AS 05 (iv) - Finance and Investment Mock Test 04
This section covers taxation, business organizations, investment analysis, government securities, commodity derivatives, gold investments, options trading, risk management, portfolio performance evaluation, and partnership firms. It explains the tax treatment of short-term capital gains on house property, common legal forms of businesses, the characteristic line in portfolio analysis, SLR securities, the role of hedgers in commodity markets, factors to consider when buying gold from banks, option lot size, differences between hedging and insurance, systematic risk-based performance measures, and liabilities in partnerships. These concepts help investors and business professionals understand taxation, financial markets, risk management, and organizational structures.
1. How is Short Term Capital Gain (STCG) on transfer of house property taxed?
A. At a flat rate of 10%
B. At 15%
C. At 20%
D. STCG is added to income from other sources, and the taxpayer pays tax at the rate applicable to him/her (as per income tax slab)
E. At a fixed rate of 30%
2. In most parts of the world, how many main types of legal forms are used predominantly to run business organizations?
A. Two
B. Three
C. Four
D. Five
E. Six
3. The characteristic line for Stock A, given Alpha = 6.54% and Beta = 0.384, is expressed as:
A. RA = 0.384 + 6.54 RM
B. RA = 6.54 + 0.384 RM
C. RA = 6.54 - 0.384 RM
D. RA = 0.384 RM - 6.54
E. RA = 6.54 / 0.384
4. Which of the following securities is classified as an SLR (Statutory Liquidity Ratio) security in India?
A. Corporate Bonds
B. Certificate of Deposits
C. Commercial Paper
D. Government Securities (G-Secs)
E. Inter-corporate Deposits
5. Who are 'HEDGERS' in commodity derivatives markets?
A. Traders who speculate on commodity price movements
B. Participants interested in transferring risk associated with transacting or carrying the underlying physical asset; hedging is the most common method of price risk management by taking an equal and opposite position in the futures market
C. Banks that lend money for commodity purchases
D. Government agencies that regulate commodity prices
E. Companies that only manufacture commodities
6. When buying gold bars from BANKS (as opposed to jewellers), what should investors be aware of?
A. Banks never sell gold bars
B. Banks that sell gold bars charge a premium for providing a certificate of purity; investors should understand the associated terms before purchasing
C. Banks provide gold at below-market prices
D. Banks offer guaranteed buyback at the original price
E. Banks give a 10% discount on gold bars
7. What is 'Lot Size' in options trading?
A. The minimum amount of option premium required to open a position
B. The number of underlying assets represented by one option contract; for NIFTY, 1 lot = 50 contracts
C. The minimum number of options that must be bought or sold in a single transaction
D. The percentage of the option's value that must be kept as margin
E. The maximum number of option contracts that can be held by one investor
8. According to the chapter, what is the difference between 'hedging' and 'insurance' as methods of risk management?
A. Both hedging and insurance are equally precise and reliable
B. Insurance is generally more precise in compensating losses (subject to policy terms), whereas hedging reduces risk but may not perfectly offset losses
C. Hedging is more precise because it uses mathematical models
D. Insurance only covers physical assets while hedging covers financial assets
E. There is no meaningful difference between hedging and insurance
9. Which performance measures use systematic risk and are suitable for large institutional investors?
A. Sharpe Measure and Fama Model
B. Treynor Measure and Jensen Model
C. Only Treynor Measure
D. Only Jensen Model
E. Both Sharpe and Jensen Models
10. What is the SECOND serious drawback of a partnership?
A. Partners cannot have limited liability
B. If a partner goes bankrupt in a personal capacity, their share of the partnership may be claimed by creditors, potentially creating financial difficulties for the remaining partners
C. Partnerships cannot register under any Act
D. Partners cannot withdraw money from the business
E. Partnerships must have a minimum of 10 partners
