Portfolio Diversification
C. Dividends
D. Flexibility to convert to gold ETFs
i. A, B, C
ii. B, C, D
iii. A, C, D
iv. All of the above

Q.62. Diversifying a portfolio with real estate creates a hedge against

_________and reduces _________ by creating long-term income streams.
A. Risk, returns
B. Inflation, returns
C. Inflation, Risk
D. Market risk, volatility

Q.63. The primary function of the real estate brokerage industry is to

A. Match properties and customer requirements
B. Guide buyers and sellers through the complexities of real estate transactions
C. Both a & b
D. Only b

Q.64._________ and __________ are the two strongest demand drivers in

residential real estate.
A. Urbanization, High disposable incomes
B. Urbanization, Job Opportunities
C. Fiscal incentives, BPO business
D. Government laws, Tax Benefits

Q.65. If the economic life of a property is 50 years, the annual depreciation rate is
A. 10%
B. 5%
C. 2% D. Nil

Q.66. Under the Income Tax Act, any rental income from vacant land or plot that
the owner makes is taxable under the head
A. Profits and Gains of business or profession
B. Capital Gains
C. Income from house property
D. Income from other sources

Q.67. Which of the following are correct about section 24, when applied to
calculate income from a let out house property
A. Only standard deduction is applicable
B. Only deduction of interest on borrowed capital is applicable
C. Neither is applicable
D. Both are applicable
Q.68. Capital gains in real estate are incurred when you sell a property after
holding it for
A. More than 1 year
B. More than 3 years
C. Three or more years
D. Any holding period; As long as selling price is more than the cost of acquisition.

Q.69. In real estate documentation which of the following includes proportionate

area of common stairs, shafts, playground, common facilities, elevators, lobby etc.
for a purchased unit:
A. Carpet Area
B. Built Up Area
C. Super Built Up Area
D. Common Areas

Q.70. If you make capital gains by selling other capital assets like shares,
government bonds and/or gold, you can buy a residential property with the sale
proceeds and need not pay the tax on your capital gains if they are short term
capital gains.
A. True
B. False
C. May be, depending on the case.

Q.71. Any property which is given out on rent for a minimum s:•erocd of 300 days
in the previous year is not considered as an asset. Such a property i.e. let out for
30e or more days, is excluded from net wealth and not subject to wealth tax as per
the prescribed provisions of the wealth tax law.
A. True
B. False
C. May be, depending on the case.

Q.72. A vacant plot of land measuring 600 square yards, attracts wealth tax as per
the prescribed provisions of the wealth tax law
A. True
B. False
C. Depends on the owner's net wealth and market value of the plot

Q.73. All commercial properties (rented, self-occupied, or vacant) are fully exempt
from wealth tax.
A. True
B. False
C. May be, depending on the case

Q.74. Rahul has received a proposal to invest in a commercial real estate. He has
been asked for an initial outlay of 15 lakhs. He would receive 2.5 lakhs at the end
of first year, 5 lakhs at the end of second year, 8 lakhs at the end of third year and
8 lakhs at the end of the fourth year, ending his investment in the project at the
end of the fourth year. Assuming opportunity cost of capital at 12%.
A. Calculate the NPV (in lakhs) and recommend if it's worth investing?
i. Data insufficient
ii. 1.996; Investment is not acceptable
iii. 1.996; Yes, investment is acceptable
iv. None of the above
B. Calculate the IRR and recommend if it's worth investing?
i. Data insufficient
ii.17.15%; Yes, investment is acceptable
iii.17.15%; Investment not acceptable
iv. None of the above
C. How will the IRR change if the initial outlay is reduced to 12 lakhs and the
remaining data in terms of Cashflow remains the same [2]
i. It will not change the IRR, since the returns are the same
ii. IRR will go down
iii. IRR will go up
iv. None of the above

Q.75. Adding real estate in an investor's portfolio (that lacks real estate)
A. Hedges inflation
B. Diversifies portfolio
C. May increase risk adjusted performance
D. Guarantees enhanced returns
Choose the incorrect option above
1. A
2. B
3. C
4. D

Section C — 4 Marks Questions:

Q.76. For a property that cost 10 lakhs 2 years ago, if the lender process supports
LTV of 80%, what is the maximum and minimum loan a borrower can apply for
A. 8 Lakhs, 1 lakh
B. 80% of the market value of the property, 1 lakh
C. 8 lakhs, 0
D. 80% of the market value of the property, 0

Q.77. In the case of __________the rate of interest varies according to market

movements.
A. Flexible mortgage rate
B. Adjusting mortgage rate
C. Floating rate
D. A and C
E. All of the above
Q.78. At the time of application for a home loan, the housing finance company
generally asks for the following documents:
A. Copy of bank statements for last3 to 6 months
B. Signature verification from the borrower's bank
C. Proof of income in case borrower is salaried
D. Marriage certificate and family background certificate
i. A, B
ii. A, B, C
iii. A, C
iv. All of the above

Q.79. Which of the following correctly states the facts about efficient and
inefficient markets?
A. In efficient markets information is readily available whereas in inefficient
markets only limited information is available.
B. Efficient markets normally have exchanges to facilitate transactions whereas
inefficient markets don't.
C. Real estate belongs to inefficient market
D. Real estate belongs to efficient market

i. A, B, C
ii. A, B, D
iii. A, B
iv. None of the above

Q.80. Which of the following is true about REIT (Real Estate Investment Trust)
A. It is a corporation or trust that pools the capital of many investors to purchase
income property and/or mortgage loans.
B. It is eligible for corporate income tax exemptions.
C. It is required to distribute at least 90% of its income.
D. It is designed to provide a similar structure for investment in real estate as
mutual funds provide for investment in stocks.
i. A, B, D
ii. A, C, D
iii. B, C, D
iv. All of the above

Q.81. Which of the following are true

A. REMF (Real Estate Mutual Fund) can invest in financial securities unlike REIT
(Real Estate Investment Trust)
B. REMF (Real Estate Mutual Fund) cannot invest in financial securities alike REIT
(Real Estate Investment Trust)
C. REMF (Real Estate Mutual Fund) can invest in open plots of land unlike REIT
(Real Estate Investment Trust)
D. REMF (Real Estate Mutual Fund) can invest in securities like shares, bonds and
debt papers of companies dealing with real estate projects.
I.None of the above
ii. A and D
iii. Only A
iv. Only D

Q.82. Market value of a property is Rs.25,00,000/= Monthly rent is Rs.10,000/=

Annual Insurance charge is Rs.9,000/= and Repairs cost about Rs.11,000/= per
year. What is the annual yield of the property?
A. 4.0%
B. 4.8%
C. 5.6%
D. 6.4%

Q.83. Market value of a property is Rs.25,00,000/= Monthly rent is Rs.10,000/=

Annual Insurance charge is Rs.9,000/= and Repairs cost about Rs.11,000/= per
year. What is the NOI (Net Operating Income) of the property?
A. 1.0 Lakh
B. 1.2 Lakhs
C. 1.4 Lakhs
D. 25 Lakhs

Q.84. If the market required rate of return is 10%, and the Net Operating Income of
a property is 1.8 Lakhs. What should be the value of the property?
A. 0.18 Lakh
B. 1 Lakh
C. 18 Lakhs
D. 10 Lakhs

Q.85. Any interest on capital borrowed (on or after April 1, 1999) to purchase and
construct a house is allowable as deduction.
A. Up to 1.50 lakhs as maximum ceiling per financial year
B. Has no ceiling
C. The statement is false
D. Depends on the construction and residential status of the house

Q.86. With respect to real estate, following deductions are allowed under section
80C in a given assessment year
A. Any sum paid back as principal repayment, to the housing finance company
B. Any sum paid to the housing board for the purpose of planning, development or
improvement of cities/town e.g. stamp duty
i. Both A 84B
ii. Only A
iii. Only B
iv. Neither

Q.87. Ajay is considering a proposal to invest in a commercial real estate office. It

requires an initial investment of 20 lakhs, at the beginning of the year. He is
assured annual rent of 2 lakhs at the end of first three years respectively. Then a
revised rental of 2.5 lakhs at the end of 4th year and 5th year respectively. At the
beginning of 6th year, his initial investment is returned back to him and he would
exit. Assume investor's required rate of return 10%.
A. What is the NPV (in lakhs) of the proposal?
i. 0.311
ii. 0.652
iii. 0.477
iv. None of the above
B. Is the proposal worthy of investment using NPV (Net Present Value)?
i. Yes because NPV is positive
ii. No because NPV is positive
iii. No because IRR is smaller than the opportunity cost of capital
iv. Insufficient data to determine the right answer
C. The IRR (Internal Rate of Return) for the Cashflow mentioned in the proposal is
i. Exactly 10%
ii. Less than 10%
iii. More than 10%
iv. Insufficient data
D. In the above proposal if the required rate of return is changed to 11%, does the
NPV (in lakhs) change?
i. Yes. It becomes -0.113
ii. No. It remains the same
iii. Yes. It becomes -1.289
iv. None of the above
E. In the above proposal if initial investment of 20 lakhs is returned at the end of 6th
year, assuming the same rent for that year as in the preceding year, what will be the
NPV (in lakhs) and the IRR assuming required rate of return as 11%?
i. 0.047, 9.903%
ii. 0.047, 11.055%
iii. -1.012, 9.903%
iv. -1.012, 11.055%

Q.88. Shruti wishes to purchase a rental property and expects to receive Rs

50,0001= per annum (net receipts) for the next 5 years. She is also planning to sell
the property at the end of 5th year for Rs 50 lakhs.
A. Calculate the value of the property that she should buy at, assuming the rate of
return is 15%?
i. 26,53,491
ii. 26,78,633
iii. Insufficient data
iv. None of the above
B. If she buys the property for 30 lakhs and everything else remains the same in
terms of rent per annum and selling price at the end of 5th year, what would be the
rate of return on her investment?
i. Insufficient data
ii. 12.13%
iii. 12.30% iv. None of the above
 UNIT V - LOAN & DEBT MANAGEMENT

Section A —1 Mark Questions:

Q.1. Which of the following is NOT a benefit of using credit?

A. Affordable purchases
B. Easier to borrow than to save
C. Fixed interest rate liability
D. None of these

Q.2. Which of the following reflects a responsible use of credit?

A. Credit for consumption
B. Debt service reflects a large part of client's income
C. Credit for asset creation
D. Credit beyond affordability

Q.3. Which of the following best describes a revolving credit?

A. Loan that revolves around asset creation
B. Loan that revolves around consumption
C. Loan with no fixed maturity or installment
D. None of these

Q.4. Which of the following is not an advantage of a secured loan?

A. Lower interest rates & Responsible Credit by creditor
B. Need for collateral & speedy processing
C. Lower risk for creditor
D. Less emphasis on need for credit history of borrower

Q.5. Which of the following is not an advantage of unsecured loan?

A. Promotes responsible credit
B. Lower risk for creditor
C. Processing so quick that credit history is not checked either
D. All of these

Q.6. Which of the following type of loan would be most suitable for meeting
shortfall in funding a foreign trip by a couple in high bracket of earning?
A. Credit Card Loan
B. Home Loan
C. Term Loan
D. Personal Loan

Q7. Which of the following is most likely to be true in case of credit cards?
A. Referred to as plastic money
B. Convenient and safer alternative to cash
C. Additional value added benefits such as air miles. rewara program, various
discount schemes and cobranded tie ups
D. All of the above
Q.8. Which of the following is least likely to be true in case of personal loans?
A. Suitable for long term financial needs
B. Suitable for investors with poor credit history
C. Suitable for urgent need of funds
D. All except c

Q.9. Which of the following best reflects the type of a home loan that is taken at a
lower rate to replace the existing loan at higher rate?
A. Home Extension Loan
B. Re-finance loans
C. Bridge Loans
D. None of these

Q.10. Which of the following is true in case of Education Loans?

A. Granted for education programs for recognized universities/Institutes
B. EMIs start within 1 year of completion of educational program
C. Generally repaid in less than 10 years
D. All of the above

Q.11. Why should an investor consider the loan against shares?

A. To buy more of existing shares
B. To create a revolving line of credit for emergent needs
C. To fund long term business needs
D. None of these

Q.12. Which of the following is an area of examination by the credit officer while
conducting the credit analysis for a loan application?
A. Borrower's current & expected financial condition
B. Borrowers ability to withstand stress during tough economic situations
C. Borrowers credit history
D. All of the above

Q.13. Which of the following is not one of the four foundations of credit analysis
for an institutional borrower?
A. Industry Analysis
B. Analysis of management quality
C. Willingness to repay
D. Analysis of financials & collateral

Q.14. Which of the following is the most accurate definition of credit

underwriting?
A. Process undertaken by the bank to structure a loan to minimize the risks
associated in lending
B. Process undertaken by the bank to underwrite the issue of bonds by a corporate
C. Process undertaken by the bank to disburse a credit loan
D. None of the above
Q.15. Which of the following generally forms a part of evaluation of credit analysis
process?
A. Ascertain the types of permissible borrowing
B. Ascertain that the Risk management system is adequate
C. Ascertain that credit process is adequate
D. All of these

Q.16. Which of the following is not one of the five C's of credit analysis?
A. Character
B. Credit Process
C. Capacity
D. Capital

Q.17. The first 'A' in CAMPARI model refers to?

A. Arrangement of collateral
B. Ability to repay
C. Availability of insurance
D. None of these

Q.18. What do you understand by a credit bureau?

A. Credit bureau is a settlement body between borrowers and creditors.
B. Credit bureau plays the role of a regulator in credit industry
C. Collects credit information of borrowers at mass scale and provides this
information handy for variety of uses such as lending.
D. All of the above

Q.19. Which of the following is not associated to credit information industry in

India?
A. CIBIL
B. Experian
C. Equifax
D. None of these

Q.20. What does CIR stand for?

A. Credit information receipt
B. Credit information report
C. Credit investigation report
D. None of these

Q.21. How is Equifax credit report different from CIBIL credit report?
A. Equifax focuses only on institutional borrowers
B. Equifax offers credit reports to foreign entities only
C. Equifax report is easier to interpret as it contains graphs and pictorial descriptions
D. All of the above

Q.22. Which of the following is not a part of Equifax credit report?

A. ID and contact information of borrowers
B. Opinion on credit worthiness of borrowers
C. Recent credit activities by borrower
D. Details of inquiries made upon a borrower

Q.23. What do you understand by debt consolidation?

A. Using single new debt at low interest to pay off multiple old debts at higher
interest
B. Paying off debt using sales proceeds from existing assets to decrease default risk
C. Increasing leverage to benefit from lower cost of borrowing
D. All of the above

Q.24. What do you understand by home equity?

A. Equity shares issued to select investors reflecting ownership in a home
B. The ownership stake in a home, funded with own money
C. The part of investment in a home funded by debt
D. None of these

Q.25. How is a home equity loan different from a home loan?

Home Loan Home Equity Loan
A. Generally availed for new purchase Availed against existing home
B. Availed against existing home Generally availed for new purchase
C. Both a & b
D. None of the above

Q.26. Which one of the following options is least likely to reflect the benefit of
availing a HELOC?
A. Open line of credit
B. Pay only for the use
C. EMIs can be interest only EMIs
D. None of these

Q.27. Which one of the following options is least likely to reflect benefit of
borrowing against a life insurance policy?
A. No credit check required
B. Easy & quick process
C. Lien on funds in policy
D. None of these

Q.28. Which of the following is least likely to be true about determination of

floating interest rates?
A. The interest rate is determined at the discretion of creditor from time
B. The interest is floats within a fixed band
C. The interest is determined as per preset formula, generally linked to a benchmark
D. None of these
Q.29. From the perspective of borrower, in which of the following scenarios, the
fixed interest rate loans will be unattractive comparative to floating interest rate
loans?
A. When the risk of default is high
B. Falling interest rates
C. Rising interest rates
D. Fixed rate loans are always better under any scenario

Q.30. From the perspective of borrower, in which of the following scenarios, the
floating interest rate loans will be unattractive comparative to fixed interest rate
loans?
A. When the risk of default is high
B. Falling interest rates
C. Rising interest rates
D. Fixed rate loans are always better under any scenario

Q.31. What do you understand by amortization?

A. Continuous repayment of principal amount, along with interest on the loan
B. Continuous repayment of interest amount through EMIs
C. Both a & b
D. None of these

Q.32. What do you understand by gross working capital?

A. Gross capital required for long term business operations
B. Gross capital required for short term business operations
C. Sum of all current assets held by the organization
D. All except A

Q.33. What do you understand by net working capital?

A. Net capital required for short term business operations
B. Net capital required for long term business operations
C. Sum of all current assets held by the organization reduced by current liabilities
D. All except B

Q.34. Which of the following best describes the length of operating cycle?
A. Time from payment for purchase of raw material to credit sale of finished goods
B. Time from purchase of raw materials till realization of sale proceeds.
C. Time from purchase of raw materials to manufacturing of finished goods
D. None of these

Q.35. How does bank guarantee work?

A. The bank guarantees the performance or discharge of a liability in case of default
by the 3rd party
B. The bank deposits a certain amount with beneficiary as security against
performance of 3rd party
C. Bank enters into the contract of indemnity with the beneficiary in case of default
D. All of the above
Q.36. Who is the supreme authority overlooking 'banking consumer protection'
regime in India?
A. SEBI
B. IRDA
C. RBI
D. Ministry of Finance

Q.37. What is the full form of BCSBI?

A. Banking Codes & Standards Bureau of India
B. Banking Commission for Standards & Benchmarks in India
C. Body for Commercial Standards & Benchmark in India
D. None of these

Q.38. As per the matrix for consumer protection for aggrieved consumers, which of
the following steps comes last?
A. Consumer court under COPRA
B. Court of law
C. Office of Ombudsman
D. In house grievance redressal by the bank

Q.39. In which of the following scenarios the ombudsman is least likely complaint?
A. A suffering customer reporting misconduct of bank to within a day
B. One makes a complaint after one year
C. Frivolous complaint
D. All of the above

Q.40. EMIs for repayment of principal & interest on a house loan may qualify the
borrower for tax benefits under which of the following sections of income tax?
A. Section 80 C
B. Section 24
C. Section 80 E
D. All except option C

Q.41. Under which of the following scenarios, the borrower of a housing loan
would not be able to claim a benefit under section 80 C?
A. Principal repayment on home loan is done for a house that is not self occupied
B. Principal repayment on home loan is done for a house that is not yet constructed
C. Principal repayment on home loan is done for a house that is not in the same city
as residence of borrower
D. All except option C

Q.42. In which of the following scenarios, the borrower of an education loan would
least likely be eligible for deduction of interest payments from the computation of
gross income u/s 80 E of Income Tax Act?
A. The borrower is an HUF
B. Loan availed for funding higher secondary education abroad
C. Loan availed from close relatives
D. All of the above

Q.43. Which of the following options best describes the limit of interest amount
that can be claimed under section 80 E by the borrower of an education loan?
A. Rs 50000 in a given financial year
B. Rs 90000 in a given financial year
C. Rs 150000 in a given financial year
D. No limit

Q.44. What should client do to manage the loans properly?

A. Cut down unnecessary expenses
B. Speed up loan repayment
C. Take more credit to enable financial flexibility
D. All except C

Q.45. Which of the following situations is most likely to ring an alarm to wealth
manager taking care of a client's debts?
A. If the net loan balance is increasing over time without any simultaneous increase
in asset bases
B. When more of the client's income is being spent in unnecessary consumption
expenses
C. When the client misses credit card payments frequently on account of
carelessness
D. All of these

Q.46. Which of the following steps is not recommended in the process of debt
management?
A. Analysis of sources of income
B. Analysis of major heads of expenses
C. Preparing a balance sheet and budgeting
D. None of these
 Section B — 2 Marks Questions:

Q.47. Select the right combinations:

Installment Repayment Method Of Loan Bullet Repayment of Loan
1. Single payment at maturity Regular EMIs
2. Regular EMIs Single Payment at Maturity
3. Safer for Creditor Riskier for Creditor
4. Riskier for creditor Safer for Creditor
A. 1 & 4
B. 2 & 3
C. 1 & 3
D. 1 & 2

Q.48. Calculate the loan maturity value, using compounded method, with the help
of following information
• Number of years: 5
• Rate of interest: 8%
• Initial Borrowing: Rs 100000
• Principal Repayment Method: Bullet Repayment
A. Simple: Rs 140000, Compounded: Rs 156932.81
B. Simple: Rs 140000, Compounded: Rs 146932.81
C. Simple: Rs 40000, Compounded: Rs 46932.81
D. None of these

Q.49. Which of the following is most likely to be true in case of Auto Loans?
A. New Car loan is up to 90% of car value
B. Old car loan is up to 60% of value
C. Its and unsecured loan, hence interest rates are high
D. Interests are invariably calculates on simple interest basis

Q.50. Which of the following features rightly associates with Personal Loans?
1. Quick Processing
2. Lower interest rates
3. Wide array of choices for application of borrowed funds
4. Need for strong credit history
5. Need for strong collateral
6. Joint application is possible
7. Used for funding large financial needs, generally in crores
8. Simple documentation
A. 1, 2, 4, 5, 6
B. 1, 3, 4, 6, 8
C. 1, 4, 5, 6, 7
D. 2, 3, 5, 7, 8

Q.51. Match the correct pairs:

1. Loan to purchase new home until existing home is sold w) Home
Improvement
Loan
2. Loan for renovation of home x) Bridge Loan
3. Loan for minor additional construction in existing house y) Home Construction
Loan
4. None of these z) Home Extension Loan

A. 1w, 2y, 3x, 4z

B. 1x, 2w, 3z, 4y
C. 1z, 2x, 3w, 4y
D. None of these

Q.52. Which of the following is least likely to be true in case of Hire Purchase
Loans? 1. Borrower keeps the possession
2. Creditor keeps the ownership
3. Repayment made via bullet method, known as purchase price
4. Repayment made via installment method, known as hire charges
5. Borrower becomes owner on completion of repayment
6. Safer from the perspective of creditor
7. Depreciation benefit accrues to creditor
8. Sale tax applicable on creditor
A. 1 & 7
B. 2 & 8
C. 3 & 7
D. 7 & 8

Q.53. Which of the following is least likely to be true in case of credit unions?
1. Set up with an objective of making nominal profits
2. Cheaper loans available to general public
3. Strict membership requirements
4. Higher rates of deposits for members
5. Considered as illegal
6. Lower cost of borrowing for members
7. Primitive & basic product offerings
A. 1, 2, 5
B. 2, 4, 5
C. 3, 4, 6
D. 1, 3, 6

Q.54. Sequentially arrange the following steps of credit analysis in ascending order
from start to end:
1. Data collection
2. Suggesting optimum loan structure to minimize risk
3. Documenting the credit process
4. Screening prospective borrower
5. Analysis of risk associated with prospective borrower
A. 1, 2, 3, 4, 5
B. 4, 1, 5, 2, 3
C. 5, 3, 1, 2, 4
D. None of these

Q.55. Which of the following best describes the features of loan monitoring?
1. Begins post disbursal of a loan
2. Begins before disbursal but after credit analysis
3. Focus is one the weaknesses of borrower that can enhance the risk in future
4. Borrower is mandated to submit periodic financial information for review
5. Loan can be called back if a covenant is found to be violated during loan
monitoring
6. A violation may typically entail an increase in collateral or interest rates
7. Bank may undertake it even if the clause for monitoring is not included in loan
agreement
A. All of the above
B. All except 3 & 4
C. All except 1 & 5
D. All except 2 & 7

Q.56. Which of the following are the functions performed by a credit bureau?
1. Provide details pertaining to credit history
2. Provide justified opinion whether the loan should be granted or not
3. Maintain a credit score based on factual information
4. Provide personal identification and contact details
5. Provide details pertaining to current loans
A. All of these
B. All except 2
C. All except 3
D. All except 3 & 5

Q.57. Which of the following actions are most likely to affect the credit score of an
individual, favorably?
1. Never availed any form of debt or credit instrument
2. Less or no cheque bounces
3. High net worth
4. No defaults in past
5. Existence of some credit transactions
6. Significant amount of current loans (relative to income)
A. 2, 3, 4, 5, 6
B. 2,3, 4, 5
C. 2, 4, 5
D. 2, 3, 5

Q.58. Which of the following is least likely to be accurate in case of CIBIL?

1. Government holds majority (more than 50%) of stake in CIBIL
2. CIBIL reports can be changed if there is an error
3. CIBIL contains names of defaulters
4. CIBIL depends upon its members for information
5. Members depend upon CIBIL for information
6. Higher credit score reflects poorer credit history
7. Name of a defaulter can be removed from CIBIL database once the defaulter
achieves good credit record in future
A. 1, 3, 6, 7
B. 2, 4, 6
C. 1, 4, 7,
D. None of these

Q.59. HELOC stands for?

A. Home Equity Loan for Overdue Credit
B. Home Equity Line of Credit
C. Home Establishment Loan Cover
D. None of these

Q.60. Which the following statements characterize the process of debt

consolidation?
1. Borrowing new money at lower interest
2. Using collateral to enable cost effective borrowing
3. Paying off older loans with higher interest
4. Decreasing the number of loans to enable ease of debt management
5. Accelerating the rate of repayment
A. None of these
B. None except 1, 3
C. None Except 1, 3, 5
D. All of these

Q.61. Which of the following options is least likely to be a benefit of debt

consolidation?
1. Lower average cost of borrowing
2. Fixed rate loans are substituted with variable rate loans
3. Chances of improved credit score in future
4. Ease in managing debts
5. Increases the capacity to borrow more on an immediate basis
A. None of these
B. 1, 3, 5
C. 2, 5
D. 2, 4

Q.62. What are hybrid loans?

A. The loans that contain features of equity as well as debt
B. The loans that carry a fixed interest rate for a specified period in the beginning
and floating rate thereafter,
C. The loans that can be repaid by a combination of installments & bullet repayment
method
D. None of these
Q.63. If interest rates do not change, which of the following statements most
accurately reflects the state of principal outstanding, EMI amount and interest
payment in case of reducing balance method?
A. Over the life of the loan, the amount of outstanding principal reduces, interest
payment reduces and EMI remains the same
B. Over the life of the loan, the amount of outstanding principal remains the same,
interest payment reduces and EMI remains the same
C. Over the life of the loan, the amount of outstanding principal remains the same,
interest payment remains the same and EMI remains the same
D. None of these

Q.64. Mr. Vibhu Anand enters into an agreement with MIS. Vinshu Enterprises for
sale of 1000 laptops and their after sale service in case of any technical problems
for next 3 years. Mr. Anand is a new entrepreneur; hence Vinshu Enterprises
requires additional security that Mr. Anand will fulfill the commitment. As an
advisor to Mr. Anand, what would be your advice?
A. Obtain Financial Guarantee from the bank
B. Obtain Performance Guarantee from the bank
C. Obtain deferred payment guarantee from the bank
D. Do not enter into this contract

Q.65. Which of the following is least likely to be true in case of letter of credit
(LOC)?
A. It is a negotiable instrument that can be liquidated at applicable discount by the
holder of LoC
B. Issued by the buyer of goods to the seller of goods in case of sale on credit basis
C. Can be revocable as well as irrevocable
D. None of these

Q.66. What is the maximum limit u/s 24, on payment of interest on a house loan
that was availed to finance purchase of a house that would be let out?
A. Rs 150000/-
B. No limit
C. Rs 20000/-
D. No eligibility

Q.67. Which of the following choices, pertaining to tax benefits on a home loan, is
correct?
Section covering Interest Payment Section covering Principal Payment
A. Section 80 E Section 80 C
B. Section 80 C Section 24
C. Section 24 Section 80 C
D. Section 80 E Section 24

Q.68. Section 24 is least likely to be applicable in which of the following cases (in
current year)?
1. When the housing loan is taken to repair a house
2. Penalty interest forming part of home loan
3. Interest paid on a loan used to prepay previous housing loan that was eligible
under section 24
4. Interest paid on the loan to acquire a property that is not yet constructed
5. A property that is let out
6. Interest paid post construction and possession of house
A. All of the above
B. All except 3 & 5
C. Only 2 & 4
D. All except 1 & 3

Q.69. Which of the following is most likely to be recommended to the wealth

manager while dealing with loan and debt management of a client?
1. Maintain a personal relationship with client
2. Work on client psychology & attitude as much as you work on their finances
3. Motivate clients to take responsible credit
4. Encourage clients to learn to enjoy with their money by spending where it
pleases them
5. Check the credit report of the client
6. Report any discrepancy in report to get it corrected
7. Make clients realize that there is a serious problem in their debt management, if
applicable
A. All of the above
B. All except 1
C. All except 4
D. All except 6

Q.70. Which of the following is most likely to be recommended to the wealth

manager while dealing with loan and debt management of a client?
1. Maintain a personal relationship with client
2. Work on client psychology & attitude as much as you work on their finances
3. Motivate clients to take responsible credit
4. Encourage clients to learn to enjoy with their money by spending where it
pleases them
5. Check the credit report of the client
6. Report any discrepancy in report to get it corrected
7. Make clients realize that there is a serious problem in their debt management, if
applicable
A. All of the above
B. All except 1
C. All except 4
D. All except 6

Case 1:
Mr. Ravi is a businessman who wants to expand the business and double the
turnover in next 5 years. His business is source of most of his wealth and in turn
most part of his assets is invested in business itself. As a result Mr. Ravi holds a
negligible amount of investment portfolio outside his business.

Your bank has designated you as his wealth manager and you hold a portfolio review
meeting with Mr. Ravi. During the meeting you realize that Mr. Ravi has been used
to taking frequent business loan in order to expand business. He has a good
repayment history, as he never defaulted on any of them. However, in recent past,
the ratio of loan to his total net worth has gone up significantly.

The loans are taken for various objectives including, funding the significant working
capital needs, buying a new factory in bigger space and purchasing advanced plant &
machineries. You observe that most of these loans are secured loans against Mr.
Ravi's residential house, factory premises and other miscellaneous assets.

