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CWM_LEVEL_2 Questions and Answers

Question # 6

Section A (1 Mark)

Which is not the basic ingredient of a valid trust?

A.

There must be a trustee

B.

There must be a beneficiary or beneficiaries

C.

There must be clearly delineated trust property

D.

The object of the trust must not be specific

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Question # 7

Section B (2 Mark)

The arbitrage pricing theory (APT) and the CAPM both assume all except which of the following?

A.

Investors have homogeneous beliefs.

B.

Investors are risk-averse utility maximizers.

C.

Borrowing and lending can be done at the rate RF.

D.

Markets are perfect.

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Question # 8

Section B (2 Mark)

Which of the following statements with respect to US Taxation Structure is/are correct?

A.

I and II

B.

III and IV

C.

I, II and IV

D.

II, III and IV

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Question # 9

Section B (2 Mark)

Withholding Tax Rates for payments made to Non-Residents are determined by the Finance Act passed by the Parliament for various years. The current rates for Royalities are:

A.

10

B.

15

C.

20

D.

18

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Question # 10

Section C (4 Mark)

Mr. Rajesh constructs a Long Straddle Strategy with one Nifty Call Option having a Strike price of Rs. 4500 available at a premium of Rs. 122 and one Nifty Put Option with a strike price Rs. 4500 at a premium of Rs. 85

What would be the Net Payoff of the Strategy?

• If Nifty closes at 4234

• If Nifty closes at 4766

A.

-107 and -207

B.

93 and 193

C.

59 and 59

D.

0 and -7

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Question # 11

Section C (4 Mark)

What is the portfolios standard deviation if you put 25% of your money into stock A which has a standard deviation of 15% and rest into stocks B which has a standard deviation of 10%. The correlation coefficient between the returns of the stocks is .75.

A.

11.25%

B.

10.60%

C.

12.40%

D.

15.00%

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Question # 12

Section B (2 Mark)

Conventional theories presume that investors ____________ and behavioral finance presumes that they ____________.

A.

are irrational; are irrational

B.

are rational; may not be rational

C.

are rational; are rational

D.

may not be rational; may not be rational

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Question # 13

Section A (1 Mark)

The concept of indemnity is based on the key principle that policyholders should be prevented from

A.

Insuring existing losses

B.

Making false insurance claims

C.

Paying excessively for insurance cover

D.

Profiting from insurance

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Question # 14

Section B (2 Mark)

Mr. Manish purchased a residential house for Rs.3 lakh on 1-4-1972. Its market value on 1-4-1981 was, however, Rs.12 lakh. He sells the house during the financial year 2011-12 for Rs.98 lakh. Calculate the taxable long term capital gain.[CII-12-13: 852,11-12: 785,10-11:711]

A.

Rs. 12,90,000/-

B.

Rs. 10,90,000/-

C.

Rs. 3,80,000/-

D.

Rs. 7,10,000/-

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Question # 15

Section A (1 Mark)

The tendency to seek and interpret information that confirms existing beliefs. Our conclusions are unduly biased by what we want to believe. Which of the following is most likely consistent with this bias?

A.

Anchoring and Adjustment Bias

B.

Ambiguity Bias

C.

Confirmation bias

D.

Overconfidence Bias

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Question # 16

Section A (1 Mark)

The effect on a bond portfolio’s value of a decrease in yield would be most accurately estimated by using:

A.

The full valuation approach.

B.

The price value of a basis point.

C.

Both the portfolio’s duration and convexity.

D.

None of the Above

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Question # 17

Section B (2 Mark)

Compute YTM of a bond with par value of Rs.1000/-, carrying a coupon rate of 8% and maturing after 10 years. The bond is currently selling for Rs.850/-.

A.

9.50%

B.

11.50%

C.

10.44%

D.

8.50%

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Question # 18

Section C (4 Mark)

Mr. Vinay, aged 36 years is working in a company, at a managerial level, and has an income of Rs. 40,000 p.m. comprising of Basic salary and DA as on 31/03/2008. His other allowances amount to Rs. 18,000 p.m. He would retire at the age of 60 years. His wife Reena, aged 32 years, is working in a High School and has a post-tax income of Rs. 2,76,000 per annum. Mr. and Mrs. Vinay have two daughter Deepika, aged 10 years and Rekha, aged 5 years.

Mr. Vinay’s father died of heart attack, 5 months back, at the age of 72 years, leaving a house (Value as on date Rs. 30 lakh) in which Vinay is staying at present and other assets worth Rs. 20 lakh (shares of large cap companies worth Rs. 10 lakh, Fixed deposit in post office of Rs. 5 lakh and Bank FD of Rs. 5 lakh) in Vinay’s mother’s name. His mother 63 years old is disabled and fully dependent on Vinay, he being the only child of his parents. Vinay has to keep an attendant for his mother, round the clock.

The Assets of the Couple are:

1.Cash in HandRs. 18,000

2.Bank balanceRs. 40,000 (Vinay) Rs. 25,000 (Reena)

3.JewelleryRs. 400000 (Reena)

4.Money Market Mutual FundRs. 3,00,000 (Vinay)

5.Shares

?ICICI Bank 200 shares bought at Rs. 1000 per share,

?Infosys 150 shares bought at Rs. 1700 per share

?Reliance Communication 350 shares bought at Rs. 350 share.

6.Debt oriented mutual FundsRs. 2,00,000

7.PPFRs. 5,00,000 (Vinay), Rs. 4,00,000 (Reena)

8.House in the joint name of Vinay and Reena with 50% ownership of each. This house has two floors and is let out for Rs. 9,000 pm for each of the floors. Present value of this house is Rs. 60,00,000.

Vinay and Reena had taken a housing loan of Rs. 15,00,000 each. Of this Rs. 10,00,000 is pending on each name. They are presently paying an EMI of Rs. 20,000 each, Rate of interest being 10.75% p.a.

The Retirement Benefits of Vinay after 15 years hence, are expected to be as follows:

Vinay has taken a term insurance of Rs. 30 lakh for 20 years, which is expiring 5 years from now. He has no other insurance. Vinay’s monthly household/ living expenses are Rs. 50,000. This excludes EMI on loans but includes all other expenses including expenses on his mother’s care.

Vinay expects Deepika to get married 12 years hence for which likely expenditures in today’s term is 15 lakh.

Vinay’s salary is likely to grow at 7% pa and Reena’s salary is likely to grow at 6% p.a. Risk free rate of interest is 8% pa and inflation is 6% p.a. Long term growth on Equity/Equity based MF is taken as 15% p.a.

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Question # 19

Section B (2 Mark)

Mrs. Dikshit is a single, sixty-five year old with a modest lifestyle and no income beyond what her investment portfolio of Rs1,00,00,000 generates. Her primary investment goal is to not outlive her assets; she does not, under any circumstances, want to lose money because she recalls that her relatives lost money in the crash of 2000. Mrs. Dikshit exhibits these behavioral biases:

A.

loss aversion and anchoring and adjustment

B.

Representative bias

C.

Framing bias

D.

Availability bias

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Question # 20

Section B (2 Mark)

Which of the following statement is/are correct?

A.

(i) only

B.

(ii) only

C.

Both (i) & (ii) are correct

D.

Both (i) & (ii) are incorrect

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Question # 21

Section B (2 Mark)

Why do share prices usually drop when news about decline in a company’s earnings per share is reported?

A.

Because a reduction in a earnings means that the firm has less money with which to pay dividends and therefore the market fears a reduction in the company’s future dividends.

B.

Because the share market anticipates that a decreased level of earning power might be the indicator of default and perhaps even bankruptcy.

C.

The statement is false. Share prices do not usually react about current earnings.

D.

Both (a) and (b) are true

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Question # 22

Section A (1 Mark)

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 sophisticated than the average person.

D.

B and C

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Question # 23

Section A (1 Mark)

The quantum of deduction allowed u/s 80U is:

A.

Rs. 40,000

B.

Rs. 50,000

C.

Rs. 60,000

D.

Rs 55000

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Question # 24

Section B (2 Mark)

For calculation of liability of payment of gratuity to an employee on leaving service, the wage to be taken into account is

A.

Average wage earned during the entire service

B.

Average wage earned during the last 5 years

C.

Last drawn wage

D.

None of the above

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Question # 25

Section B (2 Mark)

Ms. Shalini Bhargav plans to purchase a property having a projected annual income for three year is Rs 20,000 with 12 percent expected return and expect to sell it at the end of three years for Rs 2,70,000. Compute the present value of the property.

A.

Rs. 2,40,217

B.

Rs. 2,45,982

C.

