AS 05 (iv) - Finance and Investment Mock Test 05
This section covers key concepts in finance, investments, and mutual funds, including professional associations, probability distributions, Public Provident Fund (PPF), risk-return trade-off, bond pricing, venture capital, asset allocation, and mutual fund offer documents. It explains the role of professional bodies in representing members, the use of probability in investment decisions, tax-free benefits of PPF, the relationship between risk and expected return, the inverse relationship between bond prices and interest rates, venture capital as an alternative asset class, diversification through asset allocation, and mandatory disclosures in mutual fund offer documents. These concepts support informed financial planning and sound investment decisions.
1. What is a Professional Association?
A. A company that provides professional services to clients
B. An organization formed to protect and preserve the common interests of the professionals they represent
C. A co-operative enterprise run by professionals
D. A government body that regulates professional activities
E. A limited liability partnership formed by professionals
2. A set of possible values that a random variable can assume and their associated probabilities of occurrence are referred to as:
A. The expected return
B. The standard deviation
C. Probability distribution
D. Coefficient of variation
E. Probability risk
3. Interest on a PPF account is:
A. Paid monthly
B. Calculated on the minimum balance from the 5th to the end of each month, compounded annually, and completely exempt from Income Tax
C. Subject to TDS deduction
D. Calculated only at the time of maturity
E. Paid quarterly and subject to Income Tax
4. Which of the following are examples of professional associations mentioned in the chapter?
A. Confederation of Indian Industries (CII), FICCI, ASSOCHAM
B. Indian Medical Association, Bar Council, Association of Financial Planners
C. NSE, BSE, SEBI
D. IRDA, AMFI, SEBI
E. SBI, HDFC Bank, ICICI Bank
5. The 'risk-return trade-off' in need analysis refers to:
A. The idea that higher risk always leads to guaranteed higher returns
B. The analysis of expected returns from various asset classes and the associated risk levels to achieve those returns
C. The trade-off between tax efficiency and return maximization
D. The choice between domestic and international investments
E. The difference between nominal and real returns
6. How does the bond price relate to changes in interest rates?
A. Bond prices move in the same direction as interest rates
B. Bond prices are not affected by interest rate changes
C. Bond prices move in the opposite direction to interest rates (inverse relationship)
D. Bond prices move randomly with interest rate changes
E. Bond prices are fixed regardless of interest rate changes
7. What is the role of 'Venture Capital' as an asset class?
A. It is among the most liquid and least risky asset classes
B. It is classified as "Other" beyond the three main asset classes (Cash, Bonds, Stocks) and typically involves higher risk and potential returns
C. It represents investment in government-backed bonds
D. It is identical in risk profile to money market instruments
E. It is available only through stock exchanges
8. An investor purchases a 6% coupon bond at par value. Market interest rates then rise to 6.5%. The bond's price will:
A. Remain at par value since the coupon rate didn't change
B. Rise above par value
C. Fall below par value since the coupon rate (6%) is lower than the new required yield (6.5%)
D. Double in price
E. Become negative
9. Asset allocation diversification aims to:
A. Maximize returns at all costs
B. Reduce market risk by switching money into less risky investments such as government bonds
C. Concentrate all funds in equities
D. Eliminate all forms of risk
E. Invest only in real estate
10. Which of the following is a Mandatory Disclosure required on the cover page of a Mutual Fund Offer Document (OD)?
A. Details of all past investments made by the fund
B. Name of the mutual fund, name of the scheme, type of scheme, name of AMC, classes of units offered, price of units plus applicable load, name of guarantor (if assured returns), opening/closing date of offer, mandatory statements
C. The complete list of portfolio holdings
D. The entire fee and expense structure
E. The names of all trustees and directors of the AMC