Mr. Ravi is worried that his capability to borrow further money is now limited and
that he might need more funds to win a major business order from an MNC. Mr. Ravi
is also concerned about the rising trend in interest rates that may put additional
burden on his monthly EMIs.

Q.71. What is your commentary upon the manner in which Mr. Ravi has obtained
loans?
A. Irresponsible use of credit due to high quantum
B. Responsible use of credit as it is secured
C. Responsible use of credit as it is obtained for productive purposes
D. Irresponsible use of credit due to mortgage of personal assets

Q.72. What is your assessment about likely credit score of Mr. Ravi on CIBIL?
A. High due to satisfactory credit history
B. High due to secured loans
C. Will not exist as he never defaulted
D. Low due to excessive burden of loans

Q.73. What would you recommend to Mr. Ravi in order to make sure that his
financial constraints do not result into him loosing the business order from the
MNC?
A. He should approach a bank for performance or financial guarantee
B. He should issue a letter of credit to MNC that would place a purchase order with
him
C. He should obtain a personal loan to meet any deficit in finances
D. He should consolidate his debts by prepaying as much part of it and free assets
from lien

Q.74. What does the concern of Mr. Ravi about rising interest rates tell you about
the nature of his loans?
A. There is a very high default risk
B. Interest is calculated on a reducing balance method
C. Interest is calculated on floating rates
D. Interest is calculated on fixed rates

Q.75. If a 5 Cs analysis is conducted upon Mr. Ravi, which 'C' would be strongest
and which would be weakest for his case?
A. Character the weakest, capacity the strongest
B. Character the strongest, capacity the weakest
C. Condition the weakest, capacity the strongest
D. None of these

Case 2:
Mr. Tarun works as a senior manager in an advertising company. He holds 8 years
experience in this industry and has already achieved various professional milestones.
As another feather in the cap, he has received a call from one of the most reputed
business schools in USA for higher studies, which he happily accepts.

He is planning to quit his job and gather resources to meet expenses for tuition and
living co for next one year. He estimates that the total expenses total up to Rs. 70
lakhs for the year. To seek expert advice, he calls upon Mr. Vibhu Anand, his wealth
manager.

Mr. Tarun informs Mr. Anand that he is a member of credit union and can avail a
loan of upto Rs 15 Laks from it. He also confirms that the credit union is not covered
under banking regulation act 1949. He plans to take this education loan in his own
name and wants to pay off using a single payment at the end of the term of 6 years.
It will enable him to plan his intermediate finances even better. He asks you about
possibility of such arrangement.

While you are discussing that there is only a limited amount of unsecured loan that
Mr. Tarun can avail, Mr. Tarun also shares that he is running a housing loan on a
property in Noida region and as per the official data its value has almost doubled
since date of purchase at Rs 40Lacs. He is wondering if this can enhance his credit
limit in any manner.

Q.76. What is the perceived benefit of borrowing from a credit union?

A. High technology based service levels
B. Wider access to service centers
C. Numerous product choices
D. Lower cost of borrowing

Q.77. How much interest, can Mr. Tarun claim as deduction from income under
section 80 E?
A. Not eligible
B. Eligible for an interest payment of up to Rs 1.6 Laks PA
C. Eligible for an interest payment of up to Rs 2 Laks PA
D. The whole of the interest amount without any upper limit
Q.78. What kind of a loan repayment would be most appropriate in this case?
A. Bullet Repayment
B. Installment pay
C. Both are possible
D. None of these

Q.79. How do you recommend Mr. Tarun to benefit from appreciation in house
value in enhancing his credit limit?
A. Recommend him HELOC
B. Recommend him personal loan
C. Recommend him business loan
D. Recommend him to drop the idea of foreign education

Case 3:
Mr. Vibhu Anand, a successful entrepreneur is your client. You are concerned that
Vibhu bears fixed monthly obligations in form of personal & home loan EMIs and
other household expenses, while his income, though high, is irregular and cyclical
due to nature of his business.

He has accumulated a reasonable level of wealth in past few years but you are
concerned about the high level of discretionary expenses and low level of liquidity
reserves. Vibhu needs Rs 4 Laks on a monthly basis in order to meet his fixed
obligations. He discusses with you if he should borrow some money in form of
personal loan to keep this money handy as emergency liquidity reserve of 12 months
in a bank.

While analyzing his repayment history and CIBIL score, you get to know he has a
poor repayment history due to carelessness in managing loans. You observe that
loans are largely fragmented and bear high rate of interest in floating mode. You are
surprised to see that the burden of loans is increasing over time despite an annual
income of Rs 60 Lacs, which is higher than annual expense levels of Rs 48 Lacs. Now
you are seriously concerned about Mr. Anand going into a debt trap.

Q.80. As a wealth manager to Mr. Anand, which of the following pieces of advice
would you like to deliver to him?
A. Cut down unnecessary expenses
B. Speed up loan repayment
C. Take more credit to enable financial flexibility
D. All except C

Q.81. How would you advise Mr. Anand to build a liquidity reserve?
A. Agree to his suggestion as liquidity reserve is an urgent need and requirement is
huge
B. Recommend him HELOC as it provides him an opportunity to pay interest only
upon the amount he uses, hence acts like emergency source of funding in long run
C. Recommend him to dispose off some of his wealth (assets) to arrange for liquidity
reserve for next 12 months of expenses
D. None of these

Q.82. Which of the following would be your high priority advice to Mr. Anand in
order to save him from going into a debt trap?
A. He should change the nature of his business to ensure income is regular and
consistent
B. He should go for debt consolidation by replacing high interest fragmented loans
with relatively low interest few loans
C. He should dispose-off some assets to reduce debt and free some assets from lien
to hereby increasing monthly savings
D. All of the above

Q.83. If Mr. Anand complaints that his CIBIL score is low due to some erroneous
records, what would be your reasonable action?
A. Apply for correction of records along with necessary proof and application fee
B. Convince him of high quality of records and not to waste efforts in trying to
correct it
C. Advise him that his poor repayment history is rightly being reflected in score
D. All of these

Case 4:
Ms. Ruchi is a senior executive myth a reputed education company. She is a process
oriented individual and the same reflects in the way she has managed her finances.
She holds a diversified portfolio in addition to disciplined monthly outflows for
retirement purpose.

Ruchi strictly believes in not taking any form of credit as she believes it leads to
financial indiscipline. As a result she preferred to wait before buying a house few
years back than to it immediately using a housing loan.

You are the wealth manager for her portfolio and in the recent meeting you get to
know has been waiting to accumulate some savings to undertake some construction
in her h Construction pertains to adding a new luxurious room on the roof top. You
recommend her suitable housing loan instead of waiting for the savings to get
accumulated.

She wants to know how much would be the burden of EMI if construction expenses
total to 2000000/-, prevailing fixed interest rate is 12% PA and the loan is to be
repaid in next 15 years.

Q.84. What's your commentary upon Ms. Ruchi's eligibility for a loan?
A. Good credit score and high chances of obtaining loan
B. Moderate credit score and moderate chances of obtaining loan
C. No credit score and moderate chances of obtaining loan
D. No credit score and no chances of obtaining loan

Q.85. How much do you agree with Ms. Ruchi's decision to not to avail a housing
loan on grounds of financial indiscipline?
A. A loan to create a long term asset is generally not considered as indiscipline
B. It was appropriate to think like that
C. It is a matter of individual's perception
D. None of these

Q.86. What kind of a housing loan would you recommend to Ms. Ruchi for her
current needs?
A. Home Construction Loan
B. Home Improvement Loan
C. Home Conversion Loan
D. Home Extension Loan

Q.87. How much would be the EMI burden on Ms. Ruchi if she goes by your
advice?
A. 24003/-
B. 240000/-
C. 293648
D. None of these

Section C — 4 Marks Questions:

Q.88. Calculate the total interest to be paid on a loan of RS 100000/- carrying a

rate of interest 12% PA to be paid monthly over next two years. Assume that both
the methods, d balance as well as flat balance.
Flat Balance Method Declining Balance Method
A. RS 2400 Amount Greater than Rs 2400
B. Amount Greater than Rs 2400 RS 2400
C. RS. 2400 Amount Lesser than Rs2400
D. None of these

Q.89. In case of equal principal method of installment pay, which of the following
statements most accurately reflects the level of installment amount paid and the
principal therein?
Principal Paid Installment Paid
A. Variable& rising Constant
B. Constant Constant
C. Constant Variable & falling
D. Variable& falling Variable& rising

Q.90 In case of equal installment method of installment pay, which of the

following statements most accurately reflects the level of installment amount paid
and the principal therein?
Principal Paid Installment Paid
A.Variable & rising Constant
B.Constant Constant
C.Constant Variable & falling
D.Variable & falling Variable & rising

Q.91 Calculate the amount of Equated Monthly Installment (EMI) on a loan of RS

500000/-tarrying a rate of interest of 8% PA, for a period of 5 years. Take two
scenarios, EMI Advance & EMI Arrears, assuming reducing balance method in your
calculation.
EMI in Advance EMI in Arrears
A. RS 10138/- PM RS 10071/- PM
B. RS 10071/- PM RS 10138/- PM
C. RS 115952/- PM RS 125228/- PM
D. None of these

Q.92Which of the following is least likely to be component of Gross Working

Capital of a company?
1. Raw material
2. Land held for future developments
3. Consumable Stores & Spares
4. Accounts payables
5. Stock in progress
6. Other Fixed Blocks
7. Stock of Finished goods
8. Other current liabilities
9. Receivables
10. Cash & Bank Balance
11. Other Current Assets
12. Long term debt
A. 1, 2, 4, 6, 11
B. 1,2, 4, 5, 12
C. 2, 4, 6, 8, 12
D. 1, 4, 6, 10, 11

Q.93. Calculate the number of days of holding the raw material, stock in process &
finished goods as per the data given below:
• Average daily consumption of raw material = 500 kg
• Total stock required in the year = 10000 Kg
• Annual Cost of production = 1NR 150 million
• Average Stock in process during the year = INR 50 million
• Finished goods cost of sales (during the year) = INR 400 million
• Average stock of finished goods = INR 100 million
Average No of days of holding:
Raw material Stock in Process Finished Goods
A. 20 days 120 days 90 days
B. 20 days 3 days 4 days
C. 18 days 125 days 100 days
D. Insufficient Data

Q.94. Determine the amount of interest that can be claimed as deduction u/s 24 of
Income -a, Act in financial year ending 2012 as per following data:
• Amount of loan: Rs 10 Lacs
• Rate of interest: 12% PA
• Date of borrowing to acquire the house: 1st July, 2009
• Date of completion of house construction and subsequent possession to the
owni-30st June, 2012
• There was no repayment of principal till the house is delivered for possession
A. Rs 186000
B. Rs 150000
C. Rs 30000
D. Loan Not eligible u/s 24
 UNIT VI - PORTFOLIO MANAGEMENT STRATEGIES

Section A —1 Mark Questions:

Q.1. A perfectly diversified portfolio will fully eliminate ___________ risk.

A. Systematic
B. Unsystematic

Q.2. Classifying an investment as a long term investment depends primarily on;

A. the length of time the investor expects to hold the investment.
B. the amount of the investment.
C. whether a liquid market exists for selling the investment

Q.3. ZCYC is generally positively sloped

A. True
B. False

Q.4. Companies Act lays down rules and regulations regarding

A. Issue, allotment and transfer of securities
B. Standard of disclosure in public issue
C. Underwriting of issues
D. All of the above

Q.5. A speculator is a trader who

A. assumes no risk for profit
B. assumes risk for profit
C. does not incur losses at all
D. has a long position in cash market and long position in derivatives market.

Q.6. Asset Liability management provides risk management technique that focuses
on
A. Both sides of the balance sheet
B. Asset side of the balance sheet
C. Liability side of the balance sheet D. Profit & Loss A/c of the client E. All of these

Q.7. The primary goal of ALM is to ____________ shortfall twang riffs and allow
assets in the portfolio to fund future liabilities.
A. Reduce
B. Exceed
C. Normalize

Q.8. Asset only approach (AO) to strategic asset allocation does not explicitly
involve ____________
A. Profit
B. Assets
C. Liabilities
D. Outstanding

Q.9. CPPI is consistent with tolerance for risk than a buy and hold strategy.
A. Higher
B. Lower
C. Similar
D. None of these

Q.10. Constant mix is a _______ _________ strategy in that it reacts to market

movements trades.
A. Dynamic
B. Do-Something
C. Do-nothing
D. None- of these

Q.11. The GARP strategy is a combination of both _______ and _________

investing.
A. Time, money
B. Value, growth
C. Style, fancy
D. Contrarian, consistent

Q.12. Growth and value investing styles are

A. Competitive
B. Complementary
C. Opposite
D. Similar

Q.13. Value fund managers look for those companies that have fallen out of but
still have good _____________
A. Fundamentals
B. Technical`
C. Arguments
D. Past but no future

Q.14. Contrarian Investing is opposite of ____________ investing.

A. Passive
B. Active
C. Momentum
D. Fundamental

Q.15. Portfolio management is an on-going active process in which the changing

nature of economics.
A. True
B. False
Q.16. If no other asset or portfolio of assets offers higher expected return with the
same or lower risk, or lower risk with the same expected return it is known as
A. Inefficient portfolio
B. In different portfolio
C. Efficient portfolio
D. Profitable portfolio

Q.17. CAPM is a model that indicates what should be the expected or rate of
return on risky assets.
A. Minimum
B. Maximum
C. Required
D. Riskless

0.18. Similar to CAPM model, the APT assumes that the unique (E) are independent
and will be ______________ away in a large portfolio.
A. Diversified
B. Maximized
C. Minimized
D. Thrown

Q.19. Marketability refers to the transferability or sale ability of an asset in the

primary markets.
A. True
B. False

Q.20. Speculation is the buying, holding and selling of stocks commodities,

collectibles real estate or any valuable thing to profit from fluctuations in its price
as opposed to buying it to use. It is quite similar to investment. True/False

Q.21. Portfolio management involves a series of decisions and actions that are
made by every investor, whether individual or institution. True/False

Q.22. Individual investors, unlike some institutional investors, must consider the
impact of taxes on their investment programs. The treatment of ordinary income
as opposed to capital gains is an important issue because typically there is a
differential tax rate. True/False

Q.23. The asset allocation decision involves deciding the percentage of investible
funds placed in stocks, bonds, cash equivalents, and so forth. That is, asset
allocation involvement. which of the major asset classes an investor will choose for
his or her portfolio. True/False

Q.24. Rebalancing does not reduce the risks of losses — in general, a rebalanced
portfolio is more volatile than one that is not rebalanced. True/False
Q.25. The measurement of portfolio performance allows investors to determine
the success of the portfolio management process, but not of the portfolio
manager. True/False

Q.26. Business Risk is the uncertainty of income flows caused by the nature of a
firm's business The less certain the income flows of the firm, the less certain the
income flows to investor. True/False

Q.27. Interest rate risk is often the major factor influencing a bond's market price
and total returns. The market prices of most bonds move in the same direction of a
change in interest rates True/False

Q.28. Reinvestment risk refers to the risk that the rate at which coupon and
principal cash flows from a bond are reinvested will be higher than the expected
rate in effect when the bon: was purchased. True/False
Q.29. Credit Risk is the risk of loss caused by a counterparty or debtor's failure to
make a payment. True/False

Q.30. The basic premise behind using Risk Adjusted Rate of Return is that you
cannot look at the potential payoff of any investment and simply rank them from
highest to lowest in terms of attractiveness. True/False

Q.31. The Sharpe measure is a ratio of your portfolio's excess return divided by
your portfolio's beta. The portfolio's excess return is fond by subtracting the risk-
free rate (the rate of return you are guaranteed to make with limited risk) from the
amount of the portfolio's actual return. True/False

Q.32. Call provisions limit a bond's potential price appreciation because when
interest rates fall, the bond's price will not go any higher than its call price.
True/False

Q.33. The YTM depends only 3 things: the current price, the bond's coupon
payment, and its face value. All of these values are observable. True/False

Q.34. A widely used relative measure of risk is the coefficient of variation (CV),
calculated as follows:
Expected Rate of Return

Coefficient of Variation (CV) = Standard Deviation of Returns

True/False

Q.35. Beta measures the relationship of a security or a fund's performance versus

the movements of the entire market. Beta is defined as the sensitivity of a security
or a portfolio of securities to the market as a whole. True/False

Q.36. Low beta does not mean the low level of volatility. True/False
Q.37. Beta is used in CAPM to forecast expected return of a stock. True/False

Q.38. Time diversification is adjusting the investment strategy based on what is

going on in the economy at the time. True/False

Q.39. Capital market portfolio theory develops a model for pricing all risky assets.
The final product, the capital asset pricing model (CAPM), will allows us to
determine the required rate of return for any risky asset. True/False

Q.40. This portfolio that includes all risky assets is referred to as the market
portfolio which is a risk free portfolio. True/False

Q.41. In strategic asset allocation, an investor's return objectives, risk tolerance,

and investment constraints are integrated with long-run capital market
expectations to establish exposures to IPS (Investment Policy Statement)
permissible asset classes. True/False

Q.42. Index investing is a passive investment management approach. This means

that the managers aims only to match the performance of the index it is tracking.
True/False

Q.43. Active investing has some definitive features that includes stock picking and
market timing. True/False

Q.44. Contrarian investing is the complete opposite of momentum investing.

Basically, you buy when the economy is in bad shape and words like recession,
depression, no bottom for the stocks appears constantly in newspapers. True/False

Q.45. Value investing is thought to be the purchase of "cheap stocks". The idea. of
course, is to purchase stocks below their "intrinsic value" and wait for that value to
be recognized by other investors. True/False

Q.46. If a portfolio is never rebalanced, it will gradually drift from its target asset
allocation to higher-return, higher-risk assets. True/False
(83)

Q.47. A constant-proportion strategy is a dynamic strategy in which the target

equity all a function of the value of the portfolio less a floor value for the portfolio.
The fol equation is used to determine equity allocation. True/False

Q.48. Operational Risk is different from

A. investment risk
B. credit risk
C. settlement risk
D. all of them
Q.49. Exchange risk for India is the risk of
A. rupee appreciating
B. dollar depreciating
C. rupee depreciating
D. none of these

Q.50. Asset allocation is the most important ____________ made by investors

because it is the basic determinant of the return and risk taken.
A. investment
B. dividend
C. financing
D. operational

Q.51. Sharpe Ratio is an easy and convenient way to calculate Risk and __________
for a particular portfolio.
A. Return
B. Beta
C. Risk free Return
D. Fluctuations

Q.52. The Jensen measure is the ratio of your portfolio return less the portfolio's
__________ return as determined by the capital asset pricing model or CAPM.
A. risk free CAPM
B. risky Return
C. efficient Return
D. expected

Q.53. Beta is a measure of:

A. Geometric average return
B. Holding period return
C. Systematic risk
D. Unsystematic risk

Q.54. The CAPM is a model that:

A. Determines the geometric return of a security.
B. Determines time-weighted return
C. Explain return in terms of risk.
D. Explains systematic risk

Q.55. The two classic stock-picking styles of are those of value and ____________.
The value style entails buying stocks that are regarded as cheap, whereas
________________ stocks are expected to grow faster than the rest of the market.
A. Dividends
B. Earnings
C. Interest
D. Growth
Q.56. Government bond is best described by which one of the following
statements?
A. It has no voting privileges.
B. It receives no cash dividends.
C. It may be resold at any time.
D. All of the above.

Q.57. Which of the following bond quality ratings applies to default-free bonds?
A. AAA.
B. AA.
C. Both b and a are default-free.
D. None of the above is default-free.

Q.58. An investor that employed a naive buy-and-hold strategy would be

employing a passive investment management strategy. True/False

Q.59. Which of the following factors tends to increase the growth rate of a
corporation?
A. External borrowing
B. Increasing the retention rate
C. Increasing the rate of return on equity
D. Both a and b
E. All of the above

Q.60. Interest-rate risk is defined by which of the following statements?

A. Fluctuations in the coupon interest rates from one bond issue to the next
B. Fluctuations in the market prices of bonds as their prices move inversely to the
prevailing market interest rates
C. The variability of returns as a result of fluctuations in market interest rates
D. Both a and b
E. All of the above

Q.61. Duration for a zero coupon bond is less than its term to maturity. True/False

Q.62. Asset Liability management provides risk management technique that

focuses on
A. Both sides of the balance sheet
B. Asset side of the balance sheet
C. Liability side of the balance sheet
D. Profit & Loss A/c of the client
E. All of these

Q.63. The primary goal of ALM is to _____________ shortfall funding risks and
allow assets in the portfolio to fund future liabilities.
A. Reduce
B. Exceed
C. Normalize

Q.64. Asset only approach (AO) to strategic asset allocation does not explicitly
involve _______________
A. Profit
B. Assets
C. Liabilities
D. Outstanding

Q.65. Growth and value investing styles are

A. Competitive
B. Complementary
C. Opposite
D. Similar

Q.66. Value fund managers look for those companies that have fallen out of but
still have good ___________
A. Fundamentals
B. Technicals
C. Arguments
D. Past but no future

Q.67. Contrarian Investing is opposite of ____________ investing.

A. Passive
B. Active
C. Momentum
D. Fundamental

Q.68. Portfolio management is an on-going active process in which the changing

nature of economics. True/False

Q.69. If no other asset or portfolio of assets offers higher expected return with the
same or lower risk, or lower risk with the same expected return it is known as
A. Inefficient portfolio
B. In different portfolio
C. Efficient portfolio
D. Profitable portfolio

Q.70. CAPM is a model that indicates what should be the expected or

____________ rate of return on risky assets.
A. Minimum
B. Maximum
C. Required
D. Riskless
Q.71. Similar to CAPM model, the APT assumes that the unique (E) are
independent and will be ______________ away in a large portfolio.
A. Diversified
B. Maximized
C. Minimized
D. Thrown

Q.72. Marketability refers to the transferability or saleability of an asset in the

primary markets. True/False

Q.73. Speculation is the buying, holding and selling of stocks commodities,

collectibles real estate or any valuable thing to profit from fluctuations in its price
as opposed to buying it to use. It is quite similar to investment. True/False

Q.74. Portfolio management involves a series of decisions and actions that are
made by every investor, whether individual or institution. True/False

Q.75. Individual investors, unlike some institutional investors, must consider the
impact of taxes on their investment programs. The treatment of ordinary income
as opposed to capital gains is an important issue because typically there is a
differential tax rate. True/False

Q.76. The asset allocation decision involves deciding the percentage of investible
funds to be placed in stocks, bonds, cash equivalents, and so forth. That is, asset
allocation involves which of the major asset classes an investor will choose for his
or her portfolio. True/False

Q.77. Rebalancing does not reduce the risks of losses — in general, a rebalanced
portfolio is more volatile than one that is not rebalanced. True/False

Q.78. The measurement of portfolio performance allows investors to determine

the success of the portfolio management process. but not of the portfolio
manager. True/False
Q.79. Business Risk is the uncertainty of income flows caused by the nature of a
firm's b The less certain the income flows of the firm, the less certain the income
flows to investor. True/False

Q.80. Interest rate risk is often the major factor influencing a bond's market price
and total returns. The market prices of most bonds move in the same direction of a
change in interest rates. True/False

Q.81. Reinvestment risk refers to the risk that the rate at which coupon and
principal cash flows from a bond are reinvested will be higher than the expected
rate in effect when the bond was purchased. True/False
Q.82. Credit Risk is the risk of loss caused by a counterparty or debtor's failure to
make a payment. True/False

Q.83. The basic premise behind using Risk Adjusted Rate of Return is that you
cannot look at the potential payoff of any investment and simply rank them from
highest to lowest in terms of attractiveness. True/False

Q.84. The Sharpe measure is a ratio of your portfolio's excess return divided by
your portfolios beta. The portfolio's excess return is fond by subtracting the risk-
free rate (the rate of return you are guaranteed to make with limited risk) from the
amount of the portfolio's actual return. True/False

Q.85. Call provisions limit a bond's potential price appreciation because when
interest rates fs the bond's price will not go any higher than its call price.
True/False

Q.86. The YTM depends only 3 things: the current price, the bond's coupon
payment, and its face value. All of these values are observable. True/False

Q.87. Beta measures the relationship of a security or a fund's performance versus

the movements of the entire market. Beta is defined as the sensitivity of a security
or a portfolio of securities to the market as a whole. True/False

Q.88. Low beta does not mean the low level of volatility. True/False
Q.89. Beta is used in CAPM to forecast expected return of a stock. True/False

Q.90. Time diversification is adjusting the investment strategy based on what Is

going on in the economy at the time. True/False

Q.91. Capital market portfolio theory develops a model for pricing all risky assets.
The final product, the capital asset pricing model (CAPM), will allows us to
determine the required rate of return for any risky asset. True/False

Q.92. This portfolio that includes all risky assets is referred to as the market
portfolio which is a risk free portfolio. True/False

Q.93. In strategic asset allocation, an investor's return objectives, risk tolerance,

and investment constraints are integrated with long-run capital market
expectations to establish exposures to IPS (Investment Policy Statement)
permissible asset classes. True/False

Q.94. Index investing is a passive investment management approach. This means

that the managers aims only to match the performance of the index it is tracking.
True/False

Q.95. Active investing has some definitive features that includes stock picking and
market timing. True/False
Q.96. Contrarian investing is the complete opposite of momentum investing.
Basically, you buy when the economy is in bad shape and words like recession,
depression, no bottom for the stocks appears constantly in newspapers. True/False

Q.97. Value investing is thought to be the purchase of "cheap stocks". The idea, of
course, is to purchase stocks below their "intrinsic value" and wait for that value to
be recognized by other investors. True/False

Q.98. If a portfolio is never rebalanced, it will gradually drift from its target asset
allocation to higher-return, higher-risk assets. True/False

Q.99. A constant-proportion strategy is a dynamic strategy in which the target

equity allocation is a function of the value of the portfolio less a floor value for the
portfolio. The following equation is used to determine equity allocation.
True/False

Section 8 - 2 Marks Questions:

Q.100. A Rs.100 par value bond having 10 % coupon rate will mature after 7 years.
Find the value of the bond if the discount rate is 5%
A. 109.85
B. 111.41
C. 108.75
D. 110.41

Q.101. With the following data shown in the table below, compute the risk on the
portfolio?
Security Std. Deviation Proportion
A 14.5 % 60%
B 18.5 % 40%
Correlation Coefficient= 0.91
A. 14.5
B. 15.74
C. 16.31
D. 14.78

Q.102. Suppose a company sold an issue of bonds with a 10 year maturity, a 1000
par value, a 10% coupon rate and semi annual interest payments. 2 years after the
bonds were issued, the VTM of the bond is 6%. At what price (approximately) the
bond would sell in the market?
A. 1100
B. 1200
C. 1232
D. 1300
Q.103. Tax is an important consideration of any investor. Following are some
questions based on the taxation aspects of investment.
Cost of acquisition is
A. Value spent for acquiring the investment
B. Value spent on acquiring the investment plus the capital expenses incurred for
acquisition C. Value spent on acquiring the investment minus the capital expenses
incurred for acquisition
D. Value spent for acquiring the investment plus depreciation.
Sure Tool Company is expected to pay a dividend of 2 in the upcoming year. The
risk-free rate of return is 4% and the expected return on the market portfolio is
14%. Analysts expect the price of Sure Tool Company shares to be 22 a year from
now. The beta of Sure Tool Company's stock is 1.25.

Q.104. The market's required rate of return on Sure's stock is ________

A. 14.0%
B. 17.5%
C. 16.5%
D. 15.25%
E. none of the above

Q.105. What is the intrinsic value of Sure's stock today?

A. 20.60
B. 20.00
C. 12.12
D. 22.00
E. None of the above

Q.106. If Sure's intrinsic value is 221.00 today, what must be its growth rate?
A. 0.0%
B. 10%
C. 4%
D. 6%
E. 7%
Use the following to answer questions
Torque Corporation is expected to pay a dividend of $1.00 in the upcoming year.
Dividends are expected to grow at the rate of 6% per year. The risk-free rate of
return is 5% and the expected return on the market portfolio is 13%. The stock of
Torque Corporation has a beta of 1.2.

Q.107. What is the return you should require on Torque's stock?

A. 12.0%
B. 14.6%
C. 15.6%
D. 20%
E. None of the above

Q.108. What is the intrinsic value of Torque's stock?

A. $14.29
B. $14.60
C. $12.33
D. $11.62
E. None of the above

Q.109. Midwest Airline is expected to pay a dividend of $7 in the coming year.

Dividends are expected to grow at the rate of 15% per year. The risk-free rate of
return is 6% and the expected return on the market portfolio is 14%. The stock of
Midwest Airline has a beta of 3.00. The return you should require on the stock is
A. 10%
B. 18%
C. 30%
D. 42%
E. None of the above

Q.110. A mutual fund that invests in Indian Equities, foreign equities, Indian
Corporate Bonds, Indian Government Gilts is subject to the following risks?
1. Business Risk,
2. Default Risk,
3. Systematic Risk,
4. Interest Rate Risk.
A. 1 & 3 only
B. 1,3 & 4 only
C. 3 & 4 only
D. 1,2,3 & 4

Q.111. If a new issue was offered to the public at 15 times earnings but the market
was pricing similar shares at 19 times, this would be__________
A. Appalling proposition to the investor
B. The investor cannot take a position
C. An example of low gearing
D. Bargain not to be missed

Q.112. If a bond is selling at a premium:

A. It is an attractive investment
B. Its coupon rate is below market rate
C. Its current yields is lower than the coupon rate
D. Its realized compound yield will be less than the yields to maturity

Q.113. GE is an AAA rated issuer of Corporate Bonds in the International Debt

markets. The issue price of a typical GE corporate bond is affected by all the
following EXCEPT the ___________
A. Face value, coupon rate, and maturity of the bond.
B. Firm's required return on debt.
C. Percentage of debt in the firm's capital structure.
D. Required return on the firm's competitors' bonds.
Q.114. Suppose a stock Index has a current value of 3500. If the risk-free rate is 8
percent and the expected yield on the index is 2 percent, what should be the price
of a six months maturity futures contract?