Rs. 1,94,646

D.

Rs. 2,52,435

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Question # 26

Section B (2 Mark)

Which of the following factors affect the price of a stock option?

A.

The risk-free rate.

B.

The riskiness of the stock.

C.

The time to expiration.

D.

A, B, and C.

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Question # 27

Section B (2 Mark)

Lokesh purchased a flat on 1-4-1996 for Rs. 10,00,000/-. He sells the same flat on 1-10-2006 for Rs. 25,00,000/-.As a CWM® calculate the Indexed Cost of Acquisition on which capital gain would be calculated. (The CII of year 1995-96 is 281, for year 1996-97 is 305, for year 2005-06 is 497 and for year 2006-07 is 519).

A.

17,01,639

B.

18,46,975

C.

17,68,683

D.

16,29,508

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Question # 28

Section B (2 Mark)

Mr.Neeraj has a portfolio consisting of two stocks A & B has a standard deviation of 5% while stock B has a standard deviation of 15%. Stock A comprises 40% of the portfolio and stock B consists of 60%. If the correlation of returns of A and B is 0.5, the variance of return on the portfolio is_______

A.

35

B.

85

C.

94

D.

103

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Question # 29

Section A (1 Mark)

Operational customer relationship management supports which of the following function?

A.

Front Office

B.

Customer campaigns

C.

Effective interaction

D.

Data mining

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Question # 30

Section A (1 Mark)

The principle that people do not buy or rent real estate, but judge properties as different sets of benefits and costs is called

A.

The principle of supply and demand.

B.

The principle of an efficient market.

C.

The principle of comparative sales.

D.

The principle of substitution.

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Question # 31

Section B (2 Mark)

The equity risk premium for the market is 8 percent. Jackson Products has a beta of 0.4. The real risk-free rate is 2 percent and the expected inflation premium is 5 percent. The required rate of return for Jackson is __________ percent.

A.

15.4

B.

10.2

C.

7.4

D.

6.7

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Question # 32

Section A (1 Mark)

In whose total income, the income of a minor child is included –

A.

Parent whose total income is greater

B.

Mother

C.

Father & Mother both

D.

Father

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Question # 33

Section A (1 Mark)

Strategic asset allocation involves

A.

Market timing.

B.

Simulation to identify a range of outcomes for various asset mixes.

C.

The life-cycle concept.

D.

Individual investors only.

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Question # 34

Section C (4 Mark)

Read the senario and answer to the question.

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-2008. 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.

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Question # 35

Section A (1 Mark)

The goal of the Dow theory is to

A.

Identify breakaway points

B.

Identify resistance levels.

C.

Identify support levels

D.

Identify long-term trends

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Question # 36

Section B (2 Mark)

Consider the multifactor model APT with two factors. Portfolio A has a beta of 0.75 on factor 1 and a beta of 1.25 on factor 2. The risk premiums on the factor 1 and factor 2 portfolios are 1% and 7%, respectively. The risk-free rate of return is 7%. The expected return on portfolio A is __________ if no arbitrage opportunities exist.

A.

13.50%

B.

15.00%

C.

16.50%

D.

23.00%

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Question # 37

Section A (1 Mark)

Your client Mr. Singhania expressed his intention to write his will in his own handwriting such a will which is wholly in the handwriting of the testator is renown as:

A.

Nuncupative will

B.

Holograph will

C.

Sham will

D.

Manuscript will

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Question # 38

Section A (1 Mark)

A muslim gentleman can leave his will, bequeathing all his properties to someone often than his legal heirs to the extent of…………….

A.

His wish

B.

A small portion

C.

One third

D.

One half

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Question # 39

Section C (4 Mark)

Tom dies in January of the current year and leaves his wife Jeanne a $50,000 insurance policy. Jeanne elects to receive the proceeds at $10,000 per year plus interest, for five years. In the current year, she receives $12,000 ($10,000 plus $2,000 interest).

How much must Jeanne include in her gross income?

A.

$2,000

B.

$5,000

C.

$4,500

D.

$4,200

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Question # 40

Section A (1 Mark)

During “Early accumulation” life stage, typical asset allocation should be

A.

25% equities, rest in fixed income instruments

B.

50% equities, rest in fixed income instruments

C.

75% equities, rest in fixed income instruments

D.

100% equities

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Question # 41

Section B (2 Mark)

Mr. X gives Rs. 200000 to Mrs. X as gift. She invests in a proprietary concern and incurs a loss of Rs. 40000

A.

The loss shall be ignored while computing income of both Mr. and Mrs. X

B.

The loss shall be borne by Mrs. X

C.

The loss shall not be clubbed

D.

This loss shall be clubbed in the hands of Mr. X

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Question # 42

Section B (2 Mark)

The favorable difference received by buyer/holder on the exercise/expiry date, between the final settlement price as and the strike price, will be recognized as ___________

A.

Income

B.

Expense

C.

Cannot Say

D.

None

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Question # 43

Section A (1 Mark)

_______________ is concerned with capturing, storing, extracting, integrating, processing, interpreting, distributing, using and reporting customer-related data to enhance both customer and company value.

A.

Strategic

B.

Operational

C.

Analytical

D.

Collaborative

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Question # 44

Section A (1 Mark)

As per presumptive income scheme under section 44AE, the presumed income shall be:

A.

Rs. 3,000 p.m. per goods carriage

B.

Rs. 3,500 p.m. per heavy goods vehicle and Rs. 3,150 p.m. per vehicle other than heavy goods vehicle

C.

Rs. 3,500 p.m. per heavy goods vehicle Rs. 3,150 p.m. for medium goods vehicle and Rs. 2,000 p.m. per light commercial vehicle.

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Question # 45

Section C (4 Mark)

Read the senario and answer to the question.

Harish wants a monthly investment to achieve the goal of his children's higher education. For accumulation of fund you recommend Harish to invest in an investment vehicle which invests in the ratio of 20:80 in Debt and Equity. If Harish starts investing from 1st Dec 2010, what approximate amount should he set aside every month for each child to achieve the goal? Harish maintains separate investment accounts for Chirag and Vishesh and invests till they individually turn 21 years of age.

A.

Rs. 8,400 and Rs. 3,760 respectively

B.

Rs. 8,100 and Rs. 3,640 respectively

C.

Rs. 9,540 and Rs. 4,240 respectively

D.

Rs. 7,850 and Rs. 3,950 respectively

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Question # 46

Section A (1 Mark)

Short-term capital gain arising for the transfer of equity shares and units of equity oriented fund shall be taxable

A.

at the normal rate

B.

at the rate of 20%

C.

at the rate of 10% if transferred on or after 1-10-2004

D.

at the rate of 10% if transferred on or after 1-10-2004 through a recognized stock exchange & such transaction is chargeable to securities transaction tax

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Question # 47

Section B (2 Mark)

A bank recently loaned you Rs15,000 to buy a car. The loan is for five years (60 months) and is fully amortized. The nominal rate on the loan is 12 percent, and payments are made at the end of each month. What will be the remaining balance on the loan after you make the 30th payment?

A.

Rs 8,611.17

B.

Rs 8,363.62

C.

Rs14,515.50

D.

Rs 8,637.38

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Question # 48

Section C (4 Mark)

Azhar aged 30 is a disciplined investor. He has started depositing Rs. 25,000 every year in an account that pays a return of 9% every year. He plans to increase his contribution by Rs. 5000 every year till his age 50. Calculate the amount he would be having in his account at this age.

A.

1731111

B.

1279000

C.

30101111

D.

29101111

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Question # 49

Section A (1 Mark)

Acquiring the Right Customers, based on known characteristics, which drives growth and increased profit margin, is a benefit of __________

A.

CRM Process

B.

e-CRM

C.

CRM

D.

e-CRM process

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Question # 50

Section A (1 Mark)

Which one of the following equations correctly defines the dividend yield (Y) from a share of common stock?

A.

Y= (purchase price)+(cash dividend, if any)/purchase price.

B.

Y= (price change)+(cash dividend, if any)/purchase price.

C.

Y= price change/purchase price.

D.

Y= cash dividend (if any)/purchase price

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Question # 51

Section A (1 Mark)

Generally speaking, high severity of losses will be accompanied by

A.

High frequency of losses

B.

Low frequency of losses

C.

Equal frequency of losses

D.

None of these

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Question # 52

Section B (2 Mark)

Babu Lal sold his residential house on 28-06-2010 and made a long term capital gain of Rs. 372229. He purchased a new house on 22-10-2010 for Rs. 360000 which is again sold for Rs.620000 on 16-6-2011. He purchased another house on 20-12-2011 for Rs.786000. Calculate the exemption available u/s 54 for the assessment year 2012-13. [CII-12-13: 852,11-12: 785,10-11:711]

A.

