AS 05 (iv) - Finance and Investment Mock Test 10
This section covers key concepts in real estate, mutual fund performance, risk management, capital markets, taxation, insurance, investment returns, derivatives, stock exchanges, and debt portfolio management. It explains the benefits of real estate for capital appreciation, the Treynor Measure for evaluating portfolio performance, liquidity risk, the role of the primary market in issuing securities, tax benefits under Section 54 of the Income Tax Act, flexibility offered by ULIPs, the meaning of Compound Annual Growth Rate (CAGR), the similarity between put options and insurance, stock exchange membership, and investment restrictions for debt mutual funds. These concepts help investors make informed financial and investment decisions.
1. According to the chapter, what is a key ADVANTAGE of investing in real estate for CAPITAL APPRECIATION?
A. Real estate always appreciates faster than stocks
B. If your objective is capital appreciation, then buying a promising property in a promising neighbourhood can help achieve this, as real estate values tend to increase over time in desirable locations
C. Capital appreciation is guaranteed in all real estate
D. Capital appreciation only occurs during economic booms
E. Capital appreciation is only for commercial real estate
2. What is the 'Treynor Measure' for evaluating mutual fund performance?
A. A measure of absolute return ignoring risk
B. A relative measure of risk-adjusted portfolio performance based on systematic risk (Beta); formula: Ti = (Ri − Rf) / Bi; higher values indicate better performance
C. A measure of total return including dividends
D. The ratio of portfolio return to total assets
E. A measure of fund size relative to its benchmark
3. Liquidity Risk arises from:
A. Changes in interest rates
B. Changes in government policy
C. Difficulty in selling an asset
D. Currency fluctuations
E. Credit rating changes
4. The initial offering of stocks and bonds to investors is done by definition in the:
A. Secondary Market
B. Primary Market – subsequent trading takes place in the secondary market
C. Money Market
D. Forex Market
E. Derivatives Market
5. What is the purpose of Section 54 of the Income Tax Act for real estate investors?
A. To provide loans for first-time home buyers
B. To exempt capital gains arising from the sale of a residential house property if the gains are reinvested in purchasing or constructing another residential property, subject to specified conditions
C. To exempt rental income from taxation
D. To reduce stamp duty on property transactions
E. To provide a tax deduction on home loan interest
6. What is the role of 'FLEXIBILITY' in ULIP policies regarding premium payment?
A. Premium must be paid monthly without exception
B. The premium-paying period is flexible depending on the policyholder's paying capacity; regular premium ULIPs allow variation in insurance coverage and temporary suspension of premium payments without terminating the policy
C. Premium must be paid annually in advance
D. Premium cannot be changed once fixed
E. Flexibility applies only to investment allocation, not premium payments
7. What does CAGR stand for?
A. Capital Adjusted Growth Rate
B. Compound Annual Growth Rate
C. Currency Adjusted Growth Return
D. Compounded Aggregate Gain Rate
E. Capital Asset Growth Ratio
8. What is the relationship between a 'put option' and 'insurance' as described in the chapter?
A. Put options are more expensive than insurance
B. A put option gives the holder the right to sell at a fixed price, providing downside protection similar to insurance; the premium paid is comparable to an insurance premium
C. Insurance always has unlimited coverage while put options are limited
D. A put option guarantees a minimum return while insurance covers only total losses
E. Insurance covers all assets while put options apply only to listed stocks
9. Membership in Stock Exchanges (Brokers) means:
A. Any person can trade directly on the exchange
B. The exchange's trading platform is accessible only through registered trading members who comply with regulatory requirements; eligible persons can obtain or surrender membership as per prescribed rules
C. Membership requires a minimum investment of ₹1 crore
D. Only institutional investors can become members
E. Government approval is required for every trade
10. In Debt Portfolio Management, what is the key restriction on types of instruments that Mutual Funds can invest in?
A. Mutual funds can invest in both traded and non-traded instruments
B. Mutual funds can invest only in market-traded instruments (not bank loans); instruments with maturity above one year are classified as debt securities
C. Mutual funds can invest in bank loans as assets
D. Mutual funds must invest at least 50% in government securities
E. Mutual funds can invest directly in real estate