Q.115. Ramesh Sharma owns a portfolio whose market model is expressed as: rp =
1.5% + 0.90 n + epi If the expected return on the market index is 12%, what is the
expected return on Ramesh's portfolio ?

Q.116. The GARP strategy is a combination of both ________ and _________

investing
A. Time, money
B. Value, growth
C. Style, fancy
D. Contrarian, consistent

Section C — 4 Marks Questions:

Q.117. From the following information, calculate the expected rate of return of a
portfolio:
Expected market return 15%
Risk-free rate of return 9%
Standard deviation of an asset 2.4%
Market standard deviation 2.0%
Correlation co-efficient of portfolio with market 0.9

Q.118. The following information is given

Risk-free rate of return 8%
Expected rate of return on market portfolio 16%
a of a security 0.7
(i) Find out the expected rate of return of the security
(ii) If another security has an expected return of 20% what must be its beta?

Q.119. The information on growth schemes of two mutual funds are given below:
Beta Mean Std.
Deviation
Fund Kashyap 1.0 0.14 12%
Fund Vimalesh 2.0 0.16 18%
Market Index 012 9%
Under assumption of risk free rate at 9%, what are the values for Jensen for
Kashyap and Vimalesh, respectively.
A. 2%, 1%
B. 3%, 2%
C. 4%, 5%
D. 1%, 2%
Use the following to answer questions
Q.120. Old Quartz Gold Mining Company is expected to pay a dividend of 8 in the
coming year. Dividends are expected to decline at the rate of 2% per year. The risk-
free rate of return is 6% and the expected return on the market portfolio is 14%.
The stock of Old Quartz Gold Mining Company has a beta of -0.25. The intrinsic
value of the stock is ___________
A. 80.00
B. 133.33
C. 200.00
D. 400.00
E. None of the above

Q.121.Fools Gold Mining Company is expected to pay a dividend of 8 in the

upcoming year. Dividends are expected to decline at the rate of 2% per year. The
risk-free rate of return is 6% and the expected return on the market portfolio is
14%. The stock of Fools Gold Mining Company has a beta of -0.25. The return you
should require on the stock is
A. 2%
B. 4%
C. 6%
D. 8%
E. None of the above

Q.122. Equal amount of investment is made in portfolio consisting of securities X

and Y. deviation of X is 12.43%. ; Standard deviation of Y is 16.54%. ; Correlation
coefficient is 0.82. ; The interactive risk of the portfolio, measured by covariance is
A. 145.64
B. 156.22
C. 168.59
D. 172.56

Q.123. The risk free return of Security A is 8%. In addition to it, you expect that the
return on market would be 14%. The expected return of Security A with beta of
0.70 is
A. 12.2%.
B. 15.4%.
C. 17.8%.
D. 18.2%.

Q.124. Portfolio A had a return of 12% in the previous year, while the market had
an a. return of 10%. The standard deviation of the portfolio was calculated to be
20%, while the standard deviation of the market was 15% over the same time
period. If the correlation between the portfolio and the market is 0.8, what is the
Beta of the portfolio A?
A. 0.94
B. 1.07
C. 1.31
D. 1.91

Q.125. Ramesh Bajaj recently purchased a bond with a Rs. 1000 face value, a 10%
coupon and four years to maturity. The-bond makes annual interest payments, the
first to be received one year from today. Ramesh paid Rs. 1032.40 for the bond.
What is the bond’s yield-to-maturity?

Q.126. High Tech Chip Company is expected to have EPS in the coming year of
$2.50. expected ROE is 12.5%. An appropriate required return on the stock is 11%.
If the firm r-a plowback ratio of 70%, the growth rate of dividends should be
A. 5.00%
B. 6.25%
C. 6.60%
D. 7.50%
E. 8.75%

Q.127. Assume the following information for a stock:

Beta coefficient = 1.50
Risk-free rate = 6%
Expected rate of return on market = 14%
Dividend payout ratio = 30%
Expected dividend growth rate = 11%
The estimated earnings multiplier (P/E ratio) is closest to:
A. 3.33.
B. 4.29.
C. 10.00.
 UNIT VII - RELATIONSHIP MANAGEMENT BY A WEALTH
MANAGER

Section A —1 Mark Questions:

Q.1. Which of the following should wealth managers have a clear view on, for CRM
to work
A. Cost reductions
B. Efficiency of services delivered
C. Convenience in dealing with WM organization
D. All of the above

Q.2. To maximize the benefits, a wealth manager must

A. Align product and coverage functions
B. Define overall objectives for the client
C. Measure performance against objectives
D. All of the above

Q.3. Which of the following is not a type of CRM?

A. Strategic
B. Operational
C. Tactical
D. Analytical

Q.4. Which of the following is not a CRM model?

A. IDIC
B. QCi
C. Payne's
D. Value Research

Q.5. The Forrester CRM model comprises

A. Strategy
B. Process
C. Technology
D. People
E. All of the above

Q.6. A relationship is composed of a series of interactive episodes between

different parties over time.
A. True
B. False
Q.7. Managing customer retention and tenure intelligently generates key benefits
for companies
A. Reduced marketing costs
B. Better customer insight
C. Both the above

Q.8. Lifetime value of a customer is a measure of a customer's profit generation for

a company
A. True
B. False

Q.9. Factors important to compute LTV are

A. Revenues
B. Cost to serve
C. Referrals
D. All of the above
E. None of the above

Q.10. Which of the following is not critical for the success of CRM technology?
A. Sales automation
B. Marketing automation
C. Information systems integration
D. Employee vacations

Q.11. In CRM context, Value is the customer's perception of the balance between
benefits received from a product or service and the sacrifices made to experience
those benefits.
A. True
B. False

Q.12. Value proposition is the explicit or implicit promise made by a company to its
customers that it will deliver a particular bundle of value-creating benefits.
A. True
B. False

Q.13. Which of the following is not a value delivery strategy?

A. Operational excellence
B. Product intimacy
C. Customer Intimacy
D. Product Leadership

Q.14. Operational excellence, Product leadership, and Customer intimacy are three
different
A. Value delivery strategies
B. CRM strategies
C. Marketing strategies
D. Organization structures
Q.15. In the context of value proposition, when an organization can communicate
with target audiences at a mass or segment level, but is also able to offer
customized value proposition for individuals it is called
A. Mass customization
B. Craft customization

Q.16. Match-to-order, Bundle-to-order, Assemble-to-order, Make-to-order and

Engineer-to-order are all forms of
A. Mass customization
B. Craft customization

Q.17. A is a performance or act performed for a customer

A. Service
B. Product
C. Tool

Q.18. Major perspective(s) on service quality are

A. Conformance to specification
B. Fitness for purpose
C. All of the above

Q.19. Producing error-free invoices, delivering on time, responding to customer

complaints in a timely manner are examples of quality with regard to
A. Conformance to specification
B. Fitness for purpose

Q.20. When products and services meet customer requirements and exceed their
expectations, it is an example of quality with regard to
A. Conformance to specification
B. Fitness for purpose

Q.21. Three important components of Nordic service quality model are

A. Technical
B. Functional
C. Reputational
D. All of the above

Q.22. The component of Nordic service model that deals with the halo effect
influencing perception of quality is
A. Technical
B. Reputational
C. Both the above

Q.23. In the context of CRM, SLAB are

A. Service level agreements
B. Support level agenda
C. Neither of the above

Q.24. A service level agreement is a contractual commitment between a service

provider and a customer that specifies the mutual responsibilities of both parties
with respect to the services that will be provided and the standards at which they
will be performed.
A. True
B. False

Q.25. A customer portfolio is the collection of mutually exclusive customer groups

that comprise a business's entire customer base.
A. True
B. False

Q.26. RACE is a practical framework to help marketers manage and improve the
commercial value gained from digital marketing. The term stands for Reach, Act, C,
Engage. What does 'C' refer to?
A. None of the below
B. Convert
C. Collaborate
D. Consolidate
E. Collect

Q.27. E-commerce managers aim to deliver the most effective mix of

communications to drive traffic to their e-commerce sites. The different
techniques can be characterised as:
A. Digital media channels
B. Offline marketing communications
C. Online marketing communications
D. All of the above

Q.28. A marketing campaign will not be successful if the costs of acquiring site
visitors and customers are too high. The term used to describe the cost of acquiring
a new customer is known as:
A. Referrer cost
B. Allowable cost per acquisition
C. Bounce rate
D. Cost per acquisition

Q.29. The use of online and offline promotion techniques to increase the audience
c' known as a:
A. Traffic building campaign
B. Quality score
C. Search engine optimisation
D. Search engine marketing
Q.30. Social media (e.g. Facebook, Twitter) usage has become so widespread that
to discouar" social media strategy would be a mistake best avoided. Social
customer relations:21w management (Social CRM) is a relatively new term which
helps to define the broad scope. fr social media across the customer life cycle and
value chain. The Altimeter report : provides a framework for reviewing strategy
implementation and is known as:
A. The 5Ms
B. Social CRM modelling
C. Social media CRM framework
D. None of the above

Q.31. Online marketing communications include the development on online

partnerships and a regarded as an important part of a marketing mix. There are
three key types of onime-partnerships; link building, affiliate marketing, and one
other:
A. Ad serving
B. Media multiplier
C. Online sponsorship
D. Interactive advertising

Q.32. E-mail marketing has to make strategic plans regarding outbound and
inbound e-mails. E-mail is most widely used as a prospect conversion and customer
retention tool. A databalii of customer names, email addresses and profile
information used for e-mail marketing usually known as:
A. Customer profiles
B. Viral marketing email directory
C. Customer and prospect database
D. House list

Q.33. The most important modules of CRM are Marketing, Sales, Service Desk,
Inventory
A. True
B. False

Q.34. Marketing Automation can be described as event-based trigger marketing

that is used to launch messaging and offer presentations to customers at particular
points in time. CRM helps not only trigger the communications, but also measure
the results.
A. True
B. False

Q.35. Can the CRM system manage all customer interactions, i.e. driven by
customer-facing employees, self-service customers, prospects, or partners?
A. Yes
B. No
Q.36. CRM systems are successfully used by many different industries, including
financial services, high-tech, manufacturing, media, fashion & boutiques, startups,
as well as governmental organizations, non-profits and more.
A. True
B. False

Q.37. What type of organizations can benefit from CRM?

A. Small and medium-sized companies,
B. Corporations, associations,
C. Internet-based retailers, fund-raising organizations
D. All of the above

Q.38. What can a CRM system do for me?

A. A CRM system can help you recognize prospective customers,
B. Learn more about current customers and understand their preferences,
C. Frequently anticipate their needs and respond to their requests quickly and
effectively.
D. All of the above

Q.39. How can the CRM benefit business?

A. Raise customer satisfaction
B. Increase customer retention
C. Reduce marketing expenses
D. Anticipate customer needs and preferences
E. Increase operating efficiencies
F. Improve targeted marketing efforts of customers and prospects
G. Provide quicker service to customers.
i. A, B
ii. A, C, D, E
iii. A, B, C, D, F
iv. All of the above

Q.40. Can CRM be integrated with social networking sites?

A. Yes
B. No

Q.41. Social CRM is both a philosophy and business strategy regarding customer
relationship management that focuses on using social media to enhance customer
engagement.
A. True
B. False

Q.42. How can we measure customer satisfaction across various touch points in
CRM?
A. Surveys
B. Review Calls
C. Neither A nor B
D. Both A and B

Q.43. The 'cloud' is a popular word for using the Internet to access data, stored on
remote servers i.e. like somewhere in the cloud. The cloud makes it convenient to
get at information and services from anywhere.
A. True
B. False

Q.44. What is the difference between CRM and ERP?

A. CRM combines Marketing, Sales, Contact Management, and Customer Support. B.
ERP stands for Enterprise Resource Planning.
C. ERP systems help standardize and streamline numerous business processes across
manufacturing, procurement, services, sales, finance, HR management, etc.
D. ERP software is mostly used by larger, established companies.

Q.45. CRM cannot be integrated with ERP?

A. True
B. False

Q.46. TQM refers to

A. Total quantity management
B. Total quality management
C. Total quality marketing
D. Total quotient management
E. Total quantity marketing

Q.47. Customer churn refers to

A. customer defection
B. customer mix
C. customer anxiety
D. customer loyalty
E. customer value

Q.48. ___________ Is when a company works continuously with its large

customers to help improve their performance.
A. Basic marketing
B. Reactive marketing
C. Accountable marketing
D. Proactive marketing
E. Partnership marketing

Q.49. Frequency programs (FP's) are designed to provide rewards to____________

A. Customers who need to be encouraged to buy more frequently
B. Customers who buy frequently and in substantial amounts
C. Customers who buy frequently but in small amounts
D. Customers who buy infrequently in large amounts
E. Customers who buy infrequently in small amounts
Q.50. A _____________ is an organized collection of comprehensive information
about individual customers or prospects.
A. Marketing database
B. Customer database
C. Customer mailing list
D. Business database
E. Datamine

Q.51. Through ______________ marketing statisticians can extract useful

information about individuals, trends, and segments from the mass of data.
A. CRM
B. Prospecting
C. Datamining
D. Calculus
E. relationship marketing

Q.52. Companies can build interest and enthusiasm by using databases to

remember customer preferences. This strategy helps to _____________
A. Deepen customer loyalty
B. Reactivate dormant customers
C. Avoid serious customer mistakes
D. Identify prospects
E. Decide which customers should receive a particular offer

Q.53. is the difference between the prospective customer's evaluation of all the
benefits and all the costs of an offering and the perceived alternatives.
A. Customer value
B. Customer cost
C. Value delivery system
D. Value proposition
E. Customer perceived value

Q.54. _______________ (TCE) influences customers' perceptions of value and

service quality, which consequently affects customer loyalty.
A. Total Consumer Effectiveness
B. Total Customer Effectiveness
C. Total Customer Experience
D. Total Consumer Enthusiasm

Q.55. _______________ is communicated through brand names, logos and dressing

sense. Visible elements of a brand, such as color, form, and shape, which
encapsulate and convey the symbolic meanings that cannot be imparted through
words alone.
A. Product presence
B. Visual Identity
C. Process Power
D. Company Reputation

Q.56. ________________ is searching for opportunities that might generate

additional value for the company. It is an outcome of the segmenting and targeting
process.
A. Marketing
B. Segmentation
C. Prospecting
D. Quest

Q.57. Which of the following form sources of business-to-business leads

A. Networking
B. Website
C. Referrals from satisfied customers
D. Tele-marketing
i. All of the above
ii. All except d H.
iii. A and B
iv. None

Q.58. _______________ is the number of customers doing business with a firm at

the end of a financial year, expressed as percentage of those who were active
customers at the beginning of the year.
A. Customer acquisition
B. Customer development
C. Customer defection
D. Customer retention

59. Customer Delight is created when

A. Customer Perception meets his expectation
B. Customer Perception exceeds his expectation
C. Customer expectation exceeds his perception
D. Customer expectation matches his perception

Q.60. Loyalty Schemes, Customer clubs, sales promotions are examples of the
__________ with respect to customer retention strategy
A. Creating customer delight
B. Creating social and structural bonds
C. Creating customer-perceived value
D. Building customer engagement

Q.61. The period of time that it can take for CRM to show a return on investment
varies according to the type of CRM that is being implemented.
A. False
B. True

Section B — 2 Marks Questions:

Q.62. Which of the following is not correct about Analytical CRM?
A. It captures, stores, extracts, integrates, processes, interprets, distributes, uses and
reports customer-related data to enhance both customer and company value.
B. It does not help companies to decide their selling approach for the customer
groups.
C. Customer information forms the foundation of this CRM.
D. It offers the company the prospect of more powerful cross-selling and up-selling
programmes

Q.63. Gartner's CRM Model uses rating system to rate enterprises in terms of their
capabilities. Which of the following is an incorrect mapping of score to description?
A. 3 -> Optimizing
B. 5 -> Leading
C. 4 -> Optimizing
D. 2 -> Developing

Q.64. Which of the following is not true about Lifetime Value?

A. LTV can be estimated at the level of the individual customer, customer segment or
cohort (group of customers with common characteristics).
B. LTV is a measure of a customer's, or customer's segment's, profit generation for a
company
C. LTV is the present day value of all net margins earned from a relationship with a
customer, customer segment or cohort
D. LTV estimates consider future as well as past transactions

Q.65. What is the right depiction of 'satisfaction-profit chain?

A. Customer loyalty > Customer Satisfaction > Business Performance
B. Business Performance > Customer Satisfaction > Customer Loyalty
C. Customer Satisfaction > Customer Loyalty > Business Performance
D. Customer Loyalty > Customer Satisfaction > Business Performance

Q.66. Which of the following are the key phases of CRM implementation?
A. Develop CRM strategy
B. Build the CRM project foundation
C. Specify needs and select partner
D. Implement the project
E. Evaluate performance
F. All of the above

67. Which of the following are famous service quality models, that have dominated
management practice are
A. SERVQUAL model
B. Nordic model
C. Both the above

Q.68. The core components of SERVQUAL service quality model are

A. Reliability
B. Assurance
C. Tangibles
D. Empathy
E. Responsiveness
F. All of the above

Q.69. The core components of SERQUAL model are abbreviated as RATER, it stands
for
A. Reliability, assurance, technology, enthusiasm, responsiveness
B. Reverse-engineering, assurance, tools & technology, empathy, responsiveness C.
Responsiveness, assurance, technology, enthusiasm, reverse-engineering
D. Reliability, assurance, tangibles, empathy, responsiveness

Q.70. Which of the following are true for SLAs

A. SLAs create value for customers by reducing uncertainty about the services that
will be delivered, their standards and costs.
B. SLA clarifies the boundaries and relative roles of customer and wealth manager
C. Availability, Usage, Reliability, Responsiveness, User satisfaction are some
metrics that can be used to assess service levels, applicable through SLAs
D. SLAs don't focus on service processes and service standards
i. B and C
ii. A and C
iii. A, B and C
iv. All of the above

Q.71. Which of the following is true about customer portfolio?

A. It is the collection of mutually exclusive customer groups that comprise a
business's entire customer base.
B. It is made up of customers clustered on the basis of one or more strategically
important varia bles.
C. Each customer is assigned to just one cluster in the portfolio.
D. At one extreme, all customers can be treated as identical; at the other each
customer is treated as unique.
i. A, B
ii. A, B, D
iii B, C, D
iv. All of the above

Q.72. Customer Portfolio Management (CPM) improves business performance by

A. Enhancing sales growth
B. Enhancing customer profitability
C. Enhancing customer satisfaction
D. Offering different value proposition to different customers
E. All of the above

Q.73. The process of dividing up a market into more-or-less homogeneous subsets

for which it is possible to create different value propositions is called
A. Market segmentation
B. Sales forecasting
C. Data mining
D. Activity-based costing

Q.74. Customer surveys, sales team estimates, moving average, leading indicators
and regression models are all techniques of
A. Market segmentation
B. Sales forecasting
C. Data mining
D. Activity-based costing

Q.75. The value measured by computing the present day value of all net margins
(gross margins less cost-to-serve) earned from a relationship with a customer,
segment or cohort is called.
A. Lifetime value estimation
B. Customer value
C. Customer profitability
D. Cost to serve

Q.76. Building long-term relationships with customers is essential for any business.
The application of technology to achieve CRM is a key element of e-business but
what does CRM stand for?
A. Customer resource management
B. Customer retailing management
C. Consumer relationship management
D. Customer relationship management

Q.77. There are different techniques to both initiate and build relationships with
customers by using a combination of online and offline techniques. What is the
'customer life cycle' though?
A. An approach to building and sustaining long-term business with a customer
B. The stages each customer will go through in a long-term relationship with a
supplier
C. Techniques to encourage customers to increase their involvement with an
organisation
D. The answers above are all correct

Q.78. The four marketing activities within the customer relationship management
include customer selection, customer acquisition, customer retention, plus:
A. Customer referrals
B. Customer extension
C. Customer re-sell
D. Customer cross-sell
E. Customer Up-sell
Q.79. Using digital communications technologies to maximise sales to existing
customers and encourage continued usage on online services is known as:
A. Mass customisation
B. Electronic customer relationship management (eCRM)
C. Customer-centric marketing
D. Sense and respond communications
E. Personalisation

Q.80. Using the Internet for relationship marketing involves integrating the
customer database with websites to make the relationship targeted and
personalised. Though doing this there are many benefits to be gained but which of
the below is not an advantage?
A. Lower costs
B. Achieve mass customisation of the marketing messages
C. Targeting more effectively
D. Minimises breadth, depth and nature of relationship

Q.81. Accepting that a customer has agreed to opt-in to receive further

information, with customer profiling the minimum amount of online information
that needs to be collected is an e-mail address. What is really required though to
decide if the customer is a good potential target for further communications?
A. Opt-out facilities to be removed
B. Permission marketing
C. Interruption marketing
D. A qualified lead
Q.82. Companies that understand how customers use digital media in their
purchase decision buying can develop integrated communications strategies to
support their customers at each stage in the buying process. Customers have
individual preferences in the ways they use the web depending upon why they
need to use it and this web use is known as:
A. Directed buyers
B. Undirected information-seekers
C. Directed-information seekers
D. Searching behaviours

Q.83. Online public relations (or e-PR) should aim to maximise favourable
mentions of companies, products, brands, etc which are likely to be visited by
target audiences. Which of the following activities fall within the remit of e-PR?
A. Blogs and podcasts
B. Communicating with media (journalists) online
C. Link building including reciprocal links
D. Social networks and online communities E. All of the above

Q.84. A strength of social media and viral marketing is:

A. Considered credible
B. Highly targeted with controlled costs
C. It is possible to reach a large number at relatively low cost
D. Cannot be ignored in user's inbox

Q.85. What is double opt-in? The double opt-in process implies that a subscriber
fills out your signup form first and then confirms subscription to your list. In other
words, the double opt-in works as follows:
A. A prospect signs up to receive emails via your website, at a tradeshow etc.
B. You send a confirmation email to him/her asking them to click on a link that
confirms that they have opted to subscribe to your messages.
C. You get the double opt-in permission from prospects.
D. This eliminates the chance of abuse where somebody submits somebody else's
email address without their knowledge or against their will. Note that every
communication you send must have the option for the contact to unsubscribe at
any time.
i. True
ii. False

Q.86. Which of the following is not correct about how CRM handles emails from
customers?
A. CRM software may provide workflow-enabled email processing capabilities
B. It can retrieve emails sent from your customers,
C. It can automatically route them to appropriate users based on workflow rules and
send auto replies back to your customers,
D. It can restart the email servers and change email server details automatically

Q.87. The 20-80 rule states _________________.

A. The top 80% of customers generate 20% of the company's profits
B. The bottom 80% of customers generate 80% of the company's profits while the
bon.: - 20% of customers generate 20% of the profits
C. The top 20% of customers generate 80% of the company's profits
D. The bottom 20% of customers generate 80% of the company's profits E. 20-80%
of profits are generated by 20-80% of the customers

Q.88. ____________ is a company's ability to perform in one or more ways that

competitors cannot or will not match.
A. Leveragable advantage
B. Customer advantage
C. Customer relationship advantage
D. Customer lifetime value E. Competitive advantage

Q.89. One problem that can deter a firm from effectively using CRM
is_____________
A. having the resources to manage and train employees effectively
B. not all customers want a relationship with the company
C. getting everyone in the company to be customer oriented
D. the expense of building and maintaining a customer database E. all of the above
Q.90. involves the recruitment of paid shoppers to report on their customer
experience with the company sponsoring the research. It is widely used in B2C
environments such ai retailing, banks, service stations, bars, restaurants and
hotels.
A. Experience Mapping
B. Mystery Shopping
C. Process Mapping
D. Research Shopping

Q.91. is a process that strives to understand, chart and improve what happens
customer touch points. Focus groups, face-to-face interviews or telephone
interviews ar€ conducted with a sample of customers who describe their
experience at these touch points.
A. Experience Mapping
B. Mystery Shopping
C. Process Mapping
D. Research Shopping

Q.92. is a form of blueprinting, a technique popularized by G Lyn Shostack. It is

graphical representation of business processes to improve customer experience,
service standards, training new people and elimination process redundancy.
A. Experience Mapping
B. Mystery Shopping
C. Process Mapping
D. Research Shopping

Q.93. The core customer lifecycle management processes are

A. Customer acquisition, customer support, customer defection
B. Customer communication, customer enrolment, customer service
C. Customer targeting, customer prospecting, customer conversion
D. Customer acquisition, customer retention, customer development

Q.94. Which of the following are key performance indicators of customer retention
programs
A. Sales-adjusted retention rate
B. Cost of customer acquisition
C. Cost of customer retention
D. Customer service utilisation rate
i. All of the above
ii. A, B
iii. A, C, D
iv. A, C

Q.95. A business network is made up of

A. nodal companies
B. organizations
C. individuals
D. the relationships between them
i. A, B
ii. A, B, C
iii. B, C
iv. ALL OF THE ABOVE

Q.98. What are the specific CRM competencies that influence shareholder value
significantly
A. Customer acquisition, retention, development
B. Technology Implementation
C. Database & Network Management
D. Cost containment
i. A, B
ii. A, B, C, D
iii. C, A, D
iv. A, B, C

97. For development of a wealth management organization, which of the following

statements are true
A. 'Targeting of clients' belongs to strategic planning phase
B. 'Understanding key decision criteria of clients' belongs to tactical execution phase
C. 'Gap analysis in their services' belongs to tactical execution phase
D. 'Building rapport and trust with clients' belongs to strategic planning phase
i. A
ii. B, C, D
iii. A, C, D
iv. None of the above

Q.98. A type of CRM Dominant characteristic which applies technology across

organizational boundaries with a view to optimizing company, partner and
customer value is known as
A. Strategic
B. Operational
C. Analytical
D. Collaborative

Section C — 4 Marks Questions:

Q.99. Which of the below is the correct 7-stage customer journey
A. Suspect > prospect > first-time customer > repeat customer > majority customer >
loyal customer > advocate
B. Suspect > prospect > first-time customer > majority customer > repeat customer >
loyal customer > advocate
C. Suspect > prospect > first-time customer > majority customer > repeat customer >
advocate > loyal customer
D. Suspect > prospect > first-time customer >repeat customer >majority customer
>advocate >loyal customer
Q.100. Which of the following are useful in customer portfolio management? A.
Market Segmentation B. Sales forecasting C. Activity-based costing D. Customer
lifetime value estimation
i. A, B, D
ii. B, C, D
iii. A, C, D
iv. All of the above

Q.101. Which of the following are true about data mining?

A. It helps find patterns or relationships in large volumes of data.
B. It involves the use of statistically advanced techniques.
C. It does not process data, it only presents information.
D. Clustering, Decision Trees, Neural networks are some tools that can help in
data-mining in the CRM context.
i. A & B
ii. A, B, C
iii. A, B, D
iv. All of the above

Q.102. CRM is
A. CRM stands for Customer Relationship Management.
B. It is a software system that is used to effectively manage the sales process, track
customer interactions, store information about customers (including purchase
history, revenue generated, up-selling and cross-selling opportunities, etc.), and
ultimately strengthen relations with customers.
C. CRM, however, is not just about software systems. It is a philosophy for
interacting with your clients to make sure that they are happy and that they keep
coming back to use your products and services.
i. A
ii. A, B
iii. A, C
iv. All of the above

Q.103. What sort of sales management functionality can a CRM system offer?
A. View and manage account activity and communications
B. Use reports to forecast sales, measure business activity, identify trends C.
Qualify leads and track prospective customers
D. Centralize customer data E. Access, update, and share information across teams
and departments.
i. A, B
ii. A, C,E
iii A,B,C,D
iv. All of the above

Q.104. Which of the following attributes of CRM influence Customer Experience A.

Usability — ease with which CRM application is used
B. Flexibility — alternatives available to the user at any given time
C. Performance — Response times, integration process, online user experience
D. Cost — Financial resource spent to set up CRM
i. A, B
ii. A, B, C
iii. ALL OF THE ABOVE
iv. NONE OF THE ABOVE

Q.105. Networks are important from a strategic CRM perspective, because

A. Network members supply material inputs, services, funding
B. Network members supply people, technology and knowledge to create value
proposition
C. Network members provide services like advertising, logistics, and distribution D.
None of the above
E. All of the above

Q.106. The following characteristics are of _____________.

A. It spelt out the connections between business performance, customer
satisfaction and employee satisfaction
B. Employee, Customer and Shareholder are 3 important components
C. It believes that if employees are satisfied at work they will deliver excellent
experience to their internal and external customers.
i. Value proposition
ii. Service-Profit Chain
iii. Cause & Effect relationship
iv. Dick & Basu's Model

Q.107. A comprehensive personal wealth plan, just like a business plan, should
address the areas in what order
A. How is the client going to get there?
B. Where does the client want to be?
C. Where is the client now?
D. Monitoring Programme
i.B -> C -> D -> A
ii.C -> B -> D -> A
iii. B ->C ->A ->D
iv. C -> B ->A ->D

Q.108. Which of the following activities is/are a part of "Building the CRM project
foundatic - phase" in CRM implementation?
i. Identify people, process and technology requirements
ii. Identify critical success factors
iii. Identify stakeholders
iv. Develop risk management plan
A. I, II and III
B. I, Ill and IV
C. I, II and IV
D. All of the above
 UNIT VIII INTERNATIONAL TAXATION AND TRUST PLANNING

Section A —1 Mark Questions:

Q.1. When would CFC income be subjected to domestic taxation?