Rs.786000

B.

Rs.360000

C.

Rs.372229

D.

Nil

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Question # 53

Section A (1 Mark)

____________means that people resist inequitable outcomes; i.e., they are willing to give up some material payoff to move in the direction of more equitable outcomes.

A.

In Equity Reversion

B.

Money Illusion

C.

Escalation of Commitment

D.

Hindsight bias

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Question # 54

Section B (2 Mark)

Ramesh has invested Rs 3,000/- in Reliance Growth Fund two years ago and its worth is now 4,000/-. Ram has received dividend Rs.300 at the end of two years. Calculate Compounded annual growth rate (CAGR) of Ram’s investment.

A.

19.58%

B.

11.95%

C.

0.11%

D.

1.19%

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Question # 55

Section A (1 Mark)

A(n) __________________ guards against the losses in the value of a credit asset. It would pay off if the asset declines significantly in value or if it completely turns bad.

A.

credit option

B.

standby letter of credit

C.

credit linked note

D.

credit swap

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Question # 56

Section B (2 Mark)

Encashment of leave during service tenure is

A.

Taxable

B.

Tax free

C.

Taxable only if more than the notified exemption

D.

Tax free up to 50% of the notified amount

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Question # 57

Section A (1 Mark)

Which portion of his property can a muslim normally be guest according to muslim personal law?

A.

One Fourth

B.

One Third

C.

Half

D.

Fully

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Question # 58

Section B (2 Mark)

Mr. Murti is working in a reputed company and earning Rs. 4,00,000/- p.a. and is now 50 years old. He has invested Rs. 1,50,000/- in an annuity which will pay him after 5 years a certain amount p.m. at the beginning of every month for 10 years. Rate of interest is 8% p.a. Calculate how much he will receive at the beginning of every month after 5 years?

A.

2623

B.

2598

C.

2871

D.

2656

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Question # 59

Section B (2 Mark)

What is the future value of Rs. 5000 at the end of 5 years at 8% compounded annually?

A.

7346.64

B.

7401.22

C.

7388.12

D.

7390

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Question # 60

Section A (1 Mark)

The eligibility Criteria for Self Employed Professionals & Businessman for minimum age of the applicant in case of personal loan is:

A.

21 Years

B.

18 Years

C.

25 Years

D.

None of These

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Question # 61

Section C (4 Mark)

Read the senario and answer to the question.

Portfolio A had a return of 12% in the previous year, while the market had an average 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

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Question # 62

Section C (4 Mark)

Mohan recommend that the stock of AZB Ltd. is a good purchase at Rs. 25. You do an analysis of the firm, determining that the Rs. 1.40 dividend and earnings should continue to grow indefinitely at 8% annually. The firm’s beta co-efficient is 1.34 and the yield on Treasury bills is 7.4%. If you expect the market to earn a return of 12 % should you follow Mohan’s suggestion?

A.

No, one should not buy the stock at Rs. 25

B.

No, One should sell the stock at Rs. 25

C.

Yes, one should buy the stock at Rs. 25

D.

None of the above

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Question # 63

Section A (1 Mark)

In marine insurance claims, insurable interest must shown to exist at the time of

A.

loss

B.

contract

C.

both a and b above

D.

none of the above

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Question # 64

Section B (2 Mark)

What is the PV of an Annuity Due which provides Rs. 2,000/- per month for first 3 years and then Rs. 3,000/- per month for next 2 years. This annuity starts 4 years from now and ROI is 9 % per annum compounded monthly?

A.

81234.87

B.

66159.94

C.

80704.76

D.

79453.34

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Question # 65

Section A (1 Mark)

According to Prospect Theory, investors are more concerned with changes in wealth than in returns. Prospect Theory suggests that investors:

A.

Are Risk Averse

B.

Can be loss averse

C.

Place more value on gains than on losses of equal than on losses of equal magnitude

D.

None of these

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Question # 66

Section B (2 Mark)

The expected market return is 16 percent. The risk-free rate of return is 7 percent, and BC Co. has a beta of 1.1. Their required rate of return is

A.

17.6 percent.

B.

16.0 percent.

C.

16.9 percent.

D.

23.0 percent.

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Question # 67

Section B (2 Mark)

The lesson from the credit crisis of 2007-2009 is that securitized assets and credit swaps are:

A.

Complex financial instruments

B.

Difficult to correctly value and measure in terms of risk exposure

C.

Possible to set in motion a financial contagion that cannot be easily stopped without active government intervention

D.

All of the above are correct

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Question # 68

Section A (1 Mark)

Which of the following is a market anomaly?

A.

A relationship between money supply growth and stock prices.

B.

A relationship between P/E ratios and subsequent stock returns.

C.

Independence of stock price changes.

D.

Adjustment of stock prices due to accounting changes.

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Question # 69

Section A (1 Mark)

The potential loss for a writer of a naked call option on a stock is

A.

Limited

B.

Unlimited

C.

Larger the lower the stock price.

D.

Equal to the call premium.

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Question # 70

Section A (1 Mark)

The bank's real estate loan officer should consider which of the following aspects of the customer's loan application carefully when making a home mortgage?

A.

The amount and stability of the borrower's income

B.

The borrower's available savings and where the down payment is coming from

C.

The borrower's track record in caring for and managing property.

D.

All of the above are things that need to be looked at carefully

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Question # 71

Section B (2 Mark)

Suppose you are working with two factor portfolios, Portfolio 1 and Portfolio 2. The portfolios have expected returns of 15% and 6%, respectively. Based on this information, what would be the expected return on well-diversified portfolio A, if A has a beta of 0.80 on the first factor and 0.50 on the second factor? The risk-free rate is 3%.

A.

15.20%

B.

14.10%

C.

13.30%

D.

10.70%

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Question # 72

Section A (1 Mark)

Which of the following statement is/are true?

A.

Statement (I) Only

B.

Statement (I) and (II) both

C.

Statement (II) Only

D.

None of the Statement

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Question # 73

Section A (1 Mark)

Amit has monthly net income of Rs10500. He has a house payment of Rs 4500 per month, a car loan with payments of Rs 2500 per month, a Visa card with payments of Rs 500 per month, and a credit card with a local department store with payments of Rs 1000 per month.

What is Amit's debt payments-to-income ratio?

A.

2.63

B.

1.24

C.

0.81

D.

0.38

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Question # 74

Section A (1 Mark)

The demand for insurance tends to be inelastic because of

A.

Statutory requirements

B.

Financial prudence

C.

Business transaction requirements

D.

All of the above.

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Question # 75

Section A (1 Mark)

________ refers to the activity of the real estate market as it reacts to the force of supply and demand.

A.

Real Estate Cycle

B.

Business Cycle

C.

Market Cycle

D.

Accounting Cycle

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Question # 76

Section A (1 Mark)

Wealth Conservation is _____________

A.

Ways to maximize tax efficiency of current assets and cash flows while achieving capital growth and preservation goals

B.

Using insurance to ensure wealth is protected

C.

Legally structuring the future disposition of current assets to minimize the benefits to chosen beneficiaries

D.

None of the above

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Question # 77

Section C (4 Mark)

Read the senario and answer to the question.

Calculate the tax liability of Mr. Neeraj for the A.Y.08–09 assuming that he has avail full deduction under section 80C

A.

Rs. 496910

B.

Rs. 509500

C.

Rs. 525000

D.

Rs. 485000

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Question # 78

Section A (1 Mark)

Cash Flow is a tool that is more useful for

A.

Short period financial analysis

B.

Long period financial analysis

C.

It is period agnostic

D.

None of the above

Full Access
Question # 79

Section A (1 Mark)

The profits of a controlled foreign company which are apportioned to a UK company are charged to corporation tax at the UK company's average rate of tax.

A.

TRUE

B.

FALSE

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Question # 80

Section A (1 Mark)

A cognitive heuristic in which decisions are made based on an initial 'anchor__________

A.

Anchoring and Adjustment Bias

B.

Ambiguity Bias

C.

Confirmation bias

D.

Overconfidence Bias

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Question # 81

Section A (1 Mark)

The life-cycle theory of asset allocation proposes that as investors progress through life, their

A.

Asset allocation should change to meet changing needs.

B.

Earnings increase in their 20s, reach a peak at about age 45, then decline.

C.

Assets must grow geometrically in order to achieve reasonable goals.

D.

Asset allocation should remain fixed in order to avoid short-sighted adjustments.