A. After 183 days
B. After Repatriation
C. After Incorporation
D. After amendment

Q.2. Double taxation arises due to

A. Similar residency rules
B. Different residency rules and tax systems
C. Analogous income and tax system
D. Similar tax systems

Q.3. Taxpayers who are not able to get credit of all taxes paid abroad against taxes
in their home country are said to have?
A. Excess credit position
B. Profit credit position
C. Deficit credit position
D. Loss credit position

Q.4. Which two principles are in common use to determine the extent of a
country's tax jurisdiction?
A. Tax computation and tax compliance
B. Residence and Source
C. Assets and liability
D. Interest and Dividend
Q.5. What is the basic objective of a tax treaty?
A. Promotion of double taxation
B. Provision of tax incentives
C. Elimination of double taxation
D. None of the above

Q.6. Tax treaties prevent following type of double taxation

A. Both a & b
B. Juridical double taxation
C. None of the above
D. Economic double taxation

Q.7. What are the types of Double Taxation?

A. Economic & Juridical Double taxation
B. Dual Residence Double taxation
C. All of the above
D. Dual Source Double taxation

Q.8. An offshore financial centre, which undertakes and offers business services to
non-nationals is also called a _______________
A. Offshore trust
B. Offshore foundation
C. Offshore tax haven
D. Jurisdiction
Q.9. India's Tax treaties are based on ____________
A. UN Model
B. OECD Model
C. Both a & b
D. US Model
Q.10. A tax treaty does not eliminate___________ double taxation but seeks to
eliminate _________ double taxation.
A. Economic & Juridical
B. Dual residence & Dual source
C. Economic & Dual Source
D. Juridical & Economic
Q.11. Following tax paid abroad is not eligible to avail foreign tax credit
A. Fringe Benefit Tax
B. Federal Tax
C. Social Security Tax
D. Income Tax

Q.12. Developed countries are using following Model for drafting Tax Treaty:
A. None of the above
B. UN Model
C. OECD Model
D. OECD MC and UN MC

Q.13. Which tax issue emerged for double taxation in the 13th Century?
A. Inheritance Tax
B. Power Generation Tax
C. Property Tax
D. Petroleum Tax

Q.14. Which articles deal with the scope provisions

A. Article 2 Taxes Covered
B. Article 25 Mutual Agreement
C. None of the above
D. Article 3 General definitions

Q.15. On which date was the Tax Treaty between India and UK signed?
A. 25th January 1993
B. 25th October 1993
C. 11th February 1994
D. 1st April 1994

Q.16. Which Article of India UK Tax Treaty defines India to mean Republic of India?
A. Article 2(1)(b)
B. Article 3(1)(b)
C. Article 3(1)(a)
D. Article 4(1)(b)

Q.17. As per India UK Tax Treaty, how many days of stay is required in the other
country to establish service PE?
A. 180 days
B. 182 days
C. 90 days
D. 91 days

Q.18. What is the rate of tax for Royalty & FTS under India UK Tax Treaty?
A. 5 %
B. 15%
C. 35%
D. 25%

Q.19. Article 12 of India UAE Treaty deals with the taxability of the following:
A. Royalties
B. Fees for Technical Services
C. Fees for Included Services
D. None of the above

Q20. Which of the following Indian Treaty have the lowest interest rates
A. India Netherlands Treaty
B. India UAE Treaty
C. India Singapore Treaty
D. India UK Treaty

Q.21. _________ is one of the way to let the investor preserve to himself the tax
incentives in India for foreign investments
A. Tax Credit
B. Tax Sparing
C. Tax Saving
D. None of above

Q.22. Tax sparing credit is an extension of the normal and regular tax credit to
taxes that are spared by __________
A. (a) and (b) both
B. Source Country
C. None of above
D. Residence Country

Q.23. Underlying tax credit can be claimed only by ____________

A. All of the above
B. HUF
C. Companies
D. Individual

Q.24. Tax sparing mechanism prevents transfer of funds from Country of Source to
Country of Residence.
A. True
B. False

Q.25. State whether following statements are "True" or "False"

i. For entitlement of a Tax treaty, the person should be a resident of one or both
the countries.
A. True
B. False
ii. A tax treaty does not create a taxing right.
A. True
B. False
iii. Article 5 of Tax Treaty deals with definition of Business Profits
A. True
B. False
iv. India is one of the members of OECD countries.
A. True
B. False

Q.26. Which of the below are transfer pricing methods to determine Arm's Length
Principle?
A. Cost Plus Method
B. Profit Split Method and Transactional Net Margin Method
C. Comparable Uncontrolled Price and Resale Price Method
D. All of the above

Q.27. Advance Authority rulings are binding on?

A. On all applicant's whose case law is similar to the applicant
B. Applicant who has sought it
C. Commissioner and Income Tax Authorities
D. Both of the above

Q.28. Services in the form of Directors fees would be taxable under which Article?
A. Article 7 Business Profits
B. Article 15 Dependent Agency Services
C. Article 14 Independent Personal Services
D. Article 12 Royalties and Fees for Technical Services
Q.29. The following provision under the Income Tax Act, 1961, allows the tax payer
to apply tax treaty provisions or provisions under the Act, whichever is more
beneficial:
A. Sec 90(2)
B. Sec 92
C. Sec 90(1)
D. Sec 93

Q.30. Which form is to be used to seek advance ruling?

A. Form no.34 C
B. Form no.34 D
C. Form no.34 E
D. All of the above

31. What is the time period for withdrawal of Application for seeking Advance
Ruling?
A. 90 days
B. 30 days
C. 60 days
D. 15 days

Q.32. Independent Personal Services are covered by which Article under India-UK
Tax Treaty?
A. Article 15
B. Article 7
C. Article 16
D. Article 14

Q.33. Article 14 of Independent Personal Services of India Singapore Treaty is

applicable to the following entities:
A. A Partnership Firm
B. An Enterprises
C. An Individual
D. All of the above

Q.34. As per India Netherlands Treaty, Profits from the operation of aircraft in
international traffic shall be taxable only in the State in which:
A. Place of effective Control of the enterprise is situated
B. Place of effective Management of the enterprise is situated
C. Place of effective Supervision of the enterprise is situated
D. Place of effective Management, Capital and Control of the enterprise is situated

Q.35. What is the amount of penalty as per Income Tax Act, 1961 for failure to
provide information / documents under transfer pricing
A. Sec 271AA — 2% of the value of international transaction
B. Sec 271 BA — Penalty of Rs 1 Lac
C. Section 271 (1) - The whole amount would be taxable as income
D. Penalty up to 5% of the value of transaction

Q.36. Which is the application to be filed for LOWER withholding tax?

A. Application u/s 195(2) with the prescribed format only
B. Application under Rule 29B with Form 15C and 15 D
C. Application under rule 37BB with form 15CA & 15CB
D. Application u/s 195(2) with no specific prescribed format

Q.37. The form in which report has to be furnished by an accountant for transfer
pricing is...
A. Form 3CA
B. Form 3CB
C. Form 3CEB
D. None of the above

Q.38. What is the timing of deduction of tax at source?

A. At the time of credit
B. At the time of payment
C. The earlier occurrence of the above
D. None of the above

Q.39. As per India — US Treaty Independent Personal Services are taxable in the
Source country if the aggregate stay exceeds__________ number of days in the
source country?
A. 90 days
B. 183 days
C. 120 days
D. None of the above

Q.40. Grossing up salary of an expatriate, calculate the rate of grossed up-tax,

assuming the maximum rate of income tax to be 30% and education cess to be 3%.
A. 44.71%
B. 51.49%
C. 30.49%
D. None of the above

Section B — 2 Marks Questions:

Q.41. Double taxation in general terms refers to

A. Taxation of different incomes in the hands of different taxpayers
B. Taxation of same income in the hands of different taxpayers
C. Taxation of same income in the hands of same taxpayer at different Contracting
States
D. Both b & c

Q.42. To avail the benefits of tax credit under the provisions of section 91, taxes
paid abroad shall be merged and tax relief shall be calculated on the net income.
A. True
B. False

Q.43. What is foreign tax credit?

A. Mechanism to mitigate the potential for double taxation.
B. Mechanism to mitigate the potential for double non-taxation
C. Mechanism to promote the potential for double taxation
D. Mechanism to increase the revenue of Tax authorities

Q.44. 'Thinly capitalized company' comprises:

A. Greater proportion of equity than debt.
B. Greater proportion of debt than equity.
C. Only debt
D. Only equity

Q.45. "Thin Capitalization Rules" generally:

A. Disallow an interest deduction when specified debt-to-equity ratio is exceeded.
B. Allow an interest deduction when specified debt-to-equity ratio is exceeded.
C. Allow an interest deduction when specified interest coverage ratio is exceeded.
D. Disallow an interest deduction when specified Dividend Payout ratio is exceeded.

Q.46. Specified debt equity ratio is the preferred method since:

A. Share of interest in profits can vary with the rate of taxation.
B. Share of interest in profits can vary with the rate of interest or the rate of profit.
C. Share of interest in profits is equal to the rate of interest or the rate of profit.
D. None of the above.

Q.47. Which of the following is not a type of Tax haven?

A. Nil tax haven country
B. Nil tax outside haven country
C. Dual tax haven country
D. Special Exemption tax haven country

Q.48. Tax haven Country is a country with:

A. Low level of taxation.
B. High level of taxation.
C. No taxation.
D. Both (a) and(c).

Q.49. Objective of CFC legislation is:

A. To protect the domestic tax base from erosion, caused by the outflow of capital to
low tax jurisdictions.
B. To protect the domestic companies from foreign MNCs.
C. To protect the domestic tax base from erosion, caused by the inflow of capital to
low tax jurisdictions.
D. To maintain uniformity in international taxation.
Q.50. "Thin Capitalization Rules" are anti-avoidance measures to plug the revenue
leakage.
A. True
B. False

Q.51. A foreign Corporation is considered as CFC if it is controlled directly or

indirectly by: Resident being a Corporation
A. Resident being any taxpayer.
B. Any Corporation or tax payer, notwithstanding being a resident or non-resident.
C. Both (a) and (b).

Q.52. Treaty shopping situation often arises where a person

A. Is not resident in the home country but the home country have tax treaty with the
source country.
B. Is resident in the home country but the home country does not have a tax treaty
with the resident country.
C. Is resident in the home country but the home country does not have a tax treaty
with the source country.
D. Is resident in the home country but the home country does not have a tax treaty
with the source and resident country.

Q.53. The DTAA stipulates that only the profit directly or indirectly attributable to
the PE in India would
A. Not be taxed in India
B. Be taxed in foreign country
C. Be taxed in India
D. Be taxed in residence country

Q.54. Which is not a type of Permanent Establishment (PE)?

A. Fixed Place PE
B. Transferable PE
C. Agency PE
D. Service PE

Q.55. A business connection may arise between a non-resident and a resident...

A. If any of them carry on business and if the non-resident earns income through
such a connection.
B. If none of them carry on business and if the non-resident earns income through
such a connection.
C. If both of them carry on business and if the non-resident does not earn income
through such a connection.
D. If both of them carry on business and if the non-resident earns income through
such a connection.

Q.56. What is the full form of OECD Models of Tax Treaty?

A. Organization for Exchange of Commerce and Development
B. Organization for Economic Co-operation and Development
C. Organization for Ethical Co-operation and Development
D. Organization for Economic Co-operation and Development

Q.57. Which country has signed Double Taxation Avoidance Agreement with India?
A. Singapore
B. UK
C. Mauritius
D. All of the above

Q.58. Which of the followings taxes are covered under the India UK Tax Treaty?
A. Income Tax
B. Petroleum Expenses Tax of UK
C. Indian Service Tax
D. All of the above

Q.59. A country or territory which has low tax rate or no tax at all is known as
_______
A. Tax Beneficial Country
B. Tax Haven
C. Tax Free Zone
D. Tax Free Territory
Q.60. Following person cannot take benefit of India UAE Treaty
A. Individual
B. Partnership Firm
C. Legal Entities
D. Legal entities not having bona fide business activities

Q.61. As per India Mauritius Treaty, which document is required for proof of
residency?
A. Certificate of Incorporation
B. Certificate of Tax Residency
C. Certificate of Tax Licenses
D. Certificate of Foreign Residency

Q.62. As per India Singapore Treaty, capital gains from all property other than
immovable property or PE property or ships / aircraft shall be taxable only:
A. In source country
B. In residence country
C. In the country of residence of alienator
D. In both the countries

Q.63. For entry into force of any Tax Treaty, it is mandatory to notify the treaty
signed between two countries in their respective official gazette.
A. True
B. False
Q.64. As per India UK Tax treaty, Profits derived from the operation of aircraft in
international traffic by an Indian enterprise shall not be taxed in UK.
A. True
B. False

Q.65. As per India UK Tax treaty, Income of an Indian enterprise from the
operation of ships in international traffic shall be taxable only in UK.
A. True
B. False

Q.66. As per Tax treaty entered between India and UK, Interest arising in UK and
paid to resident of India may be taxed only in India.
A. True
B. False

Q.67. As per India UK Tax Treaty, a dependent agent in the other state fulfilling
certain conditions will be treated as PE.
A. True
B. False

Q.68. As per India UK Tax Treaty, each Contracting State may tax capital gains in
accordance with the provisions of its domestic law.
A. True
B. False

Q.69. What are the rules of residency as per Indian Income Tax Act, 1961
A. Presence in India for atleast 182 days and for 365 days or more in immediately
preceding four financial years
B. Presence in India for less than 182 days
C. Presence in India for more than 60 days
D. Presence in India for 182 days or more, or presence in India for more than 60 days
and for more than 365 days in immediately preceding four financial years

Q.70. What is the treatment of income other than salary for expatriates in case of
diem expenses received?
A. Taxable as part of salary
B. Not taxable as part of salary
C. Partly taxable and Partly exempt
D. None of the above

Q.71. Advance rulings cannot be sought for the following...

A. The case is already pending before any income-tax authority/appellate
tribunal/court
B. Determination of fair market value
C. Both the above
D. None of the above
Q.72. Decide the Arm's Length Principle to be used: A taxpayer sells 1,000 tons of a
product for $80 per ton to an associated enterprise in its MNE group, and at the
same time sells 500 tons of the same products for $100 per ton to an independent
enterprise.
A. Comparable uncontrolled price method
B. Resale price method
C. Profit Split Method
D. Transactional Net Margin Method

Q.73. What are the factors for judging comparability for all the methods under
transfer pricing?
A. Nature of Transaction
B. Risks assumed
C. Economic and Market Conditions
D. All of the Above

Q.74. What do you mean by Transfer pricing?

A. Transfer pricing is a fair but arm's length price assigned to the buying/selling of
goods and services between related companies.
B. Transfer pricing is a fair, arm's length price assigned to the buying/selling of goods
and services between related countries
C. Transfer pricing is a fair, but arm's length price assigned to the buying/selling of
goods and services between related states
D. Transfer pricing is a fair, but arm's length price assigned to the buying/selling of
goods and services between two people

Q.75. _________ helps the applicant in planning his income-tax affairs well in
advance
A. AAR
B. ITAT
C. CESTAT
D. HC

Q.76. What is the time limit for Pronouncing the Ruling?

A. 1 month
B. 3 month
C. 6 month
D. 9 month

Q.77. What are the benefits of Advance Ruling? (2 marks)

A. Brings certainty in determining the tax liability.
B. Helps avoiding long drawn and expensive litigation.
C. It is inexpensive, expeditious and binding.
D. All of the above

Q.78. State whether following statements are "True" or "False".

1. Any non-resident person or other body corporate cannot make an application
for seeking an advance ruling in regard to his/its tax liability.
A. True
B. False
2. With a view to avoid a dispute in respect of assessment of income-tax liability in
the case of a non-resident, a Scheme of Advance Ruling was incorporated in
Chapter XIX-B of the Income-tax Act.-
A. True
B. False

Q.79. The Authority for Advance Rulings consists of a __________ who is a retired
Judge of the Supreme Court.
A. Secretary
B. Chairman
C. Member
D. None of the above

Q.80. What questions can be raised before the Authority of Advance Rulings?
A. Questions of law or facts pertaining to income- tax matters
B. Case involving monetary amount of Rs.50 lakhs or more but less than Rs.1 crore
C. Case involving monetary amount of Rs.1 crore or more
D. None of the above

Section C — 4 Marks Questions:

Q.81. Income derived by an individual, whether in his own capacity or as a member

of a partnership, who is a resident of India in respect of profession or other
independent activities of a similar character may be taxed in UK if :
A. he is present in UK for a period or periods aggregating to 90 days in the relevant
fiscal year
B. he, or the partnership, has a fixed base regularly available to him, or it
C. Both of the above conditions are fulfilled
D. Any of the conditions mentioned at (a) and (b) is fulfilled

Q.82. Indian residents, who are temporarily present in UK for purpose of studying,
or for securing necessary training or doing research, shall not be subject to tax in
UK in respect of following (for a maximum of 5 years):
A. Gifts from abroad for the purposes of his maintenance, education, study, research
or training
B. Grant or award
C. Both of the above
D. None of the above

Q.83. What are the consequences of non-deduction / short deduction of TDS?

A. The sum is not deductible while computing income under the head business /
other sources as per Sec 40(a) (i).
B. Interest is levied U/s 201(1A) along with penalty U/s 221 / 271C / 272A
C. Prosecution U/s 276 B
D. All the above

Q.84. In case where salary is payable to an expatriate in foreign currency, the

amount of the tax deducted is to be calculated after converting the salary payable
into Indian currency at the __________ on the date of deduction of tax
A. Telegraphic transfer buying rate as adopted by State Bank of India
B. Telegraphic transfer buying rate as adopted by Reserve Bank of India
C. Telegraphic transfer selling rate as adopted by State Bank of India
D. Telegraphic transfer selling rate as adopted by Reserve Bank of India

Q.85. Which of the following cases are not covered for payments to be made under
section 195 of the Income Tax Act:
A. Income earned by Indian branch of a foreign bank.
B. Payment on Capital Accounts, for example, gifts, loans, repayment of loans etc.
C. Payment of fees for technical services
D. Payment of royalty

Q.86. Independent personal services are generally taxable in the_________ of the

service provider.
A. Country of Fiscal Residence
B. Country of Source on fulfillment of specified conditions
C. Both the above
D. None of the above

Q.87. What do you mean by 'Transparent and 'Opaque' entity with respect to
taxability?
A. The profits of a transparent entity are treated as its own and the company itself is
taxed thereon. The profits of an opaque entity are treated as profits of the members
themselves who are taxed on those profits as the entitlement to them arise
B. The profits of a transparent entity are treated as profits of the members
themselves who are taxed on those profits as the entitlement to them arise. The
profits of an opaque entity are treated as its own and the company itself is taxed
thereon.
C. The profits of a transparent entity are treated as profits of the members
themselves who are taxed on those profits as the amount is received. The profits of
an opaque entity are treated as its own and the company itself is taxed thereon.
D. The profits of a transparent entity are treated as its own and the company itself is
taxed thereon. The profits of an opaque entity are treated as profits of the members
themselves who are taxed on those profits as the amount is received

Q.88. ABC Pvt. Ltd. ('the tax payer') was incorporated in India. It had business
presence in USA and UK. It had earned profits of Rs. 10 lakhs from its business in
USA; however, it incurred losses of Rs. 3 lakhs at UK. ABC had paid taxes at the rate
of 30 per cent amounting to Rs. 3 lakhs, at USA. The tax payer claimed a tax credit
of Rs. 3 lakhs through its Return of income However, the Assessing officer allowed
credit only on the net income i.e. taxes paid on Rs. 7 lakhs amounting to Rs. 2.10
lakhs. Determine the amount of credit that should be allowed to the tax payer.
A. Rs. 2.10 lakhs
B. Rs. 3.00 lakhs
C. Rs. 7 lakhs
D. Rs. 10 lakhs

Q.89. Explain with reasons whether taxes paid at a foreign country can be claimed
as expense from business income under the Income Tax Act.
A. Taxes paid at a foreign country can be claimed as expense since tax paid is money
spent out of profits & not money spent to earn profits
B. Taxes paid at a foreign country cannot be claimed as expense since tax paid is
money spent out of profits & not money spent to earn profits
C. Taxes paid at a foreign country can be claimed as expense since tax paid is money
spent to earn profits & not money spent out of profits
D. Taxes paid at a foreign country can be claimed as expense since tax paid is an
allowable expenditure according to the Income Tax Act.

Q.90. Company XYZ earned business income of Rs. 1 lakh from country 'X'. The tax
payer company paid taxes @ 30 per cent on such business income amounting to
Rs. 30,000/-. Dividend to the extent of Rs. 30,000/- was declared by the company.
Tax on dividend @10 per cent amounting to Rs. 3,000/- was paid by the company.
What would be the total amount of tax credit that can be claimed if provision for
'Underlying tax credit mechanism' prevails in the relevant treaty.
A. Rs. 12,000/-
B. Rs. 3,000/-
C. Rs. 9,000/-
D. Rs. 33,000/-

Q.91. State which are the methods applied to determine the Arm's Length Price
1. Examines the net profit margin relative to an appropriate base (e.g. cost , sales,
assets) that a taxpayer realizes from a controlled transaction.
A. Cost Plus Method
B. Resale Method
C. Transactional Net Margin Method
D. Profit split Method
2. Typically applied when both sides of the controlled transaction own significant
intangible property.
A. Transactional Net Margin Method
B. Cost Plus Method
C. Resale Method
D. Profit split Method
3. Begins with the costs incurred by supplier of property / services in controlled
transaction for property transferred/ related services provided to a related
purchaser.
A. Profit split Method
B. Cost plus Method
C. Transactional Net Margin Method
D. Resale Method
4. Focuses on the related sales company which performs marketing and selling
functions as the tested party in the transfer pricing analysis.
A. Resale Method
B. Profit split Method
C. Cost Plus Method
D. Transactional Net Margin Method

Q.92. State whether the following statements are true or false:

1. In agency PE, if the agent is independent, then it would constitute a permanent
establishment.
A. True
B. False
2. In fixed place PE, if an office has a fixed place of operation and carries out
preparatory and auxiliary activities then would constitute a permanent
establishment.
A. True
B. False
3. In given below statement which statement is the false statement relating to
"Fixed Place PE".
A. There must be a fixed place of business (situs test).
B. The fixed place of business must be located in a certain territorial area (locus test).
C. The taxpayer must have a certain right of use over the fixed place of business (ius
test). D. The activities performed through the fixed place of business may be of a
business character (business activity test).
4. Illegal occupation would not constitute a "PE".
A. True
B. False

Q.93. State whether the following statements are true or false:

1. Taxes covered by a tax treaty are dealt by Article 2 of tax treaties
A. True
B. False
2. The nature of tax to be claimed as a foreign tax credit shall necessarily be
income tax
A. True
B. False
3. Taxes paid as Dividend Distribution Tax can be claimed as foreign tax credit
A. True
B. False
4. Only Federal tax is eligible for tax credit in U. K.
A. True
B. False

Q.94. Which one among these are the factors for describing comparability in
transfer pricing?
A. Characteristics of property or services
B. Functional analysis (functions performed, assets used, risks assumed)
C. Contractual terms and Economic Circumstances
D. All of the Above

Q.95. What are the reasons for choosing internal comparables over external ones?
A. Economic cost wise and better access to information
B. Closer relationship to taxpayer's transactions
C. Both the above
D. External comparables should be preferred over internals in all circumstances

Q.96. What do you mean by IRS, to what extent can funds be remitted abroad,
which forms are required to be submitted along with it?
A. Liberalized Remittance Scheme, upto $ 200,000 and Form A2, 15CA, 15CB
B. Liberalised Remittance Scheme, upto $ 200,000 and Form A3, 15CD, 15 CE
C. Liberalised Remittance Scheme, upto $ 10,00,000 and Form A3, 15CD, 15 CE
D. None of the above

Q.97. What is the objective behind Section 195?

A. Non- resident transient connection
B. Potential Difficulty in Recovery having little/no assets in India
C. To Avoid Hassles of recovery from Non resident
D. All of the above

Q.98. Under which sections are following taxable as per DTAA— interest / dividend
/ salary income / capital gains
A. Article 11/10/15/13
B. Article 10/13/15/12
C. Article 15/14/13/11
D. None of the above

Q.99. Which rule has to be read with Section 195 (6)?

A. Rule 37A
B. Rule 37 AB
C. Rule 37 BB
D. Rule 37 BC

Q.100. The Transfer Pricing Documentation has to be completed and certified by a

Chartered Accountant for filing the return of income before:
A. 31st July of every previous year
B. 30th September of every previous year
C. 30th November of every previous year
D. 31st December of every previous year
 UNIT IX - WEALTH MANAGEMENT PLANNING
Q.1. While preparing a Financial Plan for Vikrant you have made a forecast of his
present revenues and expenditures i.e. constructed a model of how his finances
might perform in the near future. You have prepared a
________________________
A. Investment Plan
B. Fund Flow statement
C. Cash Flow statement
D. Budget

Q.2. Anu and Ravi, a couple in Madras, have the following commitments on a
monthly basis. General household expenses of Rs 15000, mortgage payments of Rs
10000, children tuition expenses of Rs 2000 and entertainment expenses Rs 3000.
Their monthly income on a post-tax basis is Rs60000.They have cash and bank
deposits of Rs 150000 and other equity shares of value Rs 750000 apart from a
house that is valued at Rs 25 lakh. Based on the above data, calculate the family's
Basic Liquidity Ratio?
A. 2.5
B. 2
C. 5
D. 11.33

Q.3. A small investor can build a diversified portfolio by

A. Buying one share each of all listed companies
B. Investing in a mutual fund
C. Borrowing enough money to buy shares of well-managed companies
D. None of the above

Q.4. Personal financial management is important because it

A. uses money as an end.
B. limits consumption.
C. makes personal financial goals easier to achieve.
D. lessens economic differences among individuals.

Q.5. A period of negative savings where income does not meet the level of
expenditure could also be regarded as a (n):
A. Asset
B. savings deficit
C. savings surplus
D. increase in equity
Q.6. The personal balance sheet would not generally include which of the
following items:
A. dividends received during the year motor vehicle
B. collection of rare banknotes
C. both 1st and 2nd options

Q.7. A Flexible Ratio of Asset Allocation means

A. Continuously changing the ratio of various assets in the portfolio
B. Not doing any re-balancing and letting the profits run
C. Active switching
D. None of the above

Q.8. You have suggested a strategy which aims to invest more when the share
price falls and less when the share price rises. It is done by calculating
predetermined amounts for the total value of the investment in future periods and
then making an investment to match these amounts at each future period. You are
indicating a technique known as
A. Rupee Cost Averaging
B. Value Averaging
C. Economic Cost Averaging
D. Weighted Averaging

Q.9. A firm needs to borrow funds on a short term basis without reducing its
current ratio below 1.25. The firm's current assets and current liabilities are Rs.
1600 and Rs. 1000 respectively. What amount can the firm borrow?
A. Rs 1000
B. Rs 1200
C. Rs 1400
D. Rs 2000

Q.10.Retired investors should

A. Not draw down on their capital
B. Not invest in securities which bear risk of capital erosion
C. Continue holding some portion of their holding in equity growth funds
D. Never invest in equity

Q.11.In a financial decision making framework, can be defined as uncertainty

about the rate of return an investment will provide over the holding period.
A. risk
B. annuity
C. discounting
D. compounding

Q.12.Money is
A. the reason for all transactions
B. a medium of exchange
C. the purpose of our economy
D. a medium of consumption.

Q.13.Mr. Rajan's investment portfolio comprises Rs.2 lakh in equity, Rs.5 lakh in
debt and Rs. lakh in his bank current account. Over one year the returns on equity
and debt are 5% arc 12%. At the end of the year to maintain his current asset
allocation, he needs to ____________________
A. Do nothing.
B. He needs to move Rs, 10000/- from equity and Rs. 60000/- from debt to cash.
C. He needs move Rs.7500/- to equity from debt and Rs. 8750/-to cash from debt
D. He needs to invest Rs. 70000/- in debt and equity.

Q.14.1t is March 31st and you have shares in RK LTD, which you bought on May 1st
that has lost Rs.2,000 in value. You have already sold other stock that you bought
this year for a gain. What should you do with the shares?
A. Wait until after next May 1st and sell it then
B. Keep the stock and hope that it goes up in value
C. Sell it today
D. Sell it on April 2nd next year

Q.15.Dr. Vijay wants to understand the basics to analyze the financial statement of
a company, he wants to know the ratios to look for in case he wants to know the
profitability:
A. Return on assets
B. Return on equity
C. Total assets turnover ratio
D. Interest coverage ratio
A. (a) and (b)
B. A, C and D
C. B and D
D. B only
Q.16.You tell Dharampal that the primary objective of Financial Planning is to
manage one's cash flows optimally to achieve one's financial goals. Which one of
the following best describes the management of liquidity? It is to manage cash in
order to ________________
A. minimise the cash balances to optimise interest earnings
B. arrive at optimal cash balance based on a well drawn budget
C. maintain enough cash to meet all liquidity requirements
D. strike a balance between liquidity needs and interest foregone on cash balances

Q.17.You have asked Dharampal to prepare an estimation of the revenue and

expenses over a specified future period of time. You are referring him to prepare
a/an _____________
A. Income and Expenditure Statement
B. Balance Sheet
C. Budget
D. Cash Flow statement

Q.18.In India, the primary market for shares is regulated by:

A. RBI
B. SEBI
C. Ministry of finance
D. None of the above

Q.19.The term personal financial planning generally implies:

A. the achievement of a financial outcome within a specified time period
B. successfully gaining a job promotion
C. winning the lottery within a specified time period
D. both 1st and 2nd options

Q.20.The shares of large, well established and financially strong companies with
impressive record of earnings and dividend are known as:
A. Blue ship shares
B. Growth shares
C. Income shares
D. None of the above

Q.21.The last step in the financial planning process is to develop financial plans
and strategies to achieve goals. use financial statements to evaluate results of
plans and budgets, taking corrective action as required.
A. implement financial plans and strategies.
B. redefine goals and revise plans and strategies as personal circumstances change

Q.22.Which of the following items would not generally be included in the

calculation of an individual's liquidity ratio?
A. Debt repayments over the next 12 months
B. Total balance of an outstanding 25-year mortgage loan taken out in the last year
C. Amount of outstanding telephone account
D. Both 1st and 3rd

Q.23._______________ is defined as uncertainty arising from changing economic

conditions that affect an investments ability to generate returns.
A. Business risk
B. Financial risk
C. Purchasing power risk
D. Liquidity risk

Q.24.Market volatility as a component of interest-rate risk:

A. Affects the amount of interest payments received on a fixed-interest investment
B. Affects the value of a fixed-interest investment at its maturity date
C. Affects the value of a fixed-interest investment sold before its maturity date
D. Both 1st and 2nd option

Q.25.Stimulating or contracting the economy via changes in interest rates is an

example of government's use of:
A. Fiscal policy
B. Industrial relations policy
C. Monetary policy
D. Welfare policy

Q.26.Bhuvan's assets include his furniture, clothing and an automobile. His assets
are in which of the following asset classes?
A. Tangible
B. Financial
C. Liquid
D. A and b

Q.27.Investments are distinguished from savings on the basis of

A. Length of time held
B. Initial cash outlay
C. Depreciation
D. Level of risk and expected return

Q.28.If you want recommendations from analysts and brokerage firms you can
____________
A. Watch television news programs
B. Open an account at a brokerage firm
C. Pay a professional financial planner
D. All of the above

Q.29.The four stages of an economic cycle would not include

A. Depression
B. Expansion
C. Recession
D. Stagnation

Q.30.Financial planning helps a person

A. To become a billionaire
B. To achieve financial goals through proper management of finances
C. To invest in foreign countries
D. None of the above

Q.31.Family financial goals should be

A. Very general in nature
B. Realistically attainable
C. Individually determined
D. Set once for a lifetime

Q.32.The debt-service ratio shows monthly debt commitments:

A. As a percentage of before-tax monthly income
B. As a percentage of after-tax monthly income
C. As a percentage of total liabilities
D. None of the above

Q.33.Which of the following is most risky?

A. Investing in a money market mutual fund
B. Investing in an index fund
C. Short term investment in an equity fund
D. Long term investment in an equity fund

Q.34.Which of the following is a better way of diversification?

A. Investing in 20 diffferent mutual fund schemes
B. Investing in 5 different asset classes with 20 schemes in all
C. Investing in 5 different asset classes with 10 schemes in all
D. Investing in 2 different asset classes with 5 schemes in all

Q.35.Data available for Arvind and Neha is:

Assets:

Cash = Rs 50000, Savings AC = Rs 50000, MMMF (Money market mutual funds) = Rs

200000, Bonds = Rs 250000, Fixed Deposit = Rs 150000, Marketable Stocks = Rs
500000, Equity based Mutual Funds = Rs 30000, Real Estate Vacant Plot = Rs 500000,
Yearly Expenses = Rs 360000, Yearly Income Net Of Taxes = Rs 600000,
Liabilities:

Car loan = Rs250000, House Loan = Rs 800000. Yearly Expenses include EMI for car
and House Loan. Find Basic Liquidity Ratio of the Couple?
A. 3.33
B. 10
C. 26.67
D. 15.50

Q.36.Dharampal had done following transactions during the Financial Year 2008-09
with respect to his account.
1. Paid off credit card liability worth Rs. 10,000 using savings account
2. Transferred Rs. 4,000 from savings account to PPF account
3. Purchased Rs. 2,000 of furniture on credit.
What is the net worth of Dharampal after these transactions?
A. Reduces by Rs. 16,000
B. Reduces by Rs. 2,000
C. Remains the same
D. Reduces by Rs. 10,000

Q.37.Prior to providing any Financial Planning services, you a Financial Planning

practitioner WV Vikrant, as your client shall mutually define the scope of the
engagement. The letter engagement would define the scope of engagement by
discussing
(i) Identification of the service(s) to be provided
(ii) Financial Planning practitioner's compensation arrangement(s)
(iii) Analysis and evaluation of client's current situation
(iv) Determining the clients and the Financial Planning practitioner's
responsibilities;
(v) Establishing the duration of the engagement; (vi) Determine the strategies to
achieve financial goals
A. (i), (ii), (iv) and (v)
B. (ii), (iii), (iv) and (vii)
C. (i), (ii), (iii), (iv) and (v)
D. (i), (ii), (v) and (vi)

Q.38.Basic Liquidity Ratio is

A. Liquid Asset / Debt
B. Liquid Asset / Monthly Expense
C. Liquid Asset / Non mortgage debt
D. None of the above

Q.39.Mrs. & Mr. Raoare aged 55 and 58 years respectively. Both expect to work till
they turn 65_ Their only goal is to fund their retirement. Which of the following is
likely to be an appropriate asset allocation strategy for them?
A. 20% Sectoral equity, 60% diversified equity, 20% long-term debt
B. 10% sectoral equity, 20% diversified equity, 30% long-term debt, and 40%
medium term debt
C. 80% long-term debt, 20% medium term debt
D. 30% Sectoral equity, 30% diversified equity, 40% cash/ liquid investments

Q.40.A business wherein persons facing same risks are brought together, to create
a fund from which those suffering losses are compensated.
A. Mutual fund
B. Insurance
C. Banking
D. Security

Q.41.As a financial planner what you would not suggest to your client if he
requires regular income?
A. A debt Fund
B. A bank deposit
C. Public provident fund
D. An equity growth fund

Q.42. Which of the following is the first step in financial planning?

A. Asset Allocation
B. Selection of fund
C. Studying the features of a scheme
D. Setting up financial objectives

Q.43.Which of the following is not a cause of wealth erosion?

A. Fall in interest rates
B. Rise in the cost of living
C. Inadequate life insurance cover
D. All of the above

Q.44.In choosing a guardian for your children, you should _________________

A. always pick the family member closest to your age.
B. ensure that the person you select is willing to serve in this capacity.
C. be sure to leave money for the guardian to care for your children.
D. Both B and C are correct

Q.45.Estate planning involves

A. Considering how your wealth can be most effectively passed on to heirs
B. Payment of all back taxes
C. Dissolution of all privately held corporations
D. Valuation and auctioning of your valuables

Q.46.The demand for which of the following will decrease the most with a weak
economy?
A. Cereal
B. Boats
C. Paper towels
D. Bread

Q.47.Financial planning is relevant for

A. High networth individuals
B. Older clients
C. Tax and estate planning
D. All of the above
Q.48.Which of the following is not a ratio to measure solvency of the client?

A. Savings Ratio
B. Non mortgage debt service ratio
C. Debt service coverage ratio
D. Debts to asset ratio

Q.49.Financial planning can help us to

A. Control inflation.
B. Spend wisely
C. Control unemployment rates.
D. All the above

Q.50.If you wish to evaluate the financial leverage of a firm you could look at the
_______________
A. Return on net assets.
B. Inventory turnover.
C. Current ratio
D. Debt ratio

Q.51.When setting financial goals, one should typically start by setting

A. Short-term goals
B. Intermediate-term goals
C. long-term goals.
D. A and B

Q.52.Manisha is 80 and has a very high net worth. Her most important financial
concern probably her
A. Career
B. Employee benefits
C. Estate
D. Insurance

Q.53.Sahil, age 43, can refinance Rs. 114042 at a 20-year rate for 7% and will incur
closing cost c' 3% of the mortgage amount to be financed in the new mortgage
balance. What will be his new EMI on the mortgage under the circumstances to
achieve his objective of no debt at retirement (age 60)?
A. Rs. 781.49
B. Rs. 957.56
C. Rs. 980.57
D. Rs. 986.29

Q.54. Mr. Rajan's investment portfolio comprises Rs.2 lakh in equity, Rs.S lakh in
debt and Rs. 1 lakh in his bank current account. Over one year the returns on
equity and debt are 5% and 12%. At the end of the year to maintain his current
asset allocation, he needs to _____________
A. Do nothing.
B. He needs to move Rs, 10000/- from equity and Rs. 60000/- from debt to cash
C. He needs move Rs.7500/- to equity from debt and Rs. 8750/-to cash from debt D.
He needs to invest Rs. 70000/- in debt and equity.

Q.55.The main reason to do personal financial planning is to

A. Minimize overall costs
B. Minimize overall utility
C. Assign monetary value to consumption
D. Maximize overall utility

Q.56.Santosh and Leena are in their late 20s with 3 young children. Their most
important financial planning concerns would probably include all of the following
except
A. Asset acquisition planning
B. Liability and insurance planning
C. Retirement and estate planning
D. Savings and investment planning

Q.57.For the same age and benefits, the Installment premium under a Limited
Payment policy
A. Will be less than in a non-limited plan policy
B. Will be more than in a non-limited plan policy
C. May be more, less or same as in a non-limited plan policy
D. Will be the same as in a non-limited plan policy

Q.58.A human being is

A. A perishable asset
B. An economic asset
C. Both of the above are true
D. None of the above is true
 UNIT X -ADVANCED WEALTH MANAGEMENT

CASE STUDY -1

Deepak Batra (Reference date: 01-January-2013)

Deepak Batra, aged 42 years, a Chartered Accountant is working as senior manager

in Lucknow unit of a Multinational company, engaged in sugar processing unit. He is
presently residing in Lucknow. His wife Reema, aged 38 years, is also a Chartered
Accountant. She took up a job in a private consultancy firm in April, 2009 which gives
her an annual all-inclusive package of Rs. 7. 50 lakh. She expects her income to rise
every year by 10% p.a. They have a school going daughter Ananti, aged 8 years.

Assets valued as of today (or as specified in footnotes)

• Cash/Bank: Rs. 2,50,000
• Government Bonds & Debt MF: Rs. 12,00,000
• PPF: Rs. 5,56,000 (in the name of Deepak, Maturing on 1st April 2020. There has
been no investment in this account in this financial year till date. Balance is as on
31st March, 2012) • National Savings Certificate: Rs. 4,50,000 (Amount invested on
1st Jan 2012)
• Residential House: Rs. 20,00,000 (Situated at his native Bilaspur and used as a
holiday home. )
• Plot of land: Rs. 25,00,000
• Unit Linked Pension Plan: Rs. 91,300 (Twenty years plan, started on 15th Dec 2005
and Premium is Rs. 10,000 p.a. Next premium is due on 15th Dec 2013)
Liabilities : Nil
You, in consultation with the couple ascertain their life Goals and methodology
about their achievement.
1. World Tour —when Deepak's age is 60 years. Current tour expenses are Rs. 18
lakh. The corpus is built through investing PPF maturity amount to generate suitable
returns.
2. Buy a house for investment purpose immediately. The cost of the house is Rs. 60
lakh - By selling the plot of land and taking a bank loan repayable over 10 years @
12% p.a. interest on monthly reducing balance basis

Assumptions

Risk free return: 6.50% p.a.

Inflation: 5.50% p.a.
Equity: 11.00% p.a.
Debt: 7.00% p.a.
Liquid Funds: 5.50% p.a.
Gold: 7.50% p.a.
PPF: 8.6% p.a.
Max PPF Contribution per year: Rs 1 Lakh
Life expectancy
• Deepak: 85 years
• Reema: 87 years

Q.1. Deepak is unsure about the wealth management process. In your opinion
what is true about the wealth management process?
A. It can potentially start before the birth of an individual and can carry on even
after his or her demise
B. It includes financial planning, tax planning, retirement planning, asset
management and estate planning
C. It is a life-long process
i. Only B
ii. A & B
iii. B & C
iv. A, B & C

Q.2. Wealth Management is a process that is aimed at increasing an individual's

(and his/her families') financial stability for their entire life and also creating a
legacy that can be passed on future generations.
A. True
B. False

Q.3. For the world tour of the couple at Deepak's age of 60 years, you suggest
Deepak to accumulate funds by continuing investment in his PPF A/c. to the extent
of maximum permissible limit on the first working day of every financial year, such
subscription in the current financial year to be deposited on 1st February, 2013. He
should go for extension of his PPF A/c. twice after its due maturity and should
continue to invest amounts as suggested above, every financial year. The final
maturity proceeds would be invested in a Liquid Fund until its utilization for world
tour.
A. Deepak deposits maximum permissible amount in his PPF account on lst February
2013. What will be his account balance as of 31"March 2013
i. 5,56,000
ii. 6,56,000
iii. 7,03,816
iv. 7,05,249
B. Deepak continues investing in his PPF account to the extent of maximum
permissible limit on the first working day of every financial year, as per your advice
from 2013 until account maturity year. What will be accumulated corpus as of 1'
April 2020? (Assume that the current regime in PPF A/c. would continue)
i. 23,28,339
ii. 22,43,458
iii. 23,43,458
iv. 25,44,995
C. Deepak goes for extension of his PPF A/C twice after its due maturity in 2020 and
continues to invest amounts to the extent of maximum permissible limit on the first
working day of every financial year. What will be the accumulated balance as of 1'`
April 2030? (Assume that the current regime in PPF A/c. would continue)
i. 66,40,000
ii. 67,10,567
Iii. 67,38,148
iv. 68,77,364
D. The maturity proceed as of e April 2030 is invested in a liquid fund for 10 months.
What is the amount available for utilization at the end of January 2031
i. 70,45,594
ii. 70,53,428
iii. 71,91,162
iv. 71,99,158
E. Deepak wants to know what maximum level of average annual increase in such
travel and associated costs during this period would see the amount thus
accumulated covering his goal of world tour.
i. 7. 88% p.a.
ii. 8. 01% p.a.
iii. 6. 05% p.a.
iv. 6. 14% p.a.
F. What other factors can jeopardize his world tour despite having accumulated a
corpus that is adjusted for domestic inflation
i. Indian Rupee Exchange Value vis-a-vis international currency
ii. NIFTY Index
iii. Government Bond Yields
iv. None of the above

Q.4. A wealth manager is not important for a strong wealth management plan.
A. True
B. False

Q.5. During the wealth management process, if financial goals are determined to
be unattainable, the individual can
A. Reduce discretionary expenses
B. Increase income
C. Choose aggressive investments with potentially higher returns
D. Increase time frame to obtain the goal
i. A, B, C
ii. B, C, D
iii. A, C, D
iv. A, B, C, D

Q6. You have advised Deepak to buy a Term Insurance for his life and also for the
life of Reema, he wants to know the importance of waiver of premium rider?
A. It is useless as there will not be any amount to be received from the Insurance
Company at the time of maturity of the policy
B. It is very useful as all future premiums would be waived by the Insurance
Company in case the Life Assured becomes totally and permanently disabled
C. It is same as Permanent Disablement rider hence need not be mentioned
separately
D. It is inbuilt with all the Term Insurance plans and thus need not be mentioned
separately

Q.7. You have mentioned to Deepak that as you increase the tenure of insurance
coverage, the premium charged per year will also increase. You are referring to
which type of Life Insurance coverage?
A. Whole Life Insurance Plan
B. Endowment Plan
C. Unit Linked Insurance Plan
D. Term Plan

Q.8. Deepak has identified a second house in his native Bilaspur which he can buy
for Rs. 60 lakh. He wants to dispose of the plot of land for Rs. 25 lakh (net of taxes).
He would take a bank loan for the differential amount available at 12% p.a. (on
monthly reducing balance basis) and repayable over a 10-year period. The property
tax and maintenance outgoings for the house would be annually Rs. 43,000. He
does not intend to avail of Section 80C benefit from this property. The complete
transaction including disbursal of bank loan and renting of property may be
considered to begin on 1st April, 2013.
A. What amount needs to be arranged through the bank loan
i. 25 Lakhs
ii. 35 Lakhs
iii. 60 Lakhs
iv. None of the above
B. EMI of the loan would be
i. Rs 35,513
ii. Rs 35,868
iii. Rs 49,718
iv. Rs 50,215
C. What is the outstanding balance loan amount after 1 year?
i. Rs. 23,38,808
ii. Rs. 23,62,187
iii. Rs. 33,07,038
iv. Rs. 34,00,000
D. What rental income he should expect in the first year to completely offset his
expenses including interest on loan to be incurred on account of his second home?
i. Rs. 7,18,748
ii. Rs. 4,59,355
iii. Rs. 5,14,000
iv. Rs. 4,52,616

Q.9. Deepak is seriously considering surrendering his policy of Unit Linked Pension
Plan. What would be the tax implications of the surrender value received by him?
A. Any amount received will be tax free
B. Amount received less the total premiums paid will be taxable at 10%
C. Any Amount received will be added to his income and will be taxed accordingly
D. Amount received less the index value of the premiums paid will be taxable at 20%

Q.10. Deepak wants to know the tax deduction on reinvestment of Interest on

NSC.
A. Accrued interest (which is deemed as reinvested) also qualifies for deduction for 6
years.
B. Accrued interest (which is deemed as reinvested) also qualifies for deduction for
first 5 years.
C. Accrued interest (which is deemed as reinvested) does not qualify for
deduction.
D. Accrued interest (which is deemed as reinvested) also qualifies for deduction
for first 3 years.

Q.11. Deepak has paid till date 7 premiums in his Unit Linked Pension
Plan. He has intimated you that the premium allocation charge was 20% in
the first year, 10% in the second year, 5% from 3rd year to 5th year, and 2%
in all subsequent years to date.
A. He wants to know his return on investment before paying the 8th
premium which he is allowed to pay till 31st January, 2013 without any
penalty.
i. 2.93% p.a
ii. 3.87% p.a
iii. 4.77% p.a
iv. 6.65% p.a
B. He also wishes to know the annual rate of return on his invested
amount after premium allocation charge to assess how the scheme has
actually performed.
i. 5.60% p.a
ii. 5.23% p.a
iii. 7.43% p.a
iv. 8.47% p.a
 CASE STUDY - 2

Vanisha Lohia (Reference date: 20-February-2013)

Vanisha Lohia, aged 24 years (born on 12 February 1989) has approached you, a
wealth manager to plan for her wealth accumulation and distribution. She is working
in a tax consultancy firm in Mumbai. She resides with her parents (father aged 50
years, a businessman and mother, aged 45years,
a homemaker). Vanisha also supports her younger sibling Megha, aged 20 years to
the extent of her pocket expenses. She earns an income of Rs 450,000 p.a. She
expects her salary to rise every year by 10%.

Expenses

Yearly expenditure on self : Rs. 120,000

Yearly expenditure incurred on sibling : Rs. 25,000

Annual Salary Components

Basic = Rs. 204,000

HRA = Rs. 102,000
Transport Allowance = Rs. 9600
Special Allowance = Rs. 48,920
Bonus = Rs. 37,000
Medical Reimbursement = Rs. 15,000
Meal coupons = Rs. 9,000
Provident Fund = Rs. 24,480

Assets valued as of today

 Cash/ Bank:Rs. 200,000

 PPF: Rs. 70,000 (Account opened on 3rd April, 2012 with Rs. 70,000. )
 National Savings Certificate: Rs. 6,490 (Amount invested on 1st Jan 2012)
 Shares and Mutual Fund: Rs. 400,000 (Includes investment in XYZ Equity Fund
with 2654. 780 units and present NAV of Rs 59. 500)
 Plot of land: Rs. 100,000 (Gifted by Grandfather on her 16"‘ birthday when
market value was Rs.4 lakh; Cost of Purchase as on 1 January 1989)

Liabilities : Nil

You in consultation with Vanisha, arrive at her life goals:

1. To acquire a residential house at a hill station 10 years from now. The cost is Rs 15.
50Lakh today. She plans to make a down payment to the extent of half the prevailing
cost of the house at that time, while availing a loan for the balance.
2. To buy a car in five years worth Rs 6 Lakh today by redeeming the required
amount from XYZ Equity Fund, the required amount to be accumulated through this
fund only.
3.Plan for retirement at the age of 55. Corpus at that time to suffice an inflation-
adjusted monthly annuity till the expected life of Vanisha equivalent to Rs. 15,000
monthly expenses at current prices.
4.To buy a suitable cover for health and disability insurance.
5.To undertake a trip abroad after five years from now. Create a corpus in such a
manner that it lasts for a total of six years. The trip currently costs Rs. 150,000 while
the relevant cost escalation is 8% p.a.

Assumptions:

The assumed rate of return on various asset classes is as follows:

Equity & Equity MFS, ETF : 11% p.a.

Debt, Bonds, Income MFs : 8% p.a.
Balanced MF scheme : 9.75% p.a.
Risk free return : 6.50% p.a.
Inflation : 5.50% p.a.
Life expectancy of Vanisha : 80 years

Q.1. Vanisha wants to accumulate the expected cost of her proposed house at a
hill station to the extent of down payment. She wants to know the amount should
she invest from today in an Equity Mutual Fund scheme every month for the next
nine years? You make a study of the real estate development and potential of the
place of investment and therefore assume that property prices there would
escalate annually by 7% p.a. in the said period.
A. Rs. 7,633
B. Rs. 8,473
C. Rs. 7,177
D. Rs. 6,628

Q.2. Vanisha's father during the financial year 2012-13 has paid medical insurance
premium of Rs. 20,000 on his health and on the health of his wife. Further, he has
also paid Rs. 20,000 to keep in force an insurance policy on the health of his
parents, who are Senior Citizens. The eligible deduction under section 80D for his
father would be
A. Rs. 40,000
B. Rs. 35,000
C. Rs. 30,000
D. Rs. 20,000

Q.3. Vanisha wants to invest systematically every month in an Equity Mutual Fund
scheme with immediate effect for five years, so as to create a corpus for her
proposed foreign trip starting from the year after 5 years from now. Such corpus is
withdrawn and reinvested in a Balanced Mutual Fund scheme. She proposes to
contribute 40% of the expenses from her regular savings for her first trip, while
drawing the balance from the corpus. The same amount as drawn in the first year
is drawn every year from the corpus for 5 more years and balance from her regular
savings.
A. What will be the cost of her trip five years from now?
i. 196044
ii. 220399
iii. 220500
iv. 238844
B. She asks you to calculate the amount of monthly investment required to achieve
that goal
i. Rs. 6,999
ii. Rs. 7,159
iii. Rs. 7,849
iv. Rs. 8,048

Q.4. Vanisha proposes to liquidate shares worth Rs. 1. 5 lakh and invest in an
equity MF and to start investing from today till she retires, on a monthly basis in
the same equity mutual fund to accumulate her retirement corpus. She also
expects to accumulate separately through her PPF A/c. a sum of Rs. 40 lakh to
partly build the proposed corpus. The corpus would be invested in risk free
instruments post-retirement to generate an inflation linked annuity till her
expected lifetime. She wants to know how much she should invest monthly to
accumulate for sufficient retirement corpus.
A. Rs. 1,990
B. Rs. 4,710
C. Rs 6,130
D. Rs. 1,470

Q.5. Vanisha's father had suffered loss from house property and loss from business
and profession for the previous year 2011-12 and has delayed in filing his return of
income before the due date. Will her father be eligible to carry forward losses at
the time of filing his belated return of income? (Assuming he does not have any
corresponding income to set off of losses)
A. Yes, can he carry forward both
B. No, cannot carry forward both
C. Can carry forward only loss from house property
D. Can carry forward only loss from business and profession

Q.6. Vanisha wants to know which types of insurance she should buy, considering
the assets, liabilities and her future goals. In the order of importance, which
insurance should she ideally purchase?
A. Life Insurance
B. Health Insurance
C. Disability Insurance
D. Property Insurance
i. 3, 1, 2, 4
ii. 1, 3, 2, 4
iii. 4, 3, 1, 2
iv. 3, 2, 1, 4

Q.7. Before the wealth manager makes the client invest, he should ask his client
some question. Which of the following is an irrelevant question?
A. What is the goal of saving and investing?
B. What is the timeline for this investment? When will the client use this money?
C. Perform client's risk profile and risk tolerance test
D. What are his interests in commodity trading?

Q.8. Vanisha wants to buy her residential house today at a hill station as she has
received a fabulous offer for a home loan. According to you, which types of
insurance she should buy to cover that risk.
A. Life Insurance and disability Insurance
B. Disability Insurance and Accidental Insurance
C. Householder's Policy and Home loan Protection plan
D. Health Insurance and Life Insurance

CASE STUDY — 3

Ankit, 23 years of age, graduated from college last year with a degree in marketing.
After job-searching for several months, he has been just hired by the sales
department of an advertising firm on 23/04/2007 at an annual salary of Rs. 2,20,200
net of taxes.
Ankit plans to save a portion of every paycheck so that he can invest money to build
his wealth over time. He realizes that by establishing a financial plan to limit his
spending today he can increase his wealth and therefore his potential spending in
the future.
His monthly P.F deduction is Rs. 780/-. His monthly cash inflows come only from his
pay check. In a typical month (June-07) his spending details are as below:

Ankit owns following at the end of June, 07:

Cash Rs. 5000

Bank account Rs. 17,500
Furniture in his apartment is worth about Rs. 22,500
An old car that is worth about Rs. 60,000
100 shares of stock he just purchased for Rs. 66/- per share, which does not pay
dividends Credit card balance Rs. 12,000

Ankit plans to take credit card of ICICI Bank Ltd. because it has no annual fee, while
Barclays card has an annual fee of Rs. 100. Ankit typically have an outstanding credit
card balance of Rs. 5000 each month. ICICI bank credit card charges an annual
interest rate of 30% on balances carried forward, while Barclays card charges an
interest rate of 24% on balances carried forward. Ankit just received Barclays credit
card bill for Rs. 4,500/- , due date is 31/08/2007. The customer care executive of the
credit card company inform him a scheme of converting his dues in 6 EMI starting
after one month with 0% rate of interest only by paying Rs. 450/- as processing fee.
But he has sufficient fund to pay it.

Ankit now wonders if he should lease the car he selected, rather than purchasing it
for Rs. 2,00,000/-. By purchasing the car, he can invest Rs. 75,000 as a down
payment and the remaining Rs. 1,25,000 is financed by a car loan with 7.6% interest
rate. He will pay monthly for four years. He expects that the car will be worth Rs.
1,00,000 at the end of four years. By purchasing instead of leasing, he forgoes
interest that he could have earned from investing the down payment amount over
next four years at the risk free rate. Alternatively he could lease the same car for Rs.
2500 per month over the four year period. The lease would require a security
deposit of Rs. 50,000 which he would receive back at the end of the four year period.

After completing higher education in computer software, he is expecting a new job

with a very high pay-package. He plans to purchase a flat because his parents want
to stay with him and for this he chooses a locality in nearby his office. Ankit finds the
selling prices of three other flats in the same area, with a similar location and about
the same age as the home that he wants to purchase. The market analysis of the
same is given below:
Market Analysis
The home he wants to purchase has 1,300 square feet and he estimates the price as
per the average price of market analysis. For financing he has contacted with DIC
Mortgage Company. The DFIC would charge the following:

1% processing fee, Rs. 2,000 for application fee, Rs. 10000 for appraisal and title
search, other fees Rs. 3,000. Insurance charges Rs. 3,500 per years.

Q.1. Ankit's has got wise lessons from his father in money matters. He wants to
plan from the beginning of his career. So he wants to analyze his cash-flow.
Calculate Ankit's net annual cash flow based on his June, 07 transactions?
A. Rs. 53,775
B. Rs. 45,960
C. Rs. 56,835
D. Rs. 59,395

Solution:
Annual salary = Rs. 2,20,200, P.M salary Rs. 2,20,200/12 = Rs. 18,350 Disposable
income per month Rs. 17,570 (18350-780)
 Cash Inflows Typical Month (Rs.) Annual (Rs.)
Disposable Income 17,570/- 17.570* 12=2.10,840/-
Out Flow
Rent 5,500/- 5,500* 12=66,000/-
Dish TV 550/- 500* 12=6,600/-
Electricity and water 800/- 800*12=9,600/-
Telephone 875/- 875*12=9,600/-
Groceries 2,450/- 2,450* 12=29,400/-
Health care Insurance & 965/- 965*12=11,580/-
Expenses
Car Expenses (Maintenance, 1,250/- 1,250*12=15,000/-
fuel, insurance)
Clothing 600*12=7,200/-
600/-
Recreation 750/- 750* 12=9,000/-
12=9,000/-
Total Outflow 13,740/- 1,64,880/-
Net Cash Flows (17,570- (2,10,840-
13,740)=3,830/- 164880)=45,960/-

Q.2. Calculate Ankit's net worth based on information given upto June, 2007 ?
A. 99600
B. 99500
C. 99400
D. 99300

Solution:

Assets Amount (Rs.)

Liquid Assets
Cash 5,000/-

Bank 17,500/-

Household Assets
Car 60,000/-

Furniture 22,500/-

Investment Assets

Shares 6,600/-
Total Assets 1,11,600/-
Liabilities
Current Liabilities
Credit card balance 12,000/-
Total Liabilities 12,000/-
Net Worth 99,600/-

Q.3. If following changes would happen to his assets and liabilities then calculate
the changes in his net worth?
His car would have a market value of Rs. 2,00,000/- instead of Rs. 60,000/-.
His bank account balance would reduce from Rs. 17,500/- to Rs. 8,700/-.
He would now have a long-term liability of Rs. 1,25,000/- as a result of car loan.