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Question # 82

Section A (1 Mark)

As per ARTICLE 12 in DTTA with US , the maximum tax rate on the gross amount of the royalties or fees for included services in the Article is:

A.

15

B.

10

C.

20

D.

12

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Question # 83

Section B (2 Mark)

R acquired shares of G Ltd, on 15/12/1998 for Rs. 5 lakh which were sold on 15/5/2011 for Rs. 18.50 lakh. Expenses of transfer were Rs. 20,000/-. He invests Rs. 6 lakh in the bonds of NHAI on 16/10/2011. Compute the capital gain for the assessment year 2012-13.

A.

Rs. 1,11,766/-

B.

Rs. 76, 345/-

C.

Rs. 1,13,423/-

D.

Nil

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Question # 84

Section C (4 Mark)

Omax Inc. one of the largest developer of residential projects, reported earnings per share of Rs 8.0 in 2003, and paid dividends per share of Rs 4.8 in that year. The firm is expected to report earnings growth of 25% in 2004, after which the growth rate is expected to decline linearly over the following six years to 7% in 2009. The stock is expected to have a beta of 0.85 and current risk free rate is 6.25%.

Estimate the value of the firm using the H Model.

A.

43.6

B.

66

C.

64.35

D.

61.6

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Question # 85

Section A (1 Mark)

The minimum annual income for availing Auto Loan is:

A.

Rs 1,25,000

B.

Rs 1,50,000

C.

Rs 1,00,000

D.

Rs 1,20,0000

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Question # 86

Section C (4 Mark)

Which of the following statements is/are correct?

A.

I and II

B.

I ,II and IV

C.

III and IV

D.

All of the Above

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Question # 87

Section B (2 Mark)

Consider a one-year maturity call option and a one-year put option on the same stock, both with striking price Rs100. If the risk-free rate is 5%, the stock price is Rs103, and the put sells for Rs7.50, what should be the price of the call?

A.

Rs. 17.50

B.

Rs. 15.26

C.

Rs10.36

D.

Rs. 12.26

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Question # 88

Section A (1 Mark)

An option which gives the holder the right to sell a stock at a specified price at some time in the future is called a

A.

Naked option

B.

Call option

C.

Out-of-the-money option

D.

Put option

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Question # 89

Section A (1 Mark)

Where the return of income is filed after the due date specified u/s 139(1):

A.

all deductions under Chapter VIA i.e. 80C to 80U will be allowable

B.

all deductions under Chapter VIA i.e. 80C to 80U will not be allowable

C.

all deductions under Chapter VIA i.e. 80C to 80U excepting 80-IA, 80-IAB, 80-IB, 80-IC will be allowable

D.

all deductions under Chapter VIA i.e. 80C to 80U except 80-IA will be allowable

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Question # 90

Section A (1 Mark)

Equifax Credit Report Contain

A.

I, III and V

B.

II, IV and V

C.

I, III and IV

D.

All of the Above

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Question # 91

Section B (2 Mark)

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

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Question # 92

Section A (1 Mark)

A 5 year ordinary annuity has a future value of Rs. 1,00,000/-. If ROI is 8 % per annum, then how much will be the amount of each payment ?

A.

17,045.64

B.

16532.23

C.

11000.44

D.

13000.75

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Question # 93

Section B (2 Mark)

Which of the following statements is/are correct?

A.

I, II and III

B.

I, III and IV

C.

II, III and IV

D.

All of the above

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Question # 94

Section C (4 Mark)

A Portfolio manager is holding the following portfolio:

The risk free rate of return is 6% and the portfolio’s required rate of return is 12.5%. The manager would like to sell all of his holdings in stock A and use the proceeds to purchase more shares of stock D. What would be the portfolio’s required rate of return following this change?

A.

13.63%

B.

10.29%

C.

11.05%

D.

12.52%

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Question # 95

Section A (1 Mark)

Convertible bond arbitrage is to event driven as _________ is to corporate restructuring.

A.

Market neutral

B.

Short selling

C.

Distressed securities

D.

Market timers

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Question # 96

Section B (2 Mark)

Miss Femina aged 17, is married to Mr. Masculine. Her mother alone is alive income by way of interest on loans, of Miss Femina will be:-

A.

Assessed to tax in the hands of her mother

B.

Exempt from tax

C.

Taxable in her own hands

D.

Assessed to tax in the hands of Mr. Musciline

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Question # 97

Section C (4 Mark)

Ms. Nimita Shah, aged 34 years as on 2nd April 2010, is Vice President in a Mumbai-based firm. She has twin daughters Revati and Savitri of age 12 years and she is the sole guardian of her children pursuant to her recent divorce. She is currently residing in a rented house. Both her daughter are studying in the 6th Standard. She has approached you, a CWM®, for preparing her Wealth plan. She has shared the following financial information with you:

You, in consultation with Nimita have crystallized the following financial goals for her family and the preliminary roadmap to achieve them:

1.Send both daughters to a Boarding school – immediately – Outlay Rs. 1.80 lakh (present cost) per child p.a. – for 6 years – To be met on year to year basis by investing a suitable corpus.

2.Buy a house–in the next three years – Outlay of Rs. 80 lakh – Take a loan for 15 year term.

3.Invest suitably for the Higher Education of both children – Higher Education starts after 6 years – present cost Rs. 4.5 lakh p.a. for each child for a team of 5 year.

4.To invest monthly for Revati and Savtri’s wedding when they complete 24 years of age. The estimated present cost of one such marriage is Rs. 15 Lakh

5.Retirement Corpus for self – Corpus to be accumulated in 21 years – Corpus to sustain an annuity of Rs. 1.25 lakh p.m. (current cost) inflation linked for a post – retirement life of 25 years.

6.A world tour with both of her kids – After 11 years – outlay of Rs. 8 lakh at current prices.

7.A suitable Estate Planning to cover all her physical and financial assets.

Assumptions:

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Question # 98

Section A (1 Mark)

The price that the buyer of a call option pays for the underlying asset if she executes her option is called the

A.

Strike price

B.

Exercise price

C.

execution price

D.

A or B

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Question # 99

Section C (4 Mark)

Suppose Sunil visits his favorite coffee shop and encounters his good friend Rohit. Rohit raves about his stockbroker, whose firm employs an analyst who appears to have made many recent successful stock picks. The conversation goes something like this:

SUNIL: Hi, Rohit, how are you?

ROHIT: Hi, Sunil. I’m doing great! I’ve been doing superbly in the market recently.

SUNIL: Really? What’s your secret?

ROHIT: Well, my broker has passed along some great picks made by an analyst at her firm.

SUNIL: Wow, how many of these tips have you gotten?

ROHIT: My broker gave me three great stock picks over the past month or so. Each stock is up now, by over 10 percent.

SUNIL: That’s a great record. My broker seems to give me one bad pick for every good one. It sounds like I need to talk to your broker; she has a much better record!

Which of the following biases have been exhibited by Gaurav?

A.

Representative bias

B.

Sample Size Neglect Bias

C.

Framing bias

D.

Loss Aversion bias

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Question # 100

Section A (1 Mark)

The definition of a drawdown is

A.

A method to limit taxable gains for investors

B.

A decline in the net asset value of the hedge fund

C.

A year end management fee

D.

A withdrawal made while fully invested

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Question # 101

Section C (4 Mark)

Mr. XYZ sells a Nifty Put option with a strike price of Rs. 4000 at a premium of Rs. 21.45 and buys a further OTM Nifty Put option with a strike price Rs. 3800 at a premium of Rs. 3.00 when the current Nifty is at 4191.10, with both options expiring on 31st July.

What would be the Net Payoff of the Strategy?

• If Nifty closes at 3287

• If Nifty closes at 4925

A.

145.95 and -75.05

B.

-35.05 and 164.95

C.

-181.55 and 18.45

D.

25.05 and 154.25

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Question # 102

Section B (2 Mark)

The employer had purchased a car for Rs. 3,00,000 which was being used for official purposes. After 2 year 6 months of its use, the car is sold to R, the employee, for Rs. 1,20,000. The value of this perquisite shall be

A.

Rs. 72,000

B.

Rs. 60,000

C.

Nil

D.

Rs. 1,23,000

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Question # 103

Section A (1 Mark)

Depending on how questions are asked, ___________ can cause investors to communicate responses to questions about risk tolerance that are either unduly conservative or unduly aggressive.

A.

Framing Bias

B.

Mental accounting

C.

Representativeness Bias

D.

Hindsight bias

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Question # 104

Section A (1 Mark)

______________represents the corollary effect—the irrational denial of responsibility for failure.

A.