A. Ankit's net worth would decrease by Rs. 16,200

B. Ankit's net worth would increase by Rs. 6,200
C. Ankit's net worth would remain unchanged.
D. Ankit's net worth would be Rs. 1,15,700

Solution:

Assets Present Situation Changed Situation

Liquid Assets
Cash 5,000/- 5,000/-
Bank 17,500/- 8,700/-
Household Assets
Car 60,000/- 2,00,000/-
Furniture 22,500/- 22,500/-
Investment Assets
Shares 6,600/- 6,600/-
Total Assets 1,11,600/- 2,42,800/-
Liabilities
Current Liabilities
Credit card balance 12,000/- 12,000/-
Long-term Liabilities 12,000/- 1,37,000/-
Net Worth 99,600/- 1,05,800/-
Changes in Net Worth (105800-99600)=6,200/-

Q.4. Calculate Ankit's Liquid Asset Coverage Ratio, and Debt Ratio as per the
changed situation?
A. 0.10, 0.90
B. 0.1, 1.29
C. 0.08, 1.17
D. 0.06, 1.16
Solution:
Liquid Asset Coverage Ratio = Liquid Assets / Total Debt
Liquid Assets = Rs. 13,700 (5000 + 8700)
Debt = Rs. 1,37,000/-
So liquid asset coverage ratio = 13700/137000 = 0.1078
Debt Ratio = Liabilities / Net Worth
So, = 137000/105800=1.29

Q.5. Which of the following is true relationship between Cash Flows and wealth?
A. Use of net cash flows to invest in more assets will increase wealth
B. Reduce liabilities by using net cash flows will increase wealth
C. Purchase of assets by taking loan will also increase wealth and use of that assets
will also increase revenue/earning etc that means of increase of net cash flows.
D. Option A and B

Q.6. If Ankit believes that he may able to save about Rs. 2,500 p.m. at the end of
every month with a 6% pa. rate up to his retirement at 58 year. Then calculate how
much he will able to accumulate? If he could earn 1% more, than his accumulation
will increase by how much amount?
A. Rs. 42,43,333/- Rs. 7,23,456/-
B. Rs. 39,27,456/- Rs. 6,42,345/-
C. Rs. 35,61,775/- Rs. 9,40,861/-
D. Rs. 38,87,349/- Rs. 10,23,745/-

Solution:

Set : End
N = (58-23) x 12 = 420
I = 6 PMT = —2500
P/Y = 12
C/Y = 12
FV = Solve = 35,61,775

If interest rate is 7% (6 + 1)

Set : End
N = (58-23) x 12 = 420
I=7
PMT = —2500
P/Y = 12
C/Y = 12 FV = Solve = 45,02,636

So at the increase of 1% interest rate his accumulation will increase by Rs. 9,40,861
(45,02,636-35,61,775)
Q.7. If Ankit wants to accumulate Rs. 50,00,000 and his retirement age is 60 years
with a 8% interest rate than how much he has to save per month?

A. Rs. 2230.58
B. Rs. 1840.67
C. Rs. 1828.48
D. Rs. 2130.53
Solution: Interest rate is 8% (7 + 1)
Set : End
N = (60-23) x 12 = 444
I= 8
FV = 50,00,000
P/Y = 12
C/Y = 12
PMT = Solve = 1840.67
Q.8. Ankit's perception is that as ICICI bank offers a free credit card, one should
grab this offer. As a financial planner what do you think about it?
A. Ankit's perception is right.
B. Ankit's perception is wrong as he maintaining a regular Rs. 5,000/- per month
credit car: balance.
C. Ankit's perception is wrong as an annual expense on Barclaycard is lesser in
comparison to ICICI credit card on the same amount of credit balance.
D. Ankit's perception is true because annual charge will increase his total annual
expenses
Solution:
ICICI Credit Card Barclaycard
Average monthly Balance Rs. 5,000/- Rs. 5,000/-
Annual Interest Rate 30% 24%
Annual interest Expenses 30% * Rs. 5,000/- 24% * Rs. 5,000/-
=Rs. 1,500/- = Rs. 1,200/-
Total annual Expenses 0 100/-
Total annual Expenses Rs. 1,500/- Rs. 1,300/-

Q.9. Though Ankit has sufficient fund to pay this credit card bill but as offer is in 6
EMI starting after one month with 0% interest, he thinks to deposit this fund in a
scheme which gives him 5% p.a. risk free rate of return instead of the paying the
credit card bill now. Advise him how this decision will affect his net worth.
A. Net worth will decrease by Rs. 425.24
B. Net worth will decrease by Rs. 396.16
C. Net worth will decrease by Rs. 450.00
D. Net worth increase by the amount of interes
Solution:
Six equal installment means 4500/6 = 750
Month Amount for Int.@5%
Investment
Sept =4500- (4050*.05)/12=16.88 N=1,i=5,PMT=0,FV=16.88,P/Y=12,
450 = 4050 450=4050 C/Y=12, Solve PV=-16.81
Oct =4050- (3300*.05)/12=13.75 N=2,i=5,PMT=0,FV=13.75,P/Y=12,
750 = 3300 750=3300 C/Y=12, Solve PV=-13.64
Nov =3300- (2550*.05)/12=10.63 N=3,i=5,PMT=0,FV=10.63,P/Y=12,
750 = 2550 750=2550 C/Y=12, Solve PV=-10.50
Dec =2550- (1800*.05)/12=7.50 N=4,i=5,PMT=0,FV=7.S0,P/Y=12,
750 = 1800 750=1800 C/Y=12, Solve PV=-7.38
Jan =1800- (1050*.05)/12=4.38 N=5,i=5,PMT=0,FV=4.38,P/Y=12,
750 = 1050 750=1050 C/Y=12, Solve PV=-4.29
Feb =1050- (300*.05)/12=1.25 N=6,i=5,PMT=0,FV=1.25,P/Y=12,
750 = 300 750=300 C/Y=12, Solve PV=-1.22
March Total 54.39 (16.81+13.64+10.50+7.38+4.29+1.2
2)=53.84

So total cost = Upfront cost 450

Less: Interest earned 53.84
Rs. 396.16
So his net worth will decreased by Rs. 396.16

Q.10. Maninder friend of Ankit has taken a car through lease. In a chat he told to
Ankit that his leasing decision is more cost-effective. After that Ankit also want to
analyze the cost of his earlier buying decision. He asks his financial planner
whether leasing is better for him and how much it affects to his net worth.
A. Leasing is better for him and net worth will increase by Rs. 45,78.28
B. Leasing is not better for him and net worth will decrease by Rs. 5,353.60
C. Leasing is better for him and net worth will increase by Rs. 8,380/-
D. Leasing is not better for him and net worth will decrease by Rs. 15,353.60

Solution:

Cost of Purchasing the Car

Down Payment Rs. 75,000/-
Interest on down payment foregone N=4,i=5,PV=-75000,50LVE FV=91163.
Interest=91163-75000=16,163/-
EMI for four years END, n=48.i=7.6, PV=-125000, SOLVE
PMT=3028
At given savings rate of 5% these EMI of
Rs. 3,028/- should accumulate a FV of
END,n=48,1=5,PMT=3028, P/Y=12,
C/Y=12, SOLVE FV=-160530
Total (75,000+16,163+1,60,530 - =Rs. 1,51,693/-
1,00,000)
Total Cost Rs. 1,51,693/-
Cost of Leasing the Car for Four Years
Interest on Security deposit of Rs. END, N=4,1=5, PV=-50,000, Solve FV=
50,000/- forgone 60775 Interest =60,775-50,000=10,775
Total Monthly payments @ Rs 2,500/- At given savings rate of 5% these monthly
payments of Rs. 2,500/- should
accumulate a FV of - END,
n=48,I=5,PMT=-2500, P/Y=12, C/Y=12,
SOLVE FV=132538
Total Cost (1,32,538 + 10,775) = 1,43,313
So leasing cost is less by Rs. 8,380/- ( 1,51,693-1,43,313)

Q.11 Ankit finds the selling prices of three other homes in the same area, with a
similar location and about the same age as the home that he wants to purchase.
The market analysis of the same is given below:
Market Analysis

House Size Price Price per square foot

1,200 square feet 23,40,000/- 23,40,000/1,200=1,950/-
1,300 square feet 26,13,000/- 26,13,000/1,300=2,010/-
1,100 square feet 19,80,000/- 19,80,000/1,100=1,800/-
The home he wants to purchase has 1,300 square feet and he estimates the price as
per the average price of market analysis. Ankit is considering making an offer of Rs.
25 lakhs on a house and planning to make a down payment of Rs. 5,00,000 and
borrow the balance from a DFIC Mortgage Company. The DFIC would charge the
following:
1% processing fee, Rs. 2,000 for application fee, Rs. 10000 for appraisal and title
search, other fees Rs. 3,000. Insurance charges Rs. 3,500 per years. The DFIC
Mortgage Company offers him two following option
Option 1: Term 15 years mortgage, Rate of interest 8%, payment at end of the
month
Option 2: Term 30 years mortgage, Rate of interest 8%. Payment at begin of the
month Calculate the total cost of both the options.
A. Rs. 39,87,134 Rs. 54,36,114
B. Rs. 35,77,975 Rs. 57,11,251
C. Rs. 32,74,567 Rs. 53,37,117
D. Rs. 41,23,423 Rs. 59,68,325

Solution:
Loan amount Rs. 20,00,000 (25,00,000-5,00,000)
Option 1:
Set: End
n=180(15 x 12)
 I = 8/12 = 0.66
PV = 20,00,000
PMT = —19113
Insurance charge Set : Begin
n = 15
I=8
PMT = —3,500
FV = Solve = 102635
So, total principal payments Rs. 20,00,000
Total interest payments ((19113 x 180)-20,00,000 Rs. 14,40,340
Add: Charges for mortgages
Processing fee = 20,00,000 x .01 = 20,000
Application fee 2,000
Appraisal fee 10,000
Other charges 3,000 35,000
Insurance charges 102,635
Total Cost 35,77,975

Option 2:
Set: Begin
n=360 (30 x 12)
I= 8/12 = 0.66
PV = 20,00,000
PMT = —14,578
Insurance charges Set: Begin
n = 30
I=8
PMT = —3,500
FV = Solve = 4,28,211

So, total principal payments Rs.

20,00,000
Total interest payments ((14578 x 360)-20,00,000)) Rs.
32,48,080
Add: Charges for mortgages
Processing fee = 20,00,000 x .01 =20,000
Application fee 2,000
Appraisal fee 10,000
Other charges 3,000 35000
Insurance charges
4,28,211
Total Cost
57,11,291
Q.12 As a financial planner what advantages you will tell on accepting 15-year
mortgage to Ankit?
A. Ankit would pay down the mortgage sooner, meaning that he would more quickly
accumulate a larger fund in the shape of flat.
B. Ankit's net worth will increase to a greater degree in comparison to 30 years
mortgage
C. Ankit has to pay lesser amount in EMI
D. Option A and B both

Q.13 As a financial planner what disadvantages you will tell on accepting 15-year
mortgage to Ankit?
A. Ankit's EMI amount will be higher in comparison to 30 years mortgage
B. Ankit has to pay higher amount in relation to 30 years mortgage
C. Ankit has to wait shorter period for getting full outright on the home.
D. Option A and C

Q.14. As a financial planner what advantages you will tell on accepting 30year
mortgage to Ankit?
A. Ankit has to pay smaller monthly payments than he would pay for a 15 year
mortgage.
B. Ankit's monthly payments are more affordable in case of 30 year mortgage.
C. Net worth increase faster in 30 year mortgage
D. Option A and B+

Q.15 Which of the following is true in trade off between 15 years mortgage with 30
years mortgage?
A. Ankit's liquidity position will be better in accepting 30-years mortgage
B. As Ankit will pay less interest over the life of loan build capital at a faster pace.
C. At the point of after 10 years Ankit would pay higher amount in accepting 10 years
mortgage
D. All of the above

CASE STUDY — 4

Mr. Sushobhan Adhikari, 56 years old, employee of Mega India Ltd, receives the
following salary and perquisites from his employer during the previous year 2009-10.
Basic pay Rs. 1,80,000, p.a.
Commission on sales @ 4% of turnover of Rs. 18,50,000/-
Advance salary of April to July, 2009, Rs. 60,000/-
Employer's contribution towards recognized provident fund — Rs. 35,000/-
Interest credited in Provident fund account @ 13%- Rs. 65,000/-
A rent-free furnished house in Patna (rent of unfurnished house paid by employer-
Rs. 84,000/-, rent of furniture Rs. 18,000/-, free services of a gardener (salary-Rs.
4,000/-p.m.), free services of cook (salary-Rs. 3,600 p.m.), free services of watchman
(salary-Rs. 900/p.m.). He owns a small house at Patna.
Mr. Adhikari makes the following payments and investments during the year:
Own contribution towards recognized provident fund- Rs. 21,600, NSC issue Rs.
12,000, Deposit in public provident fund Rs. 65,000.
Mr. Adhikari comes to Mr. Aggarwal, a financial planner, in September-20J.0 for
developing a financial plan to fulfill his financial goals. Mr. Adhikari will retire on 31st
December, 2010 after completing 28 years of service. He is expecting a growth of Rs.
1,500 in his basic pay in the last year of his employment. The company is expecting a
5% growth every year in its turnover. His daughter Pallavi has completed her
education and his main liability is the amount he may have to spend for her
marriage. On his retirement he is expected to receive following amount:
Gratuity Rs. 4,00,000
PF Rs. 5,75,750
Leave encashment Rs. 1,75,000
Commuted value of pension received in Feb, 11 Rs. 2,75,000
Pension per month (after commutation) Rs. 7,500
He also has also informed to the planner following his other assets and investments:
FD's (maturity value) on his retirement Rs. 1,50,000
Savings account on (01/10/2010. Rs. 73,735
PPF maturity value on his retirement Rs. 2,15,000
Life insurance policy maturing on November, 2010 Rs. 2,00,000
Flat in Kolkata Rs. 9,00,000
Flat in Tata nagar Rs. 6,50,000
Value of his residence at Patna Rs. 3,00,000
He has given his Kolkata Flat on 12,500 p.m. rent. Municipal value of the property is
Rs. 1,45,000, fair rent is Rs. 1,60,000 and standard rent is 1,40,000. Municipal tax
paid by him are as follows:
Rs. 28,000 on February, 2010, and Rs. 32,000 on March 2011. In July, 2010 rent is
increased from Rs. 11,500 to Rs. 12,500 pm with effect from 01/04/2009. Due to
some dispute rent was not received in 2009-10 but all arrears of rent till date are
paid on July 1, 2010. Maximum eligible amount of PPF contribution deposited in
March, 2010.
His actual expenses before retirement are Rs. 23,500 per month.
Main goals of Mr. Adhikari:
To provide for his daughter's marriage
Ensuring that his family is protected financially in the event of any mishap
Minimize tax burden
Establish an investment portfolio that gives high returns over long term
Assumptions:
Mr. Adhikari needs to provide for himself and his family till he is 75.
Inflation rate after retirement to be 4%
Monthly expenses after retirement will be 15% less than before retirement
After detailed discussion, Mr. Aggarwal, Financial planner, has suggested a revision
in the portfolio as below to be implemented from October, 2010.
PO MIS (from Oct, 2010. Rs. 5,00,000
Senior citizen saving scheme from 31/12/2010 Rs. 14,00,000
FD 9% taken on Dec, 2010 for marriage Rs. 5,00,000
PPF extended for five years
Invest in Debt fund per month to provide marriage Rs. 7714
To take Medical Insurance and Critical insurance
With a premium of (in March-2010. Rs. 15,000
To start quarterly contribution of Rs. 10000 in a debt fund from December 2010.

Q.1. Calculate the income chargeable to tax from rented flat of Kolkata, for the
assessment years 2010-11 and 2011-12.
A. Rs. 78,400, Rs. 82,600
B. Rs. 78,400, Rs. 89,600
C. Rs. 82,600, Rs. 78,400
D. Rs. 68,600, Rs. 86,300
Solution:
F.Y. 2009-10 F.Y. 2010-11
Gross Annual Value AY 2010-11 AY 2011-12
Municipal value or fair rent, whichever is higher, 1,40,000 1,40,000
subject to a maximum of standard rent
Actual rent received Rs. 12,500 x 12 = 1,50,000 - 1,50,000
1,50,000
Gross annual value (higher of two) 1,40,000 1,50,000
Less: Municipal Tax 28,000 32,000
Net Annual Value 1,12,000 1,18,000
Less standard deduction 30% 33,600 35,400
Income 78,400 82,600

Income from House property A.Y 2010-11 Rs. 78,400

Arrears of rent of the year A.Y. 2009-10 on July, 2010
Gross annual value of A.Y. 2007-08 if rent is 12,500 per month
1,50,000
Less Gross Annual value considered earlier 1 40 000
Arrears of rent 10,000
Less: 30% of Rs. 10,000 3,000
7,000
Income from house property A.Y. 2009-10 (82,600 + 7,000) = Rs. 89,600

Q.2. Determine the total income and tax liability of Mr. Adhikari for the
assessment year 2010-11 after taking the taxable income from House property.
A. Rs. 63,365
B. Rs. 50,290
C. Rs. 62,264
D. Rs. 57,436
Computation of Total income of Mr. Sushobhan Adhikari Assessment Year 2010-11
Salary
Basic Pay 1,80,000
Commission on sales (4% of Rs. 18,50,000) 74,000
Advance Salary of April to July, 2008 60,000
Employer's contribution to RPF in excess of 12% of salary 4,520
[35000-12% of (180,000 + 74,000)]
Interest credited to PF in excess of 9.5% (100/13) x 65000 17,500
= 500000, Rs. 500000 x (13-9.5)
Rent free accommodation 56100
Free gardener (4000*12) 48,000
Free cook(3600*12) 43,200
Free watchman(900*12) 10800
Gross salary 494120
Less: Deduction u/s 16 Nil
Income from Salary 494120
Income from House Property 78,400
Gross Total Income 572520
Less: Deductions under section 80C (RPF + PPF-Rs. 21,600 98,600
+ 65,000 + NSC-12,000)
Total Income 473920
Tax liability on Rs. 473920 48,820
Add: Surcharge Nil
48,820
Add: Education cess @ 3% (2 + 1) 1,465
50,285
Rounded off 50,290
Note: Valuation of rent free accommodation
Salary for the purpose of rent free accommodation 2,54,000
(1,80,000 + 74,000)
Value of rent-free unfurnished accommodation 15% of 38,100
salary Rs. 254000
Rent of furniture 18,000
Value of rent free furnished house 56,100

Q.3. What will be the taxable amount of Gratuity on his retirement?

A. Rs. 50,000
B. Rs. 17,735
C. Rs. 1,33,462
D. Rs. 3,71,135
Solutions:
Gratuity received Rs. 4,00,000
Salary for the year A.Y. 2010-11 per month
Basic (15000 + 1500) = Rs. 16,500
Salary per month Rs. 16,500
Exempted amount of Gratuity
Minimum of the following 3 limits:
1. Actual gratuity received 4,00,000
2. (16,500 x 15 x 28)/26 = Rs. 2,66,538
3. Rs. 3,50,000
So taxable amount of Gratuity is Rs. (4,00,000-2,66,538) = Rs. 133462
Q.4. If Mr. Adhikari die just one month after his retirement but before receiving his
retirement benefits, what would be the tax impact on Rs. 4,00,000 gratuity
received by his family?
A. Rs. 4,00,000 is exempted to Mr. Adhikari
B. Rs. 4,00,000 is taxable in the hands of Mr. Adhikari's legal heirs
C. Rs. 4,00,000 is taxable to the Mr. Adhikari after getting the claim u/s 10(10)
D. Rs. 4,00,000 is taxable.

Q.5. If Mr. Adhikari die just one month before his retirement what would be the
tax impact on Rs. 4,00,000 gratuity received by his family?
A. Rs. 4, 00,000 is exempted to Mr. Adhikari
B. Rs. 4, 00,000 is exempted to the Mr. Adhikari and also exempted to his legal heirs
C. Rs. 4, 00,000 is taxable in the hands of Mr. Adhikari's legal heirs
D. Rs. 4, 00,000 is tax free.

Q.6. Calculate the total taxable pension per year in the hands of Mr. Adhikari?
A. Rs. 90,000
B. Rs. 30,000
C. Rs. 75,000
D. Rs. 29,997

Q.7. If the above mentioned commuted pension is 35% what will be the taxable
amount of commuted pension?
A. Rs. 2,75,000
B. Rs. 2,61,905
C. Rs. 13,095
D. Rs. 2,48,809
Solution:
35% commuted pension is Rs. 2,75,000/-
So total value of the pension is (2,75,00/35) x 100 = Rs. 785714
As he received gratuity also, so tax free amount will be Rs. 1/3 of Rs. 7,85,714 = Rs.
261905
Taxable amount will be (275000-261905) = 13095

Q.8. Mr. Adhikari bought agricultural land in Patna in 94-95 for 1.75 lakh. That land
was vacant for last so many years. But due to establishing a "Commercial
Processing Zone" the Bihar Government has issued a notice for compulsorily
acquirement on 12/08/2003. In 2006 government has fixed compensation for Rs.
6.50 lakhs and acquired it on 09/01/2006. Rs. 2 lakh was received by Mr. Adhikari
on 07/03/2006. Mr. Adhikari and others were not satisfied with the compensation
and file a suit in the court.
Balance compensation paid by Bihar Government on 08/10/2009. The
compensation is enhanced by another 1.50 lakhs by the Bihar Government which
paid by the Government on 11/12/2009. Compute Capital Gain tax in the hands of
Mr. Adhikari for the assessment year 2010-11?
A. The compensation amount is taxable @ 10 % with indexation benefit and
enhanced compensation is exempt as per section 10(37)
B. The compensation amount is taxable @ 20 % without indexation benefit and
enhanced compensation is exempt as per section 10(37).
C. The compensation amount along with enhanced compensation of Rs. 1.50 lakhs
shall be exempt as per section 10(37) because the agricultural land was acquired by
the Government and as compensation is received after 31/03/2004.
D. Compensation is exempted because the agricultural land was acquired by the
Bihar Government
Solution:
Any capital gain (whether short-term or long-term) arising to an individual or a HUF
from transfer of agricultural land by way of Compulsory acquisition shall be exempt
provided the compensation or the enhanced compensation or consideration, as the
case may be, is received on or after 01-04-2004.

Q.9. What is the available cash balance with Mr. Adhikari at the beginning of Jan,
2011?
A. Rs. 19,12,076
B. Rs. 19,19,975
C. Rs. 19,08,934
D. Rs. 20,56,888

Q.10.What is the available cash balance with Mr. Adhikari at the end of financial
year 2010-11?
A. Rs. 2, 05,688
B. Rs. 1, 79,404
C. Rs. 1, 46,975
D. Rs. 2, 97,830
Solution:
Oct- 10 Nov-10 Dec-10 Jan-11 Feb-11 March-
11
Balance B/F 73735 252996 460590 1908934 8616 279260
Inflows
Salary 22975 22975 22975
Pension 11538 7500 7500
Compensation 450000 150000
for land
acquisition
from Govt
Int on MIS 3333 3333 3333 3333 3333
Int on SCSC 31500
Rent 237500 12500 12500 12500 12500 12500
Gratuity 400000
PF 575750
Leave 175000
encashment
Commuted 275000
pension
LIC 200000
FD 150000
Total 784210 491804 1950148 1936305 306949 334093
Outflows
H/expenses 23500 23500 23500 • 19975 19975 19975
Municipal tax 32000
MIS 500000
SCSC 1400000
PPF 70000
FD 500000
Medi.insu 15000
Debt Fund 7714 7714 7714 7714 7714 7714
MF-SIP 10000 10000
Total 531214 31214 41214 1927689 27689 154689
Outflows
Balance c/f 252996 460590 1908934 8616 279260 179404

Q.11.Pallavi's marriage is expected by the end of December, 2012 with an

expected present cost of Rs. 24,00,000. He is expected to realize from his
Tatanagar Flat 18,00,000 by that time. Calculate what additional amount is
required for his daughter's marriage? With 8% pa. risk free rate compounding
monthly what amount he has to save per month (BEGIN) in a debt fund?
A. Rs. 2,27,367 Rs. 7,663
B. Rs. 3,83,365 Rs. 9,815
C. Rs. 4,12,245 Rs. 8,615
D. Rs. 3,45,458 Rs. 11,363
Solution:
Expected marriage Date December 2012
Present Date September 2010
27 months
Cost of marriage at today's cost Rs. 24,00,000
With a 4% p.a. inflation rate it comes to as below:
Set : End
n=2 + (3/12)
I=4
PV = —2400000
FV = Solve = 2621417
His FD of Rs. 5 lakhs @ 9% interest will give him Rs. 5,94,050
Expected Realization value of Tatanagar Flat Rs. 18 00 000
23,94,050
Short fall Rs. 2,27,367

So he has to deposit extra per beginning of month

Set : Begin
n = 27
I=8
 FV = 227367
P/Y = 12
C/Y = 12
PMT = Solve = Rs. 7663

Q.12. If Mr. Adhikari availed 150 days leave during the service period then what
will be his taxable leave salary amount?
A. Rs. 1,75,000
B. Rs. 52,942
C. Rs. Nil
D. Rs. 38, 635
Solution:
Salary March'2010 (Rs. 15000 + 6167) x 1= Rs. 21,167
Salary April, 10 to Dec, 10 (Rs. 16500 + 6475) x 9= Rs. 2 06 775
Rs. 2 27 942
Average salary = 227942/10= Rs. 22,794
Maximum leave allowed 28 x 30days = 840 days
Less leave availed 150 days
690 days
Exempted leave encashment amount will be least of the following four limits:
1. Actual leave encashment amount Rs. 1,75,000
2. Ten months average salary Rs. 2,27,942
3. Cash equivalent of un-availed leave (690 x (22794/30)) = Rs. 524262
4. Rs. 3,00,000
So minimum is Rs. 175000 and is exempted.

Q.13.Calculate the Net Worth of Mr. Adhikari as on 31/03/2011?

A. Rs. 46,01,284
B. Rs. 47,80,688
C. Rs. 43,26,785
D. Rs. 46,83,785
Solution:
Assets:
Rs.
Flat at Kolkata 9,00,000
Flat at Tatanagar 6,50,000
Value of Residence at Patna 3,00,000
PPF 2,85,000
MIS 5,00,000
Investment in Senior Citizen Scheme 14,00,000
FD 5,00,000
Liquid Fund 46,284
Debt fund 20,000
Cash 1 79 404
Rs. 47,80,688
 CASE STUDY — 5

Mrs. Anuradha is a famous Bollywood actress having a busy and successful

professional business venture in the name of 'Millennium Production House" with
her childhood friend Uttam Kumar. Initially she received few small assignments. But
after a documentary film "Make habit of daily savings: like human basic needs",
which was welcomed by people of Mumbai, she becomes quite successful. She
wants to set aside today a capital sum to be liquidated over the next 10 years for the
care of her aged mother living alone in TRICHI with her sisters. The desired income
stream for her mother as per her status is Rs. 2,40,000 p.a. beginning after one year
and rising 5% p.a. each year thereafter. Anuradaha belives that the investment
earnings on the fund will be 8% p.a.
In the last 8 years, there was no looking back in the business with 22 employees and
around Rs. 1.25 crore of annual income, net of all expenses. She leads a very
comfortable life as a "modern successful single lady". She has already constructed a
house valuing Rs. 3.75 crore and has a portfolio of assets which include precious
metals like gold, silver etc. worth Rs. 1.25 crore, direct and indirect investment in
equities (mutual funds) Rs. 2.75 crores, bank deposits and small savings scheme
investments Rs. 0.75 crore.
She has approached M/s, My Dream- a Mumbai based financial planning firm, for
advice on retirement planning. She expects to work for another 10 years and after
that wants to pursue her hobbies of traveling and photography and want to be
active in social work. She has expressed desire to leave half of her estate in equal
proportion to her two nephews and donate other half to charitable trust "Earth
Care".
Q.1. Approximately how much amount she must sacrifice to provide the income
stream for her mother?
A. Rs. 19, 56,380
B. Rs. 20, 62,270
C. Rs. 22, 68,460
D. Rs. 24, 24,850
Solution:
Set : End
n = 10
RRR = 2.857
PMT = 2,40,000
PV = Solve = Rs. 20,62,270

Q.2. Mrs. Anuradha has approached M/s, My Dream- a Mumbai based financial
planning firm, for taking financial planning advice. Mr. Garg, CFP, a financial
planner of the firm is going to explain time value of money concepts to a client as
part of financial planning. Which of the following statements concerning
compounding or discounting is correct?
A. Discounting is the process by which a present value grows to a larger future value.
B. As the number of periods or the interest rate in a calculation is increased, the
present value of future sum is reduced
C. The term "discounting' is essentially a synonym for the term compounding
D. In the compounding process, the future value grows by an increasing percentage
each period

Q.3. Mrs. Anuradha is interested in investments in foreign markets. His brother is

working in one of reputed American company in India and that is offering him
some shares under ESOP scheme. This company is not listed in India. It is listed in
New York Stock Exchange. Mrs. Anuradha is asking his planner how this
transaction will took place for his brother?
A. His brother cannot invest in American shares as he is working its office situated in
India.
B. His brother can invest in American company but purchasing under ESOP he must
be employed in America.
C. His brother can invest in American ESOP by taking prior approval from the RBI for
this.
D. His brother can purchase shares of foreign companies listed abroad under ESOP
without any kind of restriction and he can send remittance without any limit.

Q.4. Mrs. Anuradha as an Indian resident maximum how much she can invest in
abroad?
A. Rs. 2, 00,000
B. US $2, 00,000
C. Rs. 1, 00,000
D. US $50,000

Q.5. Mrs. Anuradha, as an Indian resident, can approach her bank for remitting US
$200000 for which of the following types of investments?
A. Bank account abroad
B. Shares, Bonds and other financial instruments
C. Immovable property, paintings and all other types of assets
D. All of the above

Q.6. Whether Mrs. Anuradha as a resident individual can invest in units of Mutual
Funds, Venture Funds, and Promissory notes without opening the bank account in
foreign country?
A. Yes, she can
B. Yes, she can but opening a bank account in abroad for the same
C. Yes, she can invest without opening the bank account in foreign country for this
purpose.
D. Yes, she can invest without opening the bank account in abroad for this purpose
but taking a prior approval from the RBI

Q.7. Mrs. Anuradha is considering a fixed income product for her mother. The
nominal annual interest and the effective annual rate are identical when corn-
pounding occurs:
A. Continuously
B. Annually
C. Daily
D. Monthly

Q.8. Mrs. Anuradha is like to invest in bond for her mother. She asks to Mr.Garg, if
a bond is selling at premium than what is implied?
A. It is an attractive investment
B. Its realized compound yield will be less than the yield to maturity
C. Its coupon rate is below market rate
D. Its current yield is lower than the coupon rate.

Q.9. Which of the following is not a characteristic of a balance fund?

A. It provides both growth and income objectives
B. It is less risky than growth funds
C. It is more risky than income funds
D. It must invest in both equity and bonds in equal amount

Q.10.If Mrs. Anuradha, a conservative investor, has Rs. 50, lakhs today that she
could invest for the next three months in a three month bank CD or in a stock The
bank CD offers a guaranteed return 3 % over the three-month period. Alternatively
she thinks the price of the stock will rise by 5% over the next months. She is
confused in taking the decision. Guide her in trade off between return and risk so
that she makes a decision in choosing investments?
A. As the return on stock is higher in next 3 months she should decide to invest in
stock.
B. The future price of the stock is uncertain, her return from investing in this stock is
also uncertain. The return could be less than 5% and might be even negative. But in
Bank CD return is guaranteed. So as a conservative investor she should decide of
invest in the Bank CD.
C. For making a balance trade off between return and risk she should invest 50% in
each investment
D. Option B and C

Q.11.Mrs. Anuradh's brother is impressed with Mansi Fashion Ltd. an online

clothing firm that focuses on the 18-22 age bracket. Their prices are much lower
than their competitors, and the quality is high. Reading about the firm on its web
site and in various financial newspapers, her brother has /earned that the
company plans to expand its clothing hires. The prevailing price of its share is 70
per share. Mansi Fashion Ltd. has had recent annual earnings of Rs. 5 per share.
Only three other companies have very similar business to Mansi Fashion Ltd. and
have stock that is traded and there PE ratios are as follows:
PE Ratio
Company A 10
Company B 12
Company C 14
Her brother asked Mrs. Anuradha to guide him in investing the Mansi Fashion Ltd.
Getting the query from her brother Mrs. Anuradha asks your advice on this matter.
As a financial planner what will be your advice?
A. Invest in shares of Mansi Fashion Ltd.
B. Not to invest in shares of Mansi Fashion Ltd
C. Mansi Fashion Ltd's share valuation is less than prevailing price, so it is an option
not to miss.
D. Mansi Fashion Ltd's share valuation is less than prevailing price, so it is an option
not to be availed.
Solution:
Mean PE Ratio of Industry = (10 + 12 + 14)/3 =12
Valuation Mansi Fashion Ltd's share = Earning per share of Mansi Fashion * Mean
Industry PE Ratio = Rs. 5 * 12 = Rs. 60.
The valuation of Rs. 60 is below the prevailing stock price Rs. 70 of Mansi Fashion
Ltd. It is indicating that the stock is overvalued.

Q.12.Mrs. Anuradha's sister has Rs. 2,00,000/- to invest. She is expecting to leave
her job within next year. Which of the following should be her optimum choice of
investments?
A. Stocks have relatively high risk
B. Stocks have relatively low risk
C. FD, Bond or other money market instruments that have easy access to the funds
in case of resigning the job
D. Option B and Bond

Q.13.1V1rs. Anuradha's sister has Rs. 20,00,000 to invest and she has no funds set
aside for retirement in 20 years. Which of the following should be her optimum
choice of investments is she has moderate risk apatite?
A. Direct Equity
B. Bank FD
C. Company Deposits
D. Diversified mutual fund

Q.14.After retirement, she is expected to live for another 20 years. She plans to
visit abroad twice every year and her first year travel expenses are estimated Rs.
0.18 crore. Expenses for pursuing her hobbies are expected to be Rs. 3 lakhs
annually as estimated on retirement. Her living and other expenses are estimated
at the beginning of the first year of retirement at Rs. 7 lakhs. Estimated inflation
rate is 5% and interest rate is 6% on conservative side and equity and mutual fund
are expected to yield 14% p.a.. In next 10 years (Begin) she wants to invest 50
lakhs per year in mutual fund. She has a whole life policy valuing Rs. 1 crore.
Calculate her estate which will be donated to 'Earth care'?
(Assume house& gold prices to remain constant)
A. Rs. 147.83 crore
B. Rs. 151.25 crore
C. Rs. 238.50 crore
D. Rs. 124.60 crore
Solution:
At present her savings are:
Crore
House 3.75
Gold etc: 1.25
Equity & MF 2.75 @ 14% p.a.
Bank deposit 0.75 @ 6% p.a.
8.50
Further savings for next 10 years 0.50 crores @ 14% p.a.
Set : Begin
n = 10
I = 14
PMT = —.50
FV = Solve = 11.02 crore
Then

Set : Begin
n = 20
I = 14
PV = 11.02 FV = Solve = 151.45 crore
Life expectancy 20 years
Travel expenses 0.18 crore
Living expenses 0.07
Hobbies 0.03
0.28 crore
Inflation rate is 5% and interest rate is 6% p.a., So Real rate of return is 0.9523
Set : Begin
N = 20
I = 0.9523
PMT = 0.28
FV = Solve = 6.20 Crore
Expected value of assets at her death (end of life expectance of 20 years)
Crore
House 3.75
Gold 1.25
Equity& MF (2.75 crore @ 14% N = 30 FV?) 140.11
Bank deposits (0.75 crore @ 6%N = 30 FV?) 4.30
Mutual Fund 151.45
Whole life Insurance Policy 1.00
301.86
Less future value of her retirement expenses 6.20
295.66 Crore
50% of this will go to "Earth care" 147.83 crore
(Value of House and Gold are taken at cost price only)

CASE STUDY — 6

Personal Data
Arora's Family Gandhi's Family
Husband: Ram, age 32, Financial Analyst Husband: Ram, age 28, Accountant
Wife: Sita, age 31, Housewife Wife: Sita, age 29, School Teacher
Child: Kush, age 10, student Child: Kavita, age 8, student
Retirement age 58 Retirement age 60

Financial Data
Arora's Family
Ram's salary structure
1. Basic salary: Rs. 20000 per month
2. Dearness Allowance: Rs. 6000 per month (40% of which is included for the
purpose of determining retirement benefit)
3. Transport allowance Rs. 3800 per month (out of which only Rs. 600 is used for the
journey between office and residence; the remaining amount is not spent)
4. Entertainment allowance Rs. 1000 per month
5. He contributes 15% of the basic pay towards recognized provident fund
Expenses (Monthly) Rs. 5000
Household Expenses Rs. 1200
Kush school fees Rs. 1000
Electricity and Phone Rs. 3000
Misc. Expenses Club expenses of Ram Rs.8000
Life insurance premium for self (Sum Assured 1000000. Rs. 10000
282000
Additional information
Kush post school education cost is as follows in today's term is Rs. 70000 per annum
for 3 years. Increase in salary of Ram is 15% per annum He has some investments in
Gold (current market value Rs. 200000) A financial planner has recommended Ram
to buy life cover on which he can pay premium in monthly mode. The rate of the
policy is as follows:
Term: 25 years
Accident benefit cost is Rs. 2 per thousand
Tabular Premium: Rs. 56.30
Loading on payment mode: 2% of tabular premium
Rebates for larger sum assured
Up to Rs. 25000 no rebate
From Rs. 25001 to Rs. 50000 Re. 1 per thousand of Sum Assured
From Rs. 50001 to Rs. 500000 Rs. 2 per thousand of Sum Assured

Gandhi's Family
Ram's salary structure
1. Basic salary: Rs. 25000 per month
2. Dearness Allowance: Rs. 8000 per month (30% of which is included for the
purpose of determining retirement benefit)
3. Transport allowance Rs. 800 per month (out of which only Rs. 600 is used for the
journey between office and residence; the remaining amount is not spent)
4. Entertainment allowance Rs. 1200 per month
5. He contributes 15% of the basic pay towards recognized provident fund
Expenses (Monthly) Rs. 8000
Household Expenses Rs. 1200
Kavita's school fees Rs. 1000
Electricity and Phone Rs. 3000
Misc. Expenses Rs. 9000
Club Fees of Ram Life premium for self Rs. 10000
Rs. 32200
Additional information
Kavita earns Rs. 60000 during the year from stage acting. This money was invested
by his father in a company deposits from which he earns Rs. 7200 as the interest
income.
Kavita received Rs. 11000 from her grandfather as birthday gift and Rs. 5100 from
Ram's friends.
Ram has also invested in security A whose past three years returns are 10%, 6% and
0% respectively while his wife invested in security B whose past three years returns
are 18%,12% and 2% respectively
Both the families were very close friends and are worried about their children
education, marriage and off course their retirement life which is based on the life
expectancy i.e. 75 years for female and 72 years for males.
Both the family leaves in a self owned mortgage free house
Assumptions
Inflation rate 5%p.a
Long term risk free rate 8% p.a.

Q.1. Calculate the amount of insurance cover needed by Ram as per the HLV
method?
A. Rs. 2900000
B. Rs. 1568255
C. Rs. 1700000
D. Rs. 1950000
Solution:
Step 1: Calculate the amount required by family:
Income Rs. 30800
Less: Expenses of Ram
Club Expenses = Rs. 8000
Premium = Rs. 10000 Rs. 18000
Amount available to the family Rs. 12800

Set : Begin
n = 58-32 = 26
I = RRR = 2.857
PMT = 12800 x 12 = 153600
PV = Solve = —2871337.59

Q.2. Calculate the amount of premium to be paid by Ram for buying the Insurance
owe-recommended by you?
A. Rs. 9093
B. Rs. 9824
C. Rs. 6252
D. Rs. 7215
Solution:
Tabular premium 56.30
Add: loading 1.126
Accidental benefit 2
Less: rebate 2
Premium per thousand 57.426
Yearly premium 57.426/1000 x 9093 1900000 =
109109.40
Monthly mode 9093

Q.3. What will be the annual amount need to be saved by Mr. Ram for Kush's
education, assuming that Kush takes admission in college at age 18?
A. Rs. 56735
B. Rs. 28366.78
C. Rs. 326038
D. Rs. 108593
Solution:

Step 1:
n=8
I=5
PV = —70000
FV = Solve = 103422
Step 2:
Set : Begin
n=3
I = 2.8571 = RRR
PMT = 103422
P/Y = 1
C/Y = 1
PV = Solve = —301726.95
Step 3:
Set: End
n=8
I=8
FV = 301726.95
P/Y = 1
C/Y = 1
PMT = Solve =-28366.78

Q.4. Calculate the tax payable by Mr.Arora for the assessment year 2010-11,
assume investments of Rs. 1 lakh made u/s 80C
A. Rs. 28550
B. Rs. 43920
C. Rs. 42500
D. Rs. 40220
Solution:
Basic salary 20000 x 12 240000
Dearness allowance 6000 x 12 72000
Transport allowance (3800-600) x 12 38400
Entertainment allowance 1000 x 12 12000
Total Salary 3,
62,400
Less: Deduction u/s 80C 1 00
000
Taxable income 2,
62,400
Tax on Rs. 2, 62,400/- 10,240
Add: Cess@3% 307.00
Total tax payable 10,547
Rounded to Rs. 10,550/-

Q.5. What will be the tax payable by Mr. Gandhi for the assessment year 2010-11,
assume investments of Rs. 1 lakh made u/s 80C
A. Rs. 1, 48,080
B. Rs. 1, 24,040
C. Rs. 39,880
D. Rs. 45,232
Solution:
Basic Salary 25000 x 12 300000
Dearness Allowances 8000 x 12 96000
Transport Allowance (800-600) x 12 2400
Entertainment Allowance 1200 x 12 14400
Income from Salary 412800
Add: Interest from companies deposit received by Ram 7200
Gifts received by Kavita from Ram's friend (5100-1500. 3600
Total income 423600
Less: Deduction u/s 80C 10000
Taxable income 413600
Tax on Rs. 323600 38,720
Add: Cess @ 3% 1,162
Total tax payable 39,882
Rounded to Rs. 39,880

Q.6. Assuming that Mr. Ram Arora provides a current personal balance sheet to
you during the initial data gathering phase of the financial planning process. This
financial statement will enable you to gain an under-standing of all of the following
except the:
A. Diversification
B. Size of the client's net cash flow
C. Client's liquidity position
D. Client's use of debt
Q.7. Mr. Ram is a new client for you. Assuming that during the fact-finding process,
you discover that the client's previous advisor is also a CFP licensee, and had filed
several tax forms incorrectly with computational errors. Your initial duty to the
client should be which of the following?
A. Contacting the other financial planner
B. Contacting the FPSB Board
C. Informing the client of the situation
D. Contacting the tax department

Q.8. You received a phone call from an individual you have not spoken with
previously. The caller is excited, just having heard that a new mutual fund is
positioned to deliver large gains in the coming year. The caller wishes to purchase
units of the fund through you. Keeping in mind stages of the overall personal
financial planning process, which of the following questions that address the first
two stages of the financial planning process you should ask the caller?
1. What are your goals for this investment?
2. What other investments do you have?
3. What is your date of birth?
4. Do you want your dividends reinvested?
A. (1) and (3) only
B. (2) and (4) only
C. (1),(2) and (3) only
D. (1),(2) and (4) only

Q.9. Assuming a local businessperson approaches you for assistance with an

investment-related tax problem. The client's previous tax prepare had suggested
the purchase of a variety of tax-minimizing investments to reduce the client's
current and future tax burden. Time passed, the client's income dropped, and the
tax laws changed. The client does not feel the tax preparer misrepresented the
situation on the initial sale, but would still like to know what recourse is available
with respect to the tax preparer.
1. Explain to the client that this issue is beyond the scope of the CFP licensee's
professional expertise
2. Advise the client that no recourse is available
3. Advise the client to contact an attorney
4. Contact the tax preparer
A. (1) and (3) only
B. (2) and (4) only
C. (1),(2) and (3) only
D. (1),(2) and (4) only

Q.10.Which of the following statement is true regarding the securities held by Mr.
Ram and his wife are true
1. A is more risky because it has a higher standard deviation.
2. B is more risky because it has a higher standard deviation.
3. A has a higher risk-adjusted return based on Sharpe ratio.
4. B has a higher risk-adjusted return based on Sharpe ratio.
A. 1 and 3
B. 1 and 4
C. 2 and 3
D. 2 and 4

Q.11.Assuming Ram invests Rs. 20,000/- in government bonds. Which of the

following best describes the investment characteristics of a long term high quality
government bond?
A. High inflation risk; low default risk
B. Low inflation risk; high market risk
C. Low inflation risk; low default risk
D. High inflation risk; high market risk

Q.12.You are preparing his cash flow statements for both the families. Which of
the following statements is true about family's cash flow statements?
A. The value of the home would be an income source since there is no mortgage.
B. The value of the home would be an asset.
C. The taxes on his salary would be a liability.
D. The taxes on his salary would be an expense.

CASE STUDY — 7

Personal Data
Husband: Shanker Pandey, age 44, college professor
Wife: Parvati Pandey, age 43, college professor
Child: Ganesh Pandey, age 14
Shanker' parents: in good health, in mid to late 70s
Parvati's parents: Deceased
Financial Data
Shanker and Parvati Pandey have the following assets at fair market value (FMV):
Single premium deferred annuity (Parvati) Rs. 50,000
Cash 2, 50,000
Stock in the XYZ Ltd. 50,000
Their simplified income statement is presented as follows:
Salary (combineD. Rs. 82,500
Interest income 12,500
Living expenses & taxes 90,000
They have no liabilities and no company-sponsored retirement plans.
They have no wills and they live in a non-community property state.
Shankers' parents can meet all current expenses from current cash flow but have
very limited reserve funds
Other Relevant Data
• They are inexperienced investors, but they are willing to take reasonable and
normal investment risk if appropriate, but they do not wish to invest aggressively.
• Both Shanker and Parvati have purchased term life insurance policies with Rs.
250,000 death benefit on each; they own their own policies, and Ganesh is the
contingent beneficiary on both policies.
• Shanker is the primary beneficiary of Parvati's single premium deferred annuity;
Ganesh is the contingent beneficiary.
• You have found their disability insurance inadequate. The Pandey have indicated
they could fit your proposed Rs. 3500 annual premium for an adequate policy into
their living expenses.
• You have reviewed their auto, homeowner's, liability, and life insurance and found
their policies adequate. Shanker and Parvati are responsible for their medical
expenses.
• Ganesh is an intelligent high school student who earns scholarship of Rs. 2,000
annually and has a Rs. 500 in savings account.
• The "cash" is invested in a variety of money market funds and insured savings
accounts.
• They do not plan additional children and they have no other dependents.
• The Pandey currently can save Rs. 5,000 per year out of current salary and can
continue to do so (in inflation-adjusted Rupees) until they retire in 20 years. This
savings rate assumes that all planned asset acquisition and replacements are paid
out of income before savings (except the three goals as per below.
Goals (in order of priority)
1. College education for Ganesh. They expect to spend a total of Rs. 5, 00,000
(Present value) for his entire education.
2. Retirement in 20 years which maximizes their standard of living at retirement.
3. Parvati and Shanker plan to take 6 months off from work ("sabbatical") in 4 years
for travel and research and to spend Rs. 1,50,000.
Economic Environment: The economy has been in a period of modest economic
growth for about 2 years. Inflation, as measured by the CPI, was at a 4.9% annual
rate over the last year. Ninety-day T-bill rates are currently 6%, while the yield to
maturity on 20-year government bonds is 7.5%. Most forecasts call for little change
in these conditions over the short and long term.
Planner's Assumptions
Pre-Tax Beta with
Investment Expected Return S & P 500
Biotech mutual fund 20.0% 1.75
Leveraged commercial real estate 8.5% 1.40
Small cap stock mutual fund 10.0% 1.10
S&P 500 9.0% 1.00
Taxable zero-coupon bonds 9.0% 1.00
Zero-coupon municipal bond fund 7.5% 0.80
Treasury bonds (30-year) 7.5% 0.70
Long-term municipal bond fund 5.0% 0.70
International stocks 11.0% 0.40
Treasury notes (7-year) 7.0% 0.25
Treasury bills 6.0% 0.10
Precious metals 5.0% -0.25
R&D partnership 14.0% N/A
Certificate of deposit 7.0% N/A
You are doubtful anyone can "beat the market" through asset selection or timing

Q.1. Which one of the following statements most accurately describes the risk
exposure of the Shankers' portfolio?
A. The portfolio has excessive market risk.
B. The portfolio should be unaffected by changes in interest rates.
C. The portfolio contains an excessive level of business risk.
D. The portfolio contains excessive purchasing power risk.

Q.2. Which types(s) of investment(s), would be consistent with their retirement

goal?
1. A small cap mutual fund, because it provides growth with reasonable risk
2. A bond fund, because it provides tax advantages and relative safety
3. Diversify Stock fund, because it provides an element of diversification and
growth
4. Precious metals, because they provide diversification and tax advantages
A. (1) only
B. (1) and (4) only
C. (1) and (3) only
D. (1) and (4) only

Q.3. Assume the following additional facts: The Shankers have purchased a
homeowner's policy (comprehensive) covering 100% of the replacement cost of
their residence. This policy has an Rs- 500 deductible. Also, they have purchased a
disability income policy with a 30-day elimination period and any-occupation.
definition of disability. What actions should the Shankers consider in order to
improve quality of the insurance program described above?
1. Purchase an endorsement to the homeowner's policy providing all
risk/replacement cost (all perils) coverage for personal property.
2. Decrease the homeowner's policy deductible to Rs. 250.
3. Reduce the homeowner's policy coverage to 75%.
4. Purchase an own-occupation disability policy
A (1) only
B. (1) and (4) only
C. (1) and (3) only
D. (1) and (4) only

Q.4. One commonly used method of calculating the total retirement fund
necessary on the Fria day of retirement is to use the present value of an annuity
due. The Pandeys' anticipate that their annual retirement income will need to
increase each year at the rate of inflator Basedon the following assumption,
calculate the total amount needed to be in place wr Shanker and Parvati retire
(Round to the nearest Rs. 1000)
First year annual income Rs. 90,000/-
Social security annual income, assumed
to increase at the rate of inflation Rs. 45,000/-
Annual after-tax rate of return on invested assets 7%
Joint life expectancy during retirement 25 Years
A. Rs. 8, 78,000/-
B. Rs. 8, 87,000/-
C. Rs. 8, 96,000/-
D. Rs. 17, 92,000/-

Set : Begin
n = 25
I = RRR = 2.0019
PMT = 45000
P/Y = 1
C/Y = 1
PV = Solve = —895942

Q.5. If the interest on a sum of amount is compounded annually at the rate of 14%
per annum for 3 years, what is the effective continuously compounding rate of
interest?
A. 13.10%
B. 16.10%
C. 12.10%
D. 15.10%
If R = 0.14, then the continuously compounding rate of interest R is given by R = In -
0.1310 = 13.10%

CASE STUDY — 8

Today is 14th February 2008

Mr. Mehta is 29 years old and is salaried. His wife, Nisha is a housewife. He has
started depositing Rs. 5,000 at the beginning of each year in an education fund for
his new born child.
He is earning a monthly income of Rs. 53000. His expenses are Rs. 27000 p.m. He
takes the help of a financial advisor to plan his investments. He has taken housing
loan and outstanding amount is Rs. 1000000 and outstanding amount on car loan is
Rs. 300000.He is paying an EMI of Rs. 9547 on housing loan and an EMI of Rs. 2600
on car loan (END PMT).
His other investments are as follows:
Rs. PO MIS (Joint namE. 200000
EPF (Current balancE. 300000
Blue chip shares (Present ValuE. 545000
Residential House 1500000
Car 250000
Savings Account Balance 86000
Bonds 120000
Mutual Funds 300000
Mr. Mehta has joined the services after completing his education five years back. But
during the previous year he works for 230 days.
Assumptions
Inflation rate 5%
Risk free rate of return 8%

Q.1. Calculate the Solvency ratio?

A. 1.19
B. 2.07
C. 3.06
D. 3.02
Solution:
Solvency Ratio = (Liquid Assets -t- other financial assets)/ Total Debt
= 1551000/1300000
= 1.19
Assets
PO MIS (Joint namE. 200000
EPF (Current balancE. 300000
Blue chip shares (Present ValuE. 545000
Savings Account Balance 86000
Bonds 120000
Mutual Funds 300000
Total 1551000
Debts
Housing Loan 1000000
Car Loan 300000
Total 1300000

Q.2. Assuming Mr. Metha leaves the job and started his own profession as a sole
proprietor, what will be the amount of taxable gratuity?
A. Rs. 350000
B. Rs. 152885
C. Rs. 132500
D. Nil

Q.3. Mr. Metha requires money for investment to start his own profession. He
wants to know what amount his can withdraw from his EPS account.
A. Rs. 270000
B. Rs. 30000
C. Rs. 150000
D. Nil
Q.4 What amount he would have piled up at the end of the 20 years if it earns
8.5% compounded interest and discontinues making deposits after 9th deposit?
A. Rs. 128745
B. Rs. 169700
C. Rs. 124891
D. Rs. 141862
Solution:
Set : Begin
n = 9 8.5
PMT = —5000
FV = Solve = 69175
This Rs. 69175 will give him after 11 years Rs. 169700

Q.5. Assuming his son gets average marks in class 10th when he was just 15 years
old, his father decided to send him abroad for further studies at age 21.calculate
the amount that Mr Metha requires to invest in excess of the amount accumulated
in previous question during next six years to accumulate a fund of Rs. 500000?
A. Rs. 48316
B. Rs. 19321
C. Rs. 26255
D. Rs. 44461
Solution: Funds requirement at age 21 will be 5 lakhs, so he is short by Rs. 330300
(500000— 169700). He has to accumulate this amount of Rs. 330300 (FV) in 6 years
(21-15) so PMT will be Rs. 44,461/-.

Q.6. Assuming your client, who is now a sole proprietor, is going to give his best
customer a gift as a token of his appreciation. If the clients want to deduct the full
cost of the gifts, what is the maximum amount that he may spend on gift?
A. There is no limit on such expenditure, any expenditure incurred is an allowable
expenses
B. Rs. 20000
C. Rs. 15000
D. Rs. 10000
Solution: Where an advertisement was given in a souvenir which merely mentioned
'with best compliments from' without advertising the products, such expenditure
was allowed as admissible deduction under section 37.

Q.7. Mr. Mehta buys machinery for Rs. 80000 which is to be replaced after a period
of two years. The replacement cost at that time will be Rs. 90000. As a financial
planner advice Mr. Mehta now what he should do after two year for the
replacement of the said machinery
A. He should buy the new machinery first and sells the old machine in the next
financial year
B. He should sell new machinery first and buy the old machine in the next financial
year
C. He should buy and sell the machine in the same financial year
D. He should buy and sell the machine in the financial year 2011
Q.8. Mr. Mehta wants to purchase disability income insurance. He is considered
about becoming totally disabled, but also about a reduction in income if he is
obliged to reduce his workload because of a less-than-total disability. To satisfy
these concerns, which of the following should be included in his disability income
coverage?
A. Residual disability benefits (Temporary total disability benefit)
B. A change-of-occupation provision (Permanent total disability benefit)
C. Dismemberment benefits (Temporary total disability benefit)
D. A relation of earnings-to-insurance provision

Q.9. In analyzing the financial statements of a client's business, you notice that the
collection period for accounts receivable has been increasing. What does this
increase suggest about the firm's credit policy?
A. The firm's current ratio is also increasing.
B. The collection period has no relationship to a firm's credit policy
C. The firm is losing qualified customers.
D. The credit policy is too lenient.

Q.10.Mortgage-backed securities may contain which of the following risks?

1. Purchasing power risk
2. Interest rate risk
3. Prepayment risk
A. (2) only
B. (1) and (2) only
C. (2) and (3) only
D. (1), (2), and (3)

Q.11.If Mr. Mehta is paying interest rate 12%p.a on his housing loan and 10% p.a.
on car loans, in how many months would he pay off his housing loan and car loan?
A. House loan-321 month, Car Loan-129 months
B. House loan-540 month, Car Loan-318 months
C. House loan-342 month, Car Loan-249 months
D. House loan-432 month, Car Loan-429 months

Q.12.Assuming that Mr. Mehta has two options i.e. option A and option B.The cash
flows as well as the NPV and IRR for the two options are shown below. For both
the options, the required rate of return is 10 percent.
Cash flows
Year 0 1 2 3 4 NPV IRR
Option A 50 20 20 20 20 13.40 21.86%
Option B 50 0 0 0 100 18.3 8.92%
Mr. Mehta can invest into either of the two options. What are the appropriate
investment decisions?
A. Invest in option A because it has the higher IRR
B. Invest in option B because it has the higher NPV
C. Invest in both the option equally
D. Invest in both the option
 CASE STUDY — 9

Mr. Saxena, age 45 years, is a software engineer and promoter of an India MNG His
family comprises his wife Anupama, age 43 years, who is a house wife, elder son
Arup. 16 years (studying in 10th standard) and daughter Arati, 14 years (studying in
8th standard). The family resides in their self owned residential house in Mumbai.
Most of their life amenities such as cars, abroad vacations and full education cost of
both kids are provided by Mr. Saxena's company, as he is the Managing Director of
his company. The company is growing consistently and is on way to become a global
legend in its field of operations. As such the future prospects of Mr. Saxena are
generous and progressive.
Mr. Saxena is now planning to allocate his resources in the right fashion with your
help as a Financial Planner.
For this, he has disclosed his current personal financial details as follows:
Current Salary from his company Rs. 12 lakh
p.a.
(Increasing 15% annually, for FY 2009-10 taxable Rs. 7,50,000)
Current house hold expenses Rs. 2.76 lakh
p.a.
Current annual insurance premium Rs. 1.80 lakh
p.a.
EMI's on loans Nil
Current Valuations
Plot Rs. 15 Lakh
Balance in PPF account of Mr. Saxena Rs. 8 Lakh
Balance in PPF account of Anupama Rs. 6 Lakh
Jewelry & Bullions with Anupama Rs. 27 Lakh
14% Company Debentures in the name of Saxena Rs. 10 Lakh
(Cost)
(Interest paid every year in the month of March)
Cash in hand Rs. 40,600
Personal Furniture & Appliances Rs. 2,
60,500
RBI tax free bonds Rs. 25 Lakh
(Purchased on 1st June 2006)
NSC (purchased on 31st March 2008. Rs. 5 Lakh
Insurance Policies Surrender Value Rs. 16.78
Lakh
Sum Assured Rs. 100 Lakh
Other details for FY 2009-10
1. Mr. Saxena has made investments worth Rs. 1.50 Lakh qualified U/S 80C.
2. He has donated Rs. 50,000 to Prime Ministers National Relief Fund.
3. He has transferred interest received by him on debentures to his wife's bank
account the same date he received it.
4. Mr. Saxena's minor son, Arup, is a recognized child artist in children cinema and
documentary films. Arup earned a sum of Rs. 1, 50,000 from his assignments.
Mr. Saxena wants to resolve all estate bequeathing matters in his life time so that
there should be no dispute after his death. For this purpose he has prepared a
"Holograph Will". Current estimates of economy are positive and interest rates are
not likely to increase further in near future. The family has a health cover provided
by the company of Mr. Saxena. Also his house with all its contents is insured
adequately.
Inflation Rate 4.50% p.a.
Risk Free Interest Rate 6% p.a.