Self Enhancing Bias

B.

Self Attribution Bias

C.

Self Protecting Bias

D.

None of the Above

Full Access
Question # 105

Section B (2 Mark)

Mr. Patel expects the stock of A to sell for Rs. 70/- a year from now and to pay Rs. 4/- dividend. If the stock’s correlation with the Market is –0.3, and the standard deviation of A is 40% and standard deviation of the Market is 20% and the risk free rate of return is 5% and the market risk premium is 5%, what would be the price of stock A be now ?

A.

74

B.

73.65

C.

72.55

D.

75.65

Full Access
Question # 106

Section A (1 Mark)

A ____________________ tax system places a relatively large tax burden on upper-income people and a relatively small tax burden on lower-income people.

A.

Proportional

B.

Progressive

C.

Regressive

D.

All of the above

Full Access
Question # 107

Section B (2 Mark)

Reproduction cost has been estimated as Rs 350,000 for a property with a 70-year economic life. The current effective age of the property is 15 years. The value of the land is estimated to be Rs 55,000. What is the estimated market value of the property using the cost approach, assuming no external or functional obsolescence?

A.

Rs 3,30,000

B.

Rs 3,45,500

C.

Rs 2,50,000

D.

Rs 2,75,000

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Question # 108

Section B (2 Mark)

If one earns 10% on investment but inflation is 2%, real rate of return is

A.

10%

B.

8%

C.

7.84%

D.

7.70%

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Question # 109

Section A (1 Mark)

The price that the writer of a put option receives for the underlying asset if the option is exercised is called the

A.

Strike price

B.

Exercise price

C.

execution price

D.

None of the above

Full Access
Question # 110

Section A (1 Mark)

A bank is considering making a loan to Neil Garg. Neil has bounced three cheques in the last year and already has Rs 1,00,000 on a credit card and an automobile loan with a large balance. What aspect of evaluating a consumer loan application is this fact concerned with?

A.

Income level

B.

Deposit balance

C.

Employment and residential stability

D.

Pyramiding of debt

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Question # 111

Section C (4 Mark)

Keshav and Deepti Gohlyan approached you a Chartered Wealth Manager for preparing a Wealth plan to achieve their financial goals. Keshav Gohlyan, aged 45 years, is working in Chennai in an MNC, at a managerial level. His wife Deepti, aged 42 years, is working in a Private Company and has a post-tax income of Rs. 4 lakh p.a. She is expected to retire at the age of 55 years. Keshav’s gross salary is likely to grow at 7% p.a. and Deepti's gross salary is likely to grow at 6% p.a. The couple has two children – daughter Yogita, aged 18 years, pursuing her Graduation in Economics, and son Navneet, aged 16 years, studying in 12th standard. Navneet intends to become a Doctor.

Keshav's monthly household expenses are Rs. 40,000 out of which Rs. 8,000 is of Keshav’s personal expenses, this excludes EMI on loans and Insurance premiums. Keshav has two siblings Keshav and his family stay with his mother. His father passed away due to severe heart attack on 15-Dec-2009, at the age of 75 years, leaving a house (Value on 15thDec 2009 Rs. 25 lakh) in which they are currently staying.

Keshav has a term insurance of Rs. 20 lakh (for 20 years); the term expires 5 years from now. Both are covered under Group Medical Insurance for Rs. 4 Lakh family floater each provided by their respective employers

Assets

The couple’s assets as on 31-3-2010 are;

1.Cash in Hand Rs. 10,000

2.Bank balance Rs. 50,000

3.Diversified Equity Mutual Fund units at market value Rs. 2.60 lakh

4.Equity Shares at market value Rs. 15.25 lakh

5.Debt oriented Mutual Fund units at market value Rs. 1.65 lakh

6.PPF A/c balance Rs. 4.25 lakh (Keshav), Rs. 3.15 lakh (Deepti), both maturing on1st April 2016

7.ELSS Mutual Fund units at market value Rs. 75,000

8.A separate house is in the joint name of Keshav and Deepti with 50% ownership of each. This house has two floors and is let out for rent of Rs. 8,000 p.m. each floor.

Present Market Value of this House is Rs. 70 Lakh1

9.Gold Ornaments at market value Rs. 6.35 lakh

10.Car at market value Rs. 2.60 lakh

11.300 Gold ETF units purchased on 17th Oct 2006 @ 983 per unit

12.National Saving Certificates invested amount Rs. 4 lakh

13.Money back insurance plan of 20 year term with sum assured of Rs. 5 Lakh2

14.Unit linked insurance plan of 10 years with sum assured of Rs. 5 lakh3

____________________

1.Keshav and Deepti had jointly taken a housing loan of Rs. 30 Lakh to purchase the house costing Rs. 37.50 Lakh on 1st April 2003. The pay an EMI of Rs. 16,349 each, EMI date being last day of the month. The loan is for 15 years at a fixed rate of interest of 10.25%p.a.

2.Annual premium of Rs. 23,750. Paid 16 annual premiums till date before due date. The policy provides 25% of basic sum assured to insured as survival benefit after 5th, 10th, 15thyears from the start of the policy.

3.Annual premium of Rs. 35,000 p.a.

Liabilities

Housing loan outstanding: Rs. 21.36 Lakh

Goals & Aspirations:-

1.Plan for Navneet’s medical education expenses which is likely to be Rs. 3.50 lakh at theend of one year from now and increasing thereafter at 8%p.a. during the next 4years.

2.Plan for Yogita’s goal of Post-Graduation degree from abroad which is likely to cost Rs. 10 lakh in present terms required after three years.

3.Create a separate fund to provide every year post-retirement till his lifetime, vacation expenses amounting to Rs. 50,000 in current terms, such expenses increasing at the rate of 7% p.a.

4.To accumulate funds for marriage of Navneet and Yogita. For Navneet they will require in present terms Rs. 10 lakh when he attains 26 years and for Yogita he would require Rs. 15 lakh when she attains 25 years.

5.Build a retirement corpus for expenses in his post-retirement period at 75% of pre-retirement expenses at the retirement age of 60 years

Life Expectancy

Keshav: 80 years

Deepti: 78 years

Assumptions regarding long-term pre-tax returns on various asset classes:

1.Equity & Equity MF schemes/ Index ETFs11.00% p.a.

2.Balanced MF schemes9.00% p.a.

3.Bonds/Govt. Securities/Debt MF schemes7.00% p.a.

4.Liquid MF schemes5.50% p.a.

5.Gold & Gold ETF7.50% p.a.

Assumptions regarding economic factors:

1.Inflation: 5.50% p.a.

2.Expected return in Risk free instruments: 6.50% p.a.

3.Real Estate appreciation: 8.00% p.a

Cost Inflation Index

Full Access
Question # 112

Section A (1 Mark)

_____________ is the transfer of the balance of an existing home loan that you availed at a higher rate of interest (ROI) to either the same HFC or another HFC at the current ROI a lower rate of interest.

A.

Refinance Loans

B.

Balance Transfer Loans

C.

Home Conversion Loans

D.

Home Extension Loans

Full Access
Question # 113

Section A (1 Mark)

The first step of portfolio management is:

A.

To assess market conditions.

B.

To determine objectives, constraints and preferences.

C.

To develop strategies and implement them.

D.

To adjust the portfolio as necessary.

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Question # 114

Section B (2 Mark)

How much total interest is paid between the 5th and 11th payments inclusive on a loan that has monthly payments for 2 years and an original principal of Rs47 500? The loan rate is 6.6% compounded quarterly.

A.

Rs. 1311.87

B.

Rs. 1156.18

C.

Rs. 13 509.39

D.

Rs. 1093.02

Full Access
Question # 115

Section A (1 Mark)

A bank is considering making a loan to Jitesh Desai. Jitesh is a commissioned sales broker. Some months he earns as much as Rs 1,00,000 and in other months he earns virtually nothing. Which aspect of evaluating a consumer loan would this be concerned with?

A.

Character and purpose

B.

Income level

C.

Deposit balance

D.

Employment and residential stability

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Question # 116

Section B (2 Mark)

Resident but not ordinary resident (RNOR) is ____________ on Indian Income and ___________ on Foreign Income.

A.

Taxable and Non Taxable

B.

Non Taxable and Taxable

C.

Taxable and Taxable

D.

Non Taxable and Non taxable

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Question # 117

Section B (2 Mark)

If a portfolio manager has a good ability to select undervalued securities but a poor ability to forecast overall market, the following makes sense for him:

A.

Concentrate holdings in selected undervalued stocks and shift beta below and above the desired long-term average based on market forecasts

B.

Hold a broadly diversified portfolio of stocks and keep beta stable at the desired long-term average

C.

Concentrate holdings in selected undervalued stocks and keep beta stable at the desired long-term average

D.

Hold a diversified portfolio of stocks and shift beta above and below desired long-term average based on market forecasts

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Question # 118

Section C (4 Mark)

The probability distribution of the rate of return on ABC stock is given below:

What is the standard deviation of return?

A.

11.40%

B.

12.90%

C.

10.50%

D.

13.50%

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Question # 119

Section C (4 Mark)

Pacific Asia reported net income of Rs770 million in 1993, after interest expenses of Rs320 million. (The corporate tax rate was 36%.) It reported depreciation of Rs960 million in that year, and capital spending was Rs1.2 billion. The firm also had Rs4 billion in debt outstanding on the books, rated AA (carrying a yield to maturity of 8%), trading at par (up from Rs3.8 billion at the end of 1992). The beta of the stock is 1.05, and there were 200 million shares outstanding (trading at Rs60 per share), with a book value of Rs5 billion. Pacific Asia paid 40% of its earnings as dividends and working capital requirements are negligible. (The Risk Free rate is 7%.)

Estimate the free cash flow to the firm in 1993.

A.

Rs785.45

B.

Rs 734.80

C.

Rs 689.20

D.

Rs 161.75

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Question # 120

Section A (1 Mark)

Limited growth prospects are indicated by

A.

High dividend

B.

High P/E ratio

C.

Low dividend

D.

High dividend and low P/E ratio

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Question # 121

Section B (2 Mark)

The expected market return 16 percent. The risk-free rate of return is 7 percent, and AB Co. has a beta of 1.1. The risk premium is

A.

7 percent.

B.

9.9 percent.

C.

9 percent.

D.

10.3 percent

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Question # 122

Section A (1 Mark)

Following is not a head of income

A.

Income from interest on securities

B.

Capital Gains

C.

Income from House Property

D.

Salaries

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Question # 123

Section A (1 Mark)

Which of the following is an investment analysis approach to determine real estate values?

A.

The cost approach

B.

The net present value approach

C.

The comparative sales approach

D.

The income approach

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Question # 124

Section C (4 Mark)

J&M had a return on equity of 31.5% in 1993, and paid out 37% of its earnings as dividends. The stock had a beta of 1.25. (The treasury bill rate is 6%.) The extraordinary growth is expected to last for ten years, after which the growth rate is expected to drop to 6% and the return on equity to 15% (the beta will move to 1).

Assuming the return on equity and dividend payout ratio continue at current levels for the high growth period, estimate the P/BV ratio for J&M.

A.

7.54

B.

4.8

C.

5.57

D.

6.52

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Question # 125

Section A (1 Mark)

Which of the following statement is correct?

A.

The doctrine of adhesion states that you can bargain or ask insurer to change the terms of the insurance contract as per your needs.

B.

While applying for life insurance, it becomes your duty to disclose your past illnesses to the insurer, according principle of utmost good faith

C.

While applying for life insurance, it becomes your duty to disclose your past illnesses to the insurer, according principle of insurable interest

D.

While applying for life insurance, it becomes your duty to disclose your past illnesses to the insurer, according principle of subrogation

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Question # 126

Section C (4 Mark)

Blair Company has Rs5 million in total assets. The company’s assets are financed with Rs1 million of debt, and Rs4 million of common equity. The company’s income statement is summarized below:

The company wants to increase its assets by Rs1 million, and it plans to finance this increase by issuing Rs1 million in new debt. This action will double the company’s interest expense, but its operating income will remain at 20 percent of its total assets, and its average tax rate will remain at 40 percent. If the company takes this action, which of the following will occur?

A.

The company’s net income will increase.

B.

The company’s return on assets will fall.

C.

The company’s return on equity will remain the same.

D.

Statements a and b are correct.

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Question # 127

Section A (1 Mark)

Company J and Company K each recently reported the same earnings per share (EPS). Company J’s stock, however, trades at a higher price. Which of the following statements is most correct?

A.

Company J must have a higher P/E ratio.

B.

Company J must have a higher market to book ratio.

C.

Company J must be riskier.

D.

Company J must have fewer growth opportunities.

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Question # 128

Section C (4 Mark)

Mudra Financial is a large financial firm which owns several mutual funds. The funds are managed individually by portfolio managers but it has an investment committee that overseas all of the funds. This committee is responsible for evaluating the performance of the funds relative to the appropriate benchmark and relative to stated investment objectives of each individual fund. During a recent investment committee meeting, the poor performance of Its Equity Funds were discussed. In particular, the inability of the portfolio managers to outperform their benchmarks was highlighted. The net conclusion of the committee was to review the performance of the manager responsible for each fund and dismiss those managers whose performance had lagged substantially behind the appropriate benchmark.

The fund with the worst relative performance is the Mudra Large Cap Fund which invests in large cap stocks. A review of the operations of the fund found the following:

• The turnover of the fund was almost double that of other similar style mutual funds

• The fund’s portfolio manager solicited input from her entire staff prior to making any decision to sell an existing holding

• The beta of the Mudra Large Cap Fund’s portfolio was 65% higher than the beta of other similar style mutual funds

• The portfolio manager refuses to increase the Capital Goods sector weighting because of past losses the fund incurred in the sector

• The portfolio manager sold all the fund’s Oil Marketing Companies stocks as the price per barrel of oil rose above $105. He expects oil prices to fall back to the $80 to $85 per barrel

• No stock is considered for purchase in the Large Cap Fund unless the portfolio manager has 10 years of financial information on that company.

The underweighting of the Capital Goods sector and selling off Oil Marketing Stocks could be best described as an example of:

A.

Conservatism and Regret Minimization respectively

B.

Regret Minimization and Gambler Fallacy respectively

C.

Loss Aversion and Representativeness respectively

D.

Anchoring & Adjustment and Money Illusion respectively

Full Access
Question # 129

Section A (1 Mark)

The disposition effect relates to the fact that:

A.

Investors tend to overconfident regarding potential stock prices.

B.

Investors often experience regrets about trading decisions.

C.

Investors are more likely to sell winners than losers.

D.

Investors tend to dispose of stocks at the end of the year.

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Question # 130

Section C (4 Mark)

Read the senario and answer to the question.

Assume Neeraj bought a second hand car in June 2007. Since the insurance premium was due, Neeraj paid it in the old owner’s name.Neeraj didn’t receive the original policy despite repeated requests. The car later met with an accident causing damages worth Rs. 10000. Neeraj had not transferred the car in his name, as Neeraj did not have the original documents. Can the insurer reject his claim?

A.

Claim will be entertained only to the amount of the insurance premium paid.

B.

The claim will be entertained after Neeraj convert the vehicle in his name

C.

The insurance company is well within its right not accepting the claim from Neeraj

D.

No, as Neeraj has paid the insurance premium

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Question # 131

Section A (1 Mark)

The legal heir of the deceased who receives family pension is allowed a standard deduction from such family pension received to the extent of:

A.

1/3rd of such pension subject to maximum of Rs. 20,000

B.

1/3rd of such pension or Rs. 15,000 whichever is less

C.

1/3rd of such pension or Rs. 12,000 whichever is less

D.

1/3rd of such pension or Rs. 12,500 whichever is less

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Question # 132

Section B (2 Mark)

A project should be considered if the Profitability Index is

A.

Less than 1

B.

More than 1

C.

More than to 0.5

D.

None of the above

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Question # 133

Section C (4 Mark)

Read the senario and answer to the question.

Harish wants to go abroad on a family vacation tour in January next year. A tour operator is offering him a package in which he has to pay only Rs. 20,000 on 1st January, 2011 which is 10% upfront amount, while the remaining amount is to be repaid in 36 EMIs of Rs. 7,500 each, first EMI payable on 1st February, 2011. Harish wants to know the annual effective rate of interest which he may incur in subscribing to this offer.

A.

24.10% p.a.

B.

27.00% p.a.

C.

32.61% p.a.

D.

28.56% p.a.

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Question # 134

Section A (1 Mark)

Under which of the following categories of General Warranty Deed does the buyer is guaranteed that the title will be good against third parties attempting to establish title to the property?

A.

Covenant of seisin

B.

Covenant against encumbrances

C.

Covenant of quiet enjoyment

D.

Covenant of further assurance

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Question # 135

Section A (1 Mark)

Ideally, clients would like to invest with the portfolio manager who has

A.

A moderate personal risk-aversion coefficient.