Q.1. In his first meeting Saxena toad you that before fixing an appointment with
you, he had consulted another CFPCM practitioner. That practitioner in his very
first meeting with Mr. Saxena and without knowing his current affairs
recommended a recently launched insurance policy for a sum assured of Rs. 1
crore to him. He used the logic that since Mr. Saxena was a high net worth
individual, the policy was the best future investment for him. Saxena did not like
this attitude of the practitioner and seeks your comment on the genuineness of
this action. What's your opinion?
A. The practitioner has done the most advisable action as the client is actually an
HNI.
B. The practitioner has not violated any Code of Ethics since the policy is for the
benefit of the client.
C. The practitioner has violated the Code of Ethics of Objectivity.
D. The practitioner has violated the Code of Ethics of Integrity.

Q.2. Mr. Saxena is planning to visit USA for the very first time in his carrier to
promote software of his company and is expected to stay long. He wants to plan
his journey in such a manner so that he can get maximum tax benefits in the FY
2009-10 from the residential status point of view. What is the latest date when he
can afford to leave India & earn status of an NRI to get maximum tax benefits in
assessment year 2010-11?
A. On 1240-2009
B. On 28-09-2009
C. On 01-10-2009
D. On 22-09-2009
Solution: The tax incidence of a non-resident is minimum as per section S(2) of IT
Act. Therefore Mr. Saxena should arrange his departure from India in such a way
that he becomes a non-resident in the PY 2009-10.
An individual is said to be a non-resident, if he does not satisfy both of the following
basic conditions:-
A. He is in India in the previous year for a period of 182 days or more.
b. He has been in India for 60 or more days during the PY and for a period of 365
days or more during the previous four years immediately preceding the previous
year. But there are two exceptions to the condition (b) above:-
In case of an Individual who is a citizen of India and
i. leaves India for the purpose of employment (or self business or
profession)
 ii. leaves India as a member of a crew of an Indian Ship Then the period of
60 days shall be substituted by 182 days.

So this case comes under exception i, and if Mr. Saxena remains in India for less than
182 days in the PY 2009-10, he shall be qualified for the NON-RESIDENT status which
has the maximum tax benefits. So he should leave India before completing 182 days
in India, commencing from 1-4-2009.
Calculation of 181 days are as follows:
Apr-09 30 days
May-09 31 days
Jun-09 30 days
Jul-09 31 days
Aug-09 31 days
Sep-09 28 days
181 days
He should leave India on latest by 28-09-2009.
So option B is the right choice.

Q.3. Mr. Saxena is considering an attractive investment opportunity. However he

does not have cash in hand to grab this opportunity. As such he is thinking to
either have a premature closure of PPF account of his wife or to have a premature
encashment of his NSC. What is the best alternative in your opinion?
A. PPF account should be closed premature as the second PPF account in the name
of Saxena is available there.
B. NSC should be encashed premature as there are many more bonds in the portfolio
of Saxena.
C. There is no difference between both the options and any one can be opted for.
D. There is no choice as premature closure of either is not allowed.

Q.4. Mr. Saxena wants to make a provision for his retirement fund at the age of 60
and his life expectation is 75 years. He expects an annual increment of 4% in his
household expenses till his retirement. He wants to leave a sum of Rs. 10 lakh at
the end of his life for an educational trust established by him for the education of
poor children. He also wants to make an annual contribution of Rs. 2.50 lakh to
this trust at the end of every year in the last 5 years of his life. Assume that he sold
out his plot at current valuation just now and invests the sale proceed in risk free
instruments for this arrangement. What should be his compulsory annual saving
every year end to fund this arrangement? (Indicate closest figure)
A. Rs. 3, 12,780
B. Rs. 4, 46,030
C. Rs. 4, 87,795
D. Rs. 2, 19,495
Solution:
First of all we shall have to calculate the gross fund requirement at the age of 60. For
this calculation, we shall take up all needs of retirement one by one.
Need-1 For after retirement expenses fund
Current Age 45 years
Retirement Age 60 years
Life Expactancy 75 years
Years in Retirement 15 years
Current Household Expenses 2.76 lac pa.
Increment in annual exp @4% p.a.
Inflation @4.5% pa
So the amount required for exp at the age of 60 will be as below:
Set : End
n = 15
I = 8.5(4 + 4.5)
PV = 276000
FV = Solve = 938329
After retirement inflation adjusted rate of return = 1.06/1.045 = 1.4354%
So the retirement exp fund required for the next 15 years will be as per below:
Set Begin
n = 15
I = 1.4354
PMT = 938329
PV = Solve = 12762700 (A)
Need-2 For 2.5 lac Rs annual contribution to educational trust
Step One
PV of this contribution at the age of 70
Set : End
n=5
I=6
PMT = 250000
PV = Solve = —1053090
Step Two
PV of this amount at the age of 60
Set :END
n = 10
I=6
FV = 1053090
PV = Solve = —588039 (B)
Need-3 For 15 lac Rs required at the end of his life at the age of 75
Set :End
n =15
I=6
FV = 15,00,000
PV = Solve = —625898 (C)
Total Fund Required at Retirement Age 60 = A + B + C
12762700 + 588039 + 625898 = 13976637.00
Less: Utilization of current sale proceed of plot = 1500000 x 1.0615 = (—) 35,
94,837.00 Balance Fund value required to be built at the age of 60 = 10381800
So the annual saving required for this fund value =
Set: End
n = 15
 I=6
FV = 10381800
PMT = —446030

Q.5. For the purpose of above said retirement expenses needs, Saxena wants to
take an annuity from an insurance company. He wants life annuity for himself, as
well as for his wife if she outlives him. He wants to invest yearly in an annuity so
that all of his retirement needs are catered by it. Which of the below mentioned
annuity types is best suitable for this purpose?
A. Immediate annuity with joint life last survivor
B. Deferred annuity with option of joint life last survivor
C. Fix annuity
D. Variable Annuity

Q.6. Inspired by the new pension scheme of the Government of India, Saxena
wants to start a pension plan as a retirement benefit to the employees of his
company. What type of plan should he start in his company such that he is able to
estimate his liability clearly & accurately on account of starting this plan?
A. Defined benefit plan
B. Defined contribution plan
C. As per the choice of his employees
D. None of the above
Q.7. Saxena wants to know his income tax liability for FY 2007-08 without taking into
consideration any interest income from NSC. Calculate the same including surcharge
and Educational Cess.
A. Rs. 1, 29,780
B. Rs. 1, 23,700
C. Rs. 1, 77,344
D. Rs. 2, 32,680
Solution:
Taxable Salary
750000
Arup's Income
(Not to be clubbed as the income is due to manual work or
the personal skill of the minor) Nil
Interest on Debentures
140000
Gross Total Income
890000
Less: Deductions
u/s 80C 100000
u/s 800 50000 150000
Total Taxable Income 740000
Tax liability on 740000 126000
Add: E.Cess 3% 3780
Tax Liability of Mr. Saxena 129780
Q.8. Saxena is considering an attractive investment proposal in which he is being
offered two different cash flow choices at the same initial investment of Rs.
2,00,000. According to you which one should he opt for assuming Risk Free Interest
Rate is the required rate of return?
Year(End) Plan A Plan B
1 10,000 15,000
2 10,000 19,000
3 10,000 23,000
4 10,000 27,000
5 15,000 31,000
6 18,000 35,000
7 40,000 39,000
8 45,000 43,000
9 50,000 47,000
10 1, 50,000 51,000
A. Plan A should be opted since it has a higher Future Value.
B. Plan B should be opted since it has a lower Present Value.
C. Plan B should be opted since it has a higher Present Value.
D. Plan B should be opted sauce it has a lower Future Value.
Solution:
Plan B has a greater PV if discounted by interest free rate of return @6% Calculation
is as follows:
Year A B
1 10000 15000
2 10000 19000
3 10000 23000
4 10000 27000
5 15000 31000
6 18000 35000
7 40000 39000
8 45000 43000
9 50000 47000.
10 150000 51000
NPV 226739 242539
So option C is the right choice.

Q.9. Saxena's company is already listed in Indian stock markets and his company's
stock is gaining lime lights around the world. He is willing to grab this opportunity
and wants to launch his company's share in US stock markets for trading. You have
advised him to issue "ADR" but Saxena is unaware of this term. "ADR" stands for.
A. Receipts that are issued by an American bank.
B. Receipts that are issued by an American bank in lieu of a number of shares
deposited with the bank, and tradable in New York Stock Exchange.
C. An American type of share that is issued in India.
D. An additional deposit receipt that is mandatory to issue shares in USA by any
company.
Q.10.On an unfortunate day, Saxena's company head office caught fire and was
severely damaged. Fortunately Saxena already has two fire insurance policies from
two different insurance companies for different sum assured. Now Saxena wants
to lodge claim from both the insurance companies as both of his policies are in
force. What will be the most suitable action for him under these circumstances?
A. File the claim with both insurance companies as he has paid the premium to both
the companies and both policies are in force so that he can get full claim from both
companies.
B. This shall be counted as cheating and the client may have to face legal
consequences for the same action.
C. The condition of contribution shall be applicable here and both the insurers shall
share the claim under this condition.
D. None of the above.

Q.11.If Saxena's debentures have a balance maturity period of 15 years & the
coupons are payable annually, what should be the market valuation of these
debentures, if risk free interest rate is taken as the required IRR.
A. Rs. 10, 00,000
B. Rs. 16, 38,807
C. Rs. 17, 76,980
D. Rs. 7, 76,980
Solution:
Market Valuation = [1000000/ (1.06)1\10j = 4, 17,265/-
(140000 * ((1—(1/1.06) ^15)/.06. = 13, 59,715/-
17, 76,980/-
So option B is the right choice.

Q.12.From the financial data given by Saxena, calculate their Basic Liquidity Ratio.
(Ignore all taxes and insurance premiums)
A. 1.76
B. 1.62
C. 0.92
D. 1.38
Solution:
Basic liquidity ratio = Liquid Assets/ Monthly Expenses
So the calculation is = 40600/23000 1.76
So option A is the right choice.

Q.13.Saxena is in doubt regarding the validity of his 'Will' as he has included all
types of movable and immovable properties in this Will and it is not registered as
yet. What is your opinion in this regard?
A. The holograph Will is valid only if it is registered with the Registrar.
B. The registration of Will is not compulsory in India even if they relate to immovable
properties.
C. The holograph Will is not a valid type of Will and now abolished in India.
D. The registration of Will is compulsory in India if they relate to immovable
properties only.
Q.14.Saxena has invested 50% in Portfolio A and 50% in Portfolio B. The correlation
between Portfolio A and Portfolio B is 0.8, and the respective standard deviations
are 0.2 and 0.15 and respective expected return 0.15 and 0.10 What is the
standard deviation of Portfolio A and B together?
A. 14.25%
B. 16.62%
C. 15.63%
D. 12.78%
Solution:
6A8 [0.A2 wA2 692 vv %Ay ■A, %A, „ + WA crA 08 p/2
= [(0.22 X 0.502) + (0.152 X 0.502) + 2 X .50 X .50 X 0.8 X .2 X 0.15)1/2 = 0.1662

Q.15.Saxena bought agricultural land in notified urban limits of Mumbai on 15-

June-1996 for Rs. 6 lakh and had been using the same for agricultural purposes.
However the land was compulsorily acquired by the Government on 15-July-2003
and the compensation fixed was Rs. 25 lakh. Out of this, Rs 10 lakh was received by
Saxena on 15-Jan-2005 and the balance on 06-Apr-2005. Saxena was not satisfied
with the compensation and filed a suit in the court. The compensation was
enhanced by Rs 8 lakh which was received on 25-Mar-2010. Which one of the
following statement regarding capital gains arising from these transactions is
correct?
A. The entire enhanced compensation of Rs. 8 Lakh shall be taxable.
B. The entire enhanced compensation of Rs. 8 Lakh shall be exempt.
C. The entire original compensation of Rs. 25 Lakh shall be exempt.
D. Rs. 10 lakh from original compensation is exempt, while Rs. 15 lakh is taxable.

CASE STUDY —10

Saurabh Awasti has born and brought up in a tiny village of Uttar Pradesh. His father
is a. poor farmer. Saurabh was good in study from the beginning. Now Saurabh 26
years old, a media professional from Hyderabad was trying to figure out his financial
goals. His wife Seeta, 25, a school teacher, too, was helping him in the exercise. At
the end of the day both Saurabh and Seeta had exhausted themselves. They could
not figure out as to what their priorities were:
• Planning for their 2 year old son's higher education,
• buying a home for themselves which they desperately needed or
• Spend Saurabh's bonus on a world tour.
Mr. Saurabh, is planning to buy a house after 5 years from now for Rs. 15 lacs.
Inflation rate is 3% and an investment for this purpose can earn 8% income.
Mr. Awasthai and Mrs. Awasathi together have a package of 12 lakhs and the only
liability is a home loan of Rs. 10 lacs. Both have collective savings of about 15 lacs.

Q.1. As a financial planner what should your first and foremost advice to the
Awasthi couple?
A. To budgeting their expenses
B. To start Cash flow planning for better liquidity
C. To start savings to become rich
D. Advice them to jot down their financial goals what they want to achieve in future

Q.2. How goal setting is important aspect in financial planning?

A. An investor without an investment objective is like a traveler without destination.
B. Goals give an idea as what one want to achieve
C. Goal setting motivates individual to save accordingly D. All of the above

Q.3. How one can categorize different financial goals?

A. According to responsibility
B. According to needs
C. According to dreams or aspirations
D. All of the above

Q.4. What should be the second important step to decide after having the goal
setting?
A. Surplus cash to invest for achieving the goals
B. Time frame in which one would like to achieve his goals
C. Choose the right invest avenue which paying better rate of yield
D. All of the above

Q.5. Suppose Mr. Awasthi invests a part of his money in Public provident Fund,
National saving certificate, Infrastructure bonds and some close-ended funds. After
3 year of investment a new car is introduced in the market which suits Awasthi
family. Which of the following investment instruments among his investments
Awashti should use to purchase his dream car?
A. PPF and NSC
B. Infrastructure bond and Close ended funds
C. All of the above
D. None of the above

Q.6. Mr. Awasthi's nephew's admission to higher education is just a year away. His
father is planning to invest money to meet this requirement. Carried away with the
stock market boom he invests all his money in the market. Just a few days before
paying the fees the stock market crashes and his capital is reduced to half. Mr.
Awasthi told this real fact to you. As a financial planner what should be your
advice to Mr. Awasthi?
A. Stock market is a good avenue to invest but only if you are a long term investor
and your goal is at least 8 to 10 years away and not when it just a year away.
B. One should need the capacity to hold and stay invested for longer time
C. Investment in stock market is a risky avenue. Mr. Awasthi should never be there
to fulfill his goal.
D. Option A & B

Q.7. Mr. Saurabh's son will go for higher education at the age of 18. In today's
financial cost Rs. 4 lacs is required for higher education. If risk free investment rate
is 6%, then how much he has to accumulate per year(begin) for this fund?
A. Rs. 39580
B. Rs. 23587
C. Rs. 33145
D. Rs. 39278
Present age is 2 years, higher education at the age of 18. So the time left is 16 years.
Today's cost is 4 lacs, Interest rate is 6%. So his accumulated fund will be as per
below:
Set : End
n = 16
I=3
PV = —400000
FV = Solve = 641882.57
So he has to accumulate Rs. 641882.57, for this he has to save as per below:
Set : Begin
n = 16
I=6
FV = 641882.57
PMT = Solve = —23587.45

Q.8. How much Mr. Saurabh has to save per month (end) to purchase the house in
to-days cost of Rs. 15, 00,000/- after 5 years from now?
A. Rs. 23666
B. Rs. 23509
C. Rs. 28878
D. Rs. 28145
Solution: Inflation rate is 3%. Cost of the house is in to-days cost is Rs. 15 lacs. So
after 5 years the cost price of the house would be Rs. 1738911.
Investment for this purpose can earn 8%. P.A. So we have to calculate how much he
has to save per year to pile up this amount
Set: End
n = 60
i=8
FV = 1738911
P/Y = 12
C/Y = 12
PMT = Solve = —23666

Q.9. Both Mr. Mrs. Awasthi want to go about planning for financial future to gain
financial independence in the next 10 years. What type of policy they should take
to cover their risk?
A. Should take "Jivan-Sathi" policy
B. Both should take term insurance policy that covers all existing liabilities
C. Both should take mediclaim policy
D. They should take "House-holder policy"
Q.10.Mr. Saurabh has an ELSS investment for Rs. 3 lacs. Can he redeem an ELSS
before 3 years? What will be the answer in the event of first holder death?
A. No, even in case the first holder dies, the nominee cannot with-draw the money
till 3 yrs. are complete from the date of investment in an ELSS scheme.
B. Yes, he can with draw at any time, even in case the first holder dies also.
C. No, even in case the first holder dies, the nominee cannot with-draw the money
till 5 yrs. are complete from the date of investment in an ELSS scheme.
D. No, he cannot with draw at any time, only nominee can with draw at any time in
case death of the first holder.

Q.11.Mrs. Awasthi is getting gross salary of Rs. 375000. She has invested Rs. 1,
00,000 u/s 80C and Rs. 15000 u/s 80D. What would be her nontaxable portion of
salary -including 80C and 80D for the P.Y. 2010-11?
A. Rs. 115000
B. Rs. 215000
C. Rs. 250000
D. Rs. 305000

Q.12. During retirement, a person would maintain high level of life insurance
protection to:
1. Pay housing and estate tax
2. Provide succession or dependent income
3. Repay outstanding debt
4. Build cash value
A. (1) and (2)
B. (1) and (3)
C. (1), (2) and (3)
D. None of the above

Q.13.Which of the following is true regarding the ownership of life insurance?

A. A policy can only be issued to the insured
B. Generally, assigning a policy requires proof that the insured is still 'insurable'.
C. Only a person with an insurable interest can be named as a beneficiary
D. The owner can assign the policy to whomever he or she chooses, even if the
assignee has no insurable interest.

Q.14.Mr. Awasthi is unsure of the meaning of the term 'codicil'. A codicil is:
A. A document used to make an alteration to a will
B. The statement made at the end of a will that it has been duly attested
C. A term used to cover grants of probate to the legal personal representative
D. A gift of land or real estate in a will
 UNIT I – ANSWER KEY

Ques. Ans. Ques. Ans. Ques. Ans. Ques. Ans. Ques. Ans.

1. A 23 B 45 TRUE 67 B 89 TRUE

2 E 24 C 46 Breakout 68 A 90 True

3 C 25 C 47 True 69 D 91 Reversal

4 B 26 D 48 False 70 B 92 A

5 A 27 B 49 True 71 E 93 B

6 D 28 B 50 False 72 D 94 A

7 B 29 A 51 True 73 C 95 A

8 A 30 B 52 True 74 D 96 E

9 E 31 A 53 False 75 A 97 A

10 D 32 E 54 True 76 D

11 D 33 C 55 False 77 C

12 B 34 C i 56 True 78 B

13 D 35 True 57 False 79 A

14 D 36 False 58 False 80 A

15 E 37 False 59 C 81 D

16 D 38 True 60 True 82 A

17 D 39 False 61 True 83 B

18 A 40 True 62 True 84 C

5&P
19 A 41 True 63 CNX 85 C

20 D 42 Reversal 64 Weighted 86 A

21 C 43 Volume 65 A 87 True

22 D 44 True 66 C 88 True
 UNIT II – ANSWER KEY
Ans
Clues. Ans. Ques. Ans. Ques. Ans. Ques.

1
1 4 2 37 2 55 4
19 37 55

2 3 I 20 3 38 3 56 4
20
3 4 21 2 39 3 57 5.
21 ,_
.1
4 3 22 2 40 3 58
22
5 4 23 4 41 1 59 3
23
6 1 24 3 42 4 60 3

7 4 25 1 43 2 61 2

8 2 26 3 44 4 62 1

9 3 27 4 45 2 6,3 1

10 2 28 2 46 2 64 1

11 4 29 1 47 3 65 4

12 3 30 2 48 4

13 2 31 1 49 1

14 2 32 2 50 4

15 1 33 4 51 2

16 2 34 2 52 1

17 1 35 2 53 2
18
3 36 2 54 1
 UNIT III- ANSWER KEY

1 E A 41 D 61 D 81 TRUE

2 A 22 A 42 C 62 A 82 A
222S 1
3 D 23 C 43 D 63 A 83 D

4 D 24 B 44 D 64 D 84 E

5 D 25 A 45 A 65 A 85 B

6 B 26 B 46 A 66 B 86 A

7 C 27 C 47 B 67 INSIDER 87 C

8 C 28 B 48 C 68 SIZE 88 B

9 D 29 C 49 B 69 MISTAKES 89 A

10 A 30 B 50 E 70 INVESTORS 90 A

11 A 31 A 51 E 71 TIME 91 B
HUMAN
12 A 32 A 52 E 72 92 C
BEHAVIOUR

13 D 33 A 53 B 73 COMPLEX 93 C
OVERCONFID
14 C 34 A 54 A 74 94 C
ENCE

15 A 35 A 55 D 75 D 95 B

16 A 36 E 56 E 76 CORRECT 96 A

17 A 37 A 57 F 77 E 97 A

18 B 38 B 58 E 78 PRICE 98 B

19 A 39 A 59 B 79 RECENT 99 A
UNCONTROLL
20 A 40 C 60 A 80
ABLE
 UNIT IV- ANSWER KEY

Ques. Ans. Ques. Ans. Ques. Ans. Ques. Ans. Ques. Ans.
1. D 21. B 41. B 61. I 81 II
2. B 22. A 42. A 62. C 82 B
3. A 23. B 43. E 63 C 83 A
4. D 24. A 44. III 64. A 84 C
5. B 25. B 45. C 65 C 85 D
6. D 26. A 46. B 66 D 86 I
7. A 27. A 47. D 67 D 87 A-II, B-
I, C-III,
D-I, E-
II
8. B 28. D 48. A 68 D 88 A-I, B-
II
9. B 29. B 49. C 69 C
10. III 30. A 50. II 70 B
11. B 31. C 51. B 71 A
12. A 32. A 52. B 72 C
13. B 33. C 53. D 73 A
14. C 34. A 54. III 74 A-III,
B-II, C-
III
15. D 35. A 55. III 75 4
16. B 36. A 56. A 76 D
17. A 37. B 57. I 77 E
18. B 38. B 58. C 78 II
19. C 39. A 59. A 79 I
20. B 40. A 60. B 80 IV
 UNIT V- ANSWER KEY
Ques. Ans. Ques. Ans. Ques. Ans. Ques. Ans.
1. C 26. C 51. B 76. D

2. C 27. C 52. C 77. D

3. C 28. C 53. A 78 B

4. B 29. B 54. B 79. A

5. D 30. C 55. B 80 D

6. D 31. A 56. B 81 B
7. D 32. D 57. C 82 B

8. D 33. D 58. A 83 A

9. B 34. B 59. B 84 C

10. D 35. A 60. D 85 A

11. B 36. C 61. C 86 A

12. D 37. A 62. B 87 B

13. C 38. B 63. A 88 C

14. A 39. D 64. B 89 C

15. D 40. D 65. D 90 A

16. B 41. D 66. A 91 B

17. B 42. D 67. C 92 C

18. C 43. D 68. C 93 A

19. D 44. D 69. C 94 B

20. B 45. A 70. C

21. C 46 D 71 D

22 B 47 C 72 A

23 A 48 B 73 D

24 B 49 A 74 C

25 A 50 B 75 B
 UNIT VI- ANSWER KEY
Ques. Ans. Ques. Ans. Ques. Ans. Ques. Ans. Ques. Ans. Ques. Ans.
1. B 24. FALSE 47. TRUE 70. C 93 TRUE 116 B

2. A 25. FALSE 48. D 71. A 94 TRUE 117 15.48%

3. A 26. TRUE 49. C 72 FALSE 95 TRUE 118

4. D 27. FALSE 50. A 73 FALSE 96 TRUE I 13.6%

5. B 28. FALSE 51. A 74 TRUE 97 TRUE II 1.5

6. A 29. TRUE 52. D 75 TRUE 98 TRUE 119 A

7. A 30. TRUE 53. C 76 TRUE 99 TRUE 120 B

8. C 31. FALSE 54. C 77 FALSE 100 D 121 B

9. A 32. TRUE 55. D 78 TRUE 101 B 122 C

10. B 33. TRUE 56. D 79 TRUE 102 C 123 B

11. B 34. FALSE 57. D 80 FALSE 103 B 124 B

12. B 35. TRUE 58. TRUE 81 FALSE 104 C 125 9%

13. A 36. TRUE 59. E 82 TRUE 105 A 126 E

14. C 37. TRUE 60. E 83 TRUE 106 E 127 B

15. TRUE 38. TRUE 61. FALSE 84 FALSE 107 B

16. C 39. FALSE 62. A 85 TRUE 108 D

17. C 40. FALSE 63. A 86 TRUE 109 C

18. A 41. TRUE 64. C 87 TRUE 110 B

19. FALSE 42. TRUE 65. B 88 TRUE 111 D

20. FALSE 43. TRUE 66. A 89 TRUE 112 C

21. TRUE 44 TRUE 67 C 90 TRUE 113 C

22 TRUE 45 TRUE 68 TRUE 91 FALSE 114 =

3603.5
23 TRUE 46 TRUE 69 C 92 FALSE 115 12.30%
 UNIT VII- ANSWER KEY

Ques. Ans. Ques. Ans. Ques. Ans. Ques. Ans. Ques. Ans. Ques. Ans.
1. D 21. D 41. A 61. B 81 D 101 III
2. D 22. B 42. D 62. B 82 D 102 IV
3. C 23. A 43. A 63 A 83 E 103 IV
4. D 24. A 44. D 64. D 84 C 104 II
5. E 25. A 45. B 65 C 85 I 105 III
6. A 26. B 46. B 66 F 86 D 106 II
7. C 27. D 47. A 67 C 87 C 107 IV

8. A 28. D 48. E 68 F 88 E 108 C

9. D 29. A 49. B 69 D 89 E
10. D 30. A 50. B 70 III 90 B
11. A 31. C 51. C 71 IV 91 A
12. A 32. D 52. A 72 F 92 C
13. B 33. A 53. E 73 A 93 D
14. A 34. A 54. C 74 B 94 IV
15. A 35. A 55. B 75 A 95 IV
16. A 36. A 56. C 76 D 96 IV
17. A 37. IV 57. I 77 B 97 I
18. C 38. D 58. D 78 B 98 D
19. A 39. IV 59. B 79 B 99 A
20. B 40. A 60. C 80 D 100 IV
 UNIT VIII- ANSWER KEY

Ques. Ans. Ques. Ans. Ques. Ans. Ques. Ans. Ques. Ans. Ques. Ans.
1. B 21. B 37 C 57 D 77 D 4 A
2. B 22. B 38 C 58 A 78 92
3. A 23. C 39 A 59 B 1 B 1 B
4. B 24. A 40 A 60 D 2 A 2 B
5. C 25. 41. D 61. B 79 B 3 D
6. B I A 42. B 62. C 80 C 4 B
7. A II A 43. A 63 A 81 D 93

8. A III B 44. B 64. A 82 C 1 A

9. C IV B 45. A 65 B 83 D 2 A
10. A 26. D 46. B 66 B 84 A 3 A
11. C 27. C 47. C 67 A 85 B 4 B
12. C 28. B 48. D 68 A 86 C 94 D
13. C 29. A 49. A 69 D 87 B 95 C
14. A 30. D 50. A 70 B 88 B 96 A
15. A 31. B 51. D 71 C 89 B 97 D

16. B 32. A 52. C 72 A 90 A 98 A

17. C 33. C 53. C 73 D 91 99 C
18. B 34. B 54. B 74 A 1 C 100 C
19. A 35. A 55. D 75 A 2 D
20. B 36. D 56. A 76 C 3 B
 UNIT IX- ANSWER KEY
Ques. Ans. Ques. Ans. Ques. Ans.
1. D 21. D 41. C
2. C 22. C 42. D
3. B 23. A 43. C
4. C 24. C 44. D
5. B 25. A 45. A
6. C 26. A 46. B
7. A 27. D 47. D

8. B 28. D 48. A
9. C 29. A 49. B
10. B 30. B 50. D
11. A 31. B 51. C
12. B 32. C 52. C
13. C 33. C 53. D
14. C 34. C 54. C
15. A 35. B 55. C
16. D 36. B 56. C
17. C 37. A 57. B
18. B 38. B 58. A
19. A 39. B
20. A 40. B
 UNIT X- ANSWER KEY

Case Study- 2 14 IV
Case Study- 1
Ques. Ans. 15 A
Ques. Ans.
1 A Case Study- 4
1 IV
2 B Ques. Ans.
2 A
3 1 B
3
A II 2 B
A IV
B IV 3 C
B II
4 B 4 C
C III
5 C 5 B
D I
6 IV 6 C
E I
7 D 7 C
F I
8 C 8 C
4 B
Case Study - 3 9 C
5 IV
Ques. Ans. 10 B
6 B
1 B 11 A
7 D
2 A 12 C
8
3 B 13 B
A II
4 B Case Study- 5
B IV
5 D Ques. Ans.
C III
6 C 1 B
D IV
7 B 2 B
9 C
8 C 3 D
10 B
9 B 4 B
11
10 C 5 D
A IV
11 B 6 C
B IV
12 D 7 B
13 A 8 D
 4 C 8 C
9 D
5 A 9 B
10 B
Case Study- 8 10 C
11 D
11 C
12 C Ques. Ans.
12 A
13 D 1 A
13 B
14 A 2 D
14 B
Case Study- 6 3 D 15 B
Ques. Ans. 4 B Case Study- 10
1 A 5 D Ques. Ans.
2 A 6 A 1 D
3 B 7 A 2 D
8 A 3 D
4 A
4 B
5 C 9 D
5 D
6 B 10 D
6 D
7 C 11 B 7 B
8 C 12 B 8 A
9 A Case Study- 9 9 B
10 D Ques. Ans. 10 A
1 C 11 D
11 A
2 B 12 B
12 D
13 D
Case Study- 7 3 D
14 A
Ques. Ans. 4 B
1 D 5 B
2 C 6 B
3 B 7 A