B.

A low personal risk-aversion coefficient.

C.

The highest Sharpe measure.

D.

The highest record of realized returns.

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Question # 136

Section A (1 Mark)

Loss of a closely held company cannot be carried and set off unless on the last day of the previous year in which the loss was incurred and as on the last day of the previous year in which such loss is set off, at least:

A.

51% of shares are beneficially held by the same persons

B.

50% of the shares are beneficially held by the same persons

C.

49% of the shares are beneficially held by the same persons

D.

60% of the shares are beneficially held by the same persons

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Question # 137

Section B (2 Mark)

Which of the following is a reasonable assumption to make about the understanding of a client on the Wealth planning Process?

A.

Client would have identified a desirable asset allocation

B.

Client would have some prior understanding of the assumptions on which the wealth plan is made

C.

Client would understand the financial products being recommended

D.

Client would be able to identify his financial goals

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Question # 138

Section B (2 Mark)

Nomination in gratuity can be done in favor of

A.

Anybody by the employee

B.

Anybody by the employee, if he does not have a family

C.

Only his family members

D.

2&3 both

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Question # 139

Section B (2 Mark)

Retiring early will ____________ the accumulation phase while ____________ the retirement phase

A.

Longer, shorter

B.

Shorter, longer

C.

Longer, longer

D.

Shorter, shorter

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Question # 140

Section B (2 Mark)

Which of the following statements is/are true?

A.

I, II and III

B.

I,II and IV

C.

I, III and IV

D.

II,III and IV

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Question # 141

Section A (1 Mark)

Judgement rating is used in case of

A.

Life Insurance

B.

Health Insurance

C.

Fire Insurance

D.

Ocean Marine Insurance

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Question # 142

Section A (1 Mark)

A bank is considering making a loan to Sumit Nayyar. Mr. Sumit has Rs 1,00,000 in the bank right now but generally keeps a balance of Rs 4,50,000 most of the year. What aspect of evaluating a consumer loan application is this fact concerned with?

A.

Character and purpose

B.

Income level

C.

Deposit balance

D.

Employment and residential stability

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Question # 143

Section B (2 Mark)

Gold trades at Rs.16000 per 10 gms in the spot market. Three-month gold futures trade at Rs.16150. One unit of trading is 1kg and the delivery unit for the gold futures contract on the NCDEX is 1 kg. A speculator who expects gold prices to rise in the near future buys 1 unit of gold futures. Two months later gold futures trade at Rs.15900 per 10 gms. He makes a profit/loss of ______________.

A.

(+)2500

B.

(+)25,000

C.

(-)2500

D.

(-)25,000

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Question # 144

Section A (1 Mark)

Deduction under section 80RRB is allowed to the extent of:

A.

50% of royalty or Rs. 3,00,000 whichever is less

B.

100% of royalty or Rs. 3,00,000 whichever is less

C.

100% of royalty or Rs. 2,00,000 whichever is less

D.

100% royalty or Rs. 5,00,000 whichever is less

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Question # 145

Section A (1 Mark)

The CDO structures which are used by asset management companies, insurance companies and other investment shops with the intent of exploiting a mismatch between the yield of underlying securities and lower cost of servicing the CDO structures are called___________.

A.

Market Value Arbitrage CDOs

B.

Synthetic Arbitrage CDOs

C.

Cash Flow Arbritrage CDOs

D.

Synthetic Balance Sheet CDOs

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Question # 146

Section C (4 Mark)

The Puri’s family includes a financially well-informed couple, both aged 34, and two children aged 4 and 6. They are financially sound, but were not in the market during the Indian Bull market of the 2003 to 2007 as many of their neighbors were. The couple’s total income, Rs. 12,00,000, which they do not expect to grow significantly in times to come

They have saved 15,00,000, which they hope will be the financial foundation from which they will send their children to college and retire comfortably.

Which of the following biases does the Puri Family suffer from:?

A.

I,II,III and IV

B.

I,III and V

C.

II,IV and V

D.

III and IV

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Question # 147

Section B (2 Mark)

If an investor determines that next year’s earnings estimate is Rs2.00 per share and the company subsequently falters, the investor may not readjust the Rs2.00 figure enough to reflect the change because he or she is “anchored” to the Rs2.00 figure. This is not limited to downside adjustments—the same phenomenon occurs when companies have upside surprises

Which of the following Biases have been exhibited by the investor?

A.

Representative bias

B.

Anchoring and Adjustment Bias

C.

Framing bias

D.

Loss Aversion bias

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Question # 148

Section B (2 Mark)

The _________ is a plot of __________.

A.

CML , individual stocks and efficient portfolios

B.

CML and both efficient and inefficient portfolios, only

C.

SML and individual securities and efficient portfolios

D.

SML and individual securities, inefficient portfolios, and efficient portfolios.

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Question # 149

Section C (4 Mark)

To create a common size income statement ____________ all items on the income statement by ____________.

A.

multiply; net income

B.

multiply; total revenue

C.

divide; net income

D.

divide; total revenue

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Question # 150

Section C (4 Mark)

Consider the following information for three mutual funds

Risk free return is 6%. Calculate Treynor measure.

A.

3.45, 7.78, 4.38

B.

7.27, 6.67, 9.17

C.

2.59, 8.68, 6.63

D.

5.65, 8.88, 9.36

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Question # 151

Section A (1 Mark)

Assessing client’s level of risk tolerance is done while

A.

Making a wealth plan

B.

Reviewing a wealth plan

C.

Both of above

D.

None of the above

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Question # 152

Section A (1 Mark)

Current ratio is

A.

Current Cash / Current liabilities

B.

Current Assets / Current liabilities

C.

Current Liabilities / Current assets

D.

None of the above

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Question # 153

Section A (1 Mark)

Manav saves Rs. 20,000/- a year for 5 years and Rs. 30,000/- a year for 10 years thereafter. What will be the total amount in his account after 15 years, if ROI is 10 % per annum?

A.

784823.87

B.

694823.87

C.

894823.87

D.

794823.87

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Question # 154

Section A (1 Mark)

A bank is considering making a loan to Ram Kapoor. Ram has a gross salary per month of Rs40500 but has take-home pay of Rs27500 per month. What aspect of evaluating a consumer loan application is this fact most concerned with?

A.

Character and purpose

B.

Income level

C.

Deposit balance

D.

Pyramiding of debt

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Question # 155

Section A (1 Mark)

A forward contract differs from a futures contract in that:

A.

A forward contract is for a shorter period of time.

B.

A forward contract does not specify the selling price.

C.

A forward contract does specify the selling price.

D.

A forward contract is non-binding.

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Question # 156

Section A (1 Mark)

Which of the following statements about Real Estate Investment Trusts is/are true?

A.

REITs invest in real estate or loans secured by real estate.

B.

REITs raise capital by borrowing from banks and issuing mortgages.

C.

REITs are similar to open-end funds, with shares redeemable at NAV.

D.

Both A and B are true.

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Question # 157

Section C (4 Mark)

Read the senario and answer to the question.

Mrs. Deepika’s brother is impressed with Manav 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 learned that the company plans to expand its clothing lines. The prevailing price of its share is 70 per share. Manav Fashion Ltd. has had recent annual earnings of Rs. 5 per share. Only three other companies have very similar business to Manav Fashion Ltd. and have stock that is traded and there PE ratios are as follows:

Her brother asked Mrs. Deepika to guide him in investing the Manav Fashion Ltd. Getting the query from her brother Mrs. Deepika asks your advice on this matter. As a Chartered Wealth Manager what will be your advice?

A.

Invest in shares of Manav Fashion Ltd.

B.

Not to invest in shares of Manav Fashion Ltd

C.

Manav Fashion Ltd’s share valuation is less than prevailing price, so it is an option not to miss.

D.

Manav Fashion Ltd’s share valuation is less than prevailing price, so it is an option not to be availed.

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Question # 158

Section B (2 Mark)

A taxpayer has taxable income for 2011-12 (after deducting the personal allowance) of £185,300. None of the income is derived from savings or dividends. The income tax liability for the year is:

A.

£92,650

B.

£74,120

C.

£70,650

D.

£37,060

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Question # 159

Section C (4 Mark)

Phoenix Ltd has Rs 50,00,000 in total assets. The company’s assets are financed with Rs 10,00,000 of debt, and Rs 40,00,000 million of common equity. The company’s income statement is summarized below:

The company wants to increase its assets by Rs 10, 00,000, and it plans to finance this increase by issuing Rs 10, 00,000 in new debt. This action will double the company’s interest expense, but its operating income will remain at 20 percent of its total assets, and its average tax rate will remain at 40 percent. If the company takes this action, which of the following will occur:

A.

The company’s net income will increase.

B.

The company’s return on assets will fall.

C.

The company’s return on equity will remain the same.

D.

A and B will occur

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Question # 160

Section B (2 Mark)

The ____________ provides an unequivocal statement on the expected return-beta relationship for all assets, whereas the _____________ implies that this relationship holds for all but perhaps a small number of securities.

A.

APT, CAPM

B.

APT, OPM

C.

CAPM, APT

D.

CAPM, OPM

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Question # 161

Section A (1 Mark)

Wealth Enhancement is _____________

A.

Ways to maximize tax efficiency of current assets and cash flows while achieving capital growth and preservation goals

B.

Using insurance to ensure wealth is protected

C.

Legally structuring the future disposition of current assets to minimize the benefits to chosen beneficiaries

D.

None of the above

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Question # 162

Section B (2 Mark)

You are given the following set of data on security ABC:

Calculate the expected return on security ABC?

A.

0.12

B.

0.15

C.

0.13

D.

0.14

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Question # 163

Section C (4 Mark)

Shekhar has an investment portfolio of Rs.100000; the initial portfolio mix is Rs. 50000 in stocks, Rs.30000 bonds and Rs.20000 in bank. If stock market goes up by 10%, what should Shekhar do under the constant mix policy?

A.

He should sell Rs.5000 of stocks and bonds each and invest it into bonds

B.

He should sell Rs.2500 of stock and buy bonds worth Rs.1500 and Deposit Rs.1000 in bank.

C.

He should buy his portfolio equally

D.

He should sell his portfolio equally

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Question # 164

Section C (4 Mark)

Mr. XYZ buys a Nifty Call with a Strike price Rs. 4100 at a premium of Rs. 170.45 and he sells a Nifty Call option with a strike price Rs. 4400 at a premium of Rs. 35.40.

What would be the Net Payoff of the Strategy?

• if Nifty closes at 4200

• if Nifty closes at 5447

A.

145.95 and -75.05

B.

-35.05 and 164.95

C.

145.85 and -65.50

D.

25.05 and 154.25

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Question # 165

Section A (1 Mark)

Individuals define risk as:

A.

Deviation from some expected return.

B.

A cost of investing.

C.

A quantitative measure.

D.

“Losing money.”

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Question # 166

Section C (4 Mark)

What amount needs to be deposited today in an account that would pay Rs. 1,10,000 per year for the first 10 years and Rs. 2,25,000 for the next 5 years. If the ROI for the first 10 years if 10.75 % p.a. compounded annually and 13% p.a. compounded quarterly for the balance period?

A.

779030

B.

912336

C.

935282

D.

995282

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Question # 167

Section A (1 Mark)

______________are bonds issued by governments that pledge their "full faith and credit," including tax revenues, to repayment in US.

A.

General Obligation Bonds

B.

General Revenue Bonds

C.

Revenue Bonds

D.

Expenditure Bonds

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Question # 168

Section A (1 Mark)

Decision horizon is __________

A.

Length of time between decisions to revise the portfolio

B.

Length of time between decisions to redeem the portfolio

C.

Minimum time interval over which investors can revise the portfolio

D.

None of the above

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Question # 169

Section A (1 Mark)

In US Over one-half the money spent by state and local governments goes to just three services. Which of the following is not one of these services?

A.

Public Education

B.

Public Welfare

C.

Health Care

D.

Parks and Recreation

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Question # 170

Section C (4 Mark)

Pinnacle India Ltd, reported a net profit of Rs1.085 billion on sales of Rs7.425 billion in 1993. The sales/book value ratio in 1993 was approximately 1.2, and the dividend payout ratio was 20%. The book value per share was Rs19 in 1993. The firm is expected to maintain high growth for ten years, after which the growth is expected to drop to 6%, and the dividend payout ratio is expected to increase to 65%. The beta of the stock is 1.05. (The treasury bill rate is 7%.)

Estimate the price/sales ratio for the company.

A.

42.57

B.

44.93

C.

35.15

D.

45.5

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Question # 171

Section A (1 Mark)

Which of the following comes at the high end of product margin in the value added pyramid of wealth management?

A.

Cash management

B.

Concierge

C.

Bespoke structured products

D.

Fund of funds selection

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Question # 172

Section A (1 Mark)

Mr. X, partner of M/s XYZ, is assessable as

A.

An individual

B.

Firm

C.

HUF

D.

Body of Individual

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Question # 173

Section C (4 Mark)

Which of the following application of Options Strategy is correct?

A.

I, II and III

B.

IV and V

C.

II, IV and V

D.

All of the Above

Full Access
Question # 174

Section A (1 Mark)

CRM is considered as a:

A.

A technology

B.

A strategy

C.

A strategy and technology

D.

Customer rental management

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Question # 175

Section B (2 Mark)

Calculate Gross Annual Value where Gross Municipal Value is Rs.120, Fair Rent is Rs.105. Actual rent receivable is Rs.100& Standard Rent is Rs.125

A.

Rs.120

B.

Rs.100

C.

Rs.105

D.

Rs.125

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Question # 176

Section A (1 Mark)

Monitoring and rebalancing a portfolio over time involves all of the following costs EXCEPT

A.

Commissions.

B.

Possible impact on market price.

C.

Holding a portfolio that is no longer adequately diversified.

D.

Time involved in decision making.

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Question # 177

Section A (1 Mark)

A document which is used to hand over the legal powers to sign on legal documents pertaining to the property to someone other than the owner is called_____________

A.

Lease / Tenancy Agreement

B.

Will

C.

Power of attorney

D.

Family Settlement

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Question # 178

Section B (2 Mark)

You write one XYZ February 50 put for a premium of Rs5. Ignoring transactions costs, what is the breakeven price of this position?

A.

Rs. 50

B.

Rs. 55

C.

Rs. 45

D.

Rs. 40

Full Access
Question # 179

Section B (2 Mark)

Select the CORRECT statement regarding basis risk associated with futures.

A.

Basis risk can be completely eliminated.

B.

Although the basis fluctuates over time, it can be precisely predicted.

C.

The basis must be zero on the maturity date of the contract.

D.

A hedge will reduce risk as long as basis fluctuations are positive.

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Question # 180

Section A (1 Mark)

A review of portfolio should be done when

A.

One witnesses a change in micro level factors

B.

One witnesses a change in macro level factors

C.

One witnesses new products floating in the market

D.

All of the above

Full Access
Question # 181

Section A (1 Mark)

Which of the following types of income is received by individuals without deduction of basic rate tax?

A.

Loan interest paid by UK companies

B.

Building society interest

C.

Patent royalties

D.

Bank interest received on a National Savings bank account

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Question # 182

Section B (2 Mark)

Calculate the NOI for an office building with the following information:

A.

Rs. 1,73,500

B.

Rs. 1, 91,000

C.

Rs. 1,93,500

D.

Rs. 2,11,000

Full Access
Question # 183

Section A (1 Mark)

General Insurance business was established in India in

A.

1818

B.

1938

C.

1912

D.

1850

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Question # 184

Section A (1 Mark)

EMH frequently include, among others, assumptions such as:

A.

I and II

B.

II and III

C.

I and III

D.

All of the Above

Full Access
Question # 185

Section B (2 Mark)

As per Article 11 double Taxation Avoidance Agreement with US Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.However, such interest may also be taxed in the Contracting State in which it arises, and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed:

(a) ____per cent of the gross amount of the interest if such interest is paid on a loan granted by a bank carrying on a bona fide banking business or by a similar financial institution (including an insurance company); and

(b) _____ per cent of the gross amount of the interest in all other cases.

A.

10 and 15

B.

15 and 20

C.

20 and 15

D.

12 and 15

Full Access
Question # 186

Section A (1 Mark)

Which of the following factors have proven most important in credit scoring models?

A.

Credit Bureau ratings

B.

Income bracket

C.

Number of loans the customer has had

D.

A and B only

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Question # 187

Section A (1 Mark)

These instruments rest on pools of credit derivatives that mainly insure against defaults on corporate bonds. The creators of these instruments do not have to buy and pool actual bonds but can create these instruments and generate revenues from selling and trading in them.

A.

Synthetic CDOs

B.

Balance Sheet CDO

C.

Credit Enhancements

D.

Stand line of credit

Full Access
Question # 188

Section A (1 Mark)

Passive Preserver follows a ___________ Investment Style

A.

Conservative

B.

Aggressive

C.

Moderate

D.

Risk Averse

Full Access