Fundamental Analysis Module Model Paper: AS Chakravarthy NCFM Academy

Fundamental Analysis Module Model Paper: AS Chakravarthy NCFM

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Fundamental Analysis Module Model Test Paper

Please find the Answers below

Q1. “Stock A generates a return of 20% while stock B generates a return of 25%. The risk free-rate is 5%. Stock A has a standard deviation (risk) of 20%, while stock B has a standard deviation of 15%. Which stock gives a better risk adjusted return?” [ 2 Marks ] (a) B (b) A

Q2. The more common secured loans of a company are fixed deposits and short term loans. [ 2 Marks ] (a) TRUE (b) FALSE

Q3. Beta measures _______ risk. [ 1 Mark ] (a) cyclical (b) reducable (c) non-diversifiable (d) diversifiable

Q4. The ________ allows for two stages of growth – an initial phase where the growth rate is not a stable growth rate and a subsequent steady state where the growth rate is stable and is expected to remain so for the long term. [ 1 Mark ] (a) later stage growth model (b) Brown growth (c) two-stage growth model (d) initial stage growth model

Q5. Fundamental analysis is a _________ methodology. [ 1 Mark ] (a) Inflation valuation (b) volume valuation (c) Money valuation (d) stock valuation

Q6. A negative beta shows that the asset ______ follows the market; the asset generally decreases in value if the market goes up. [ 2 Marks ] (a) directly (b) inversely

Q7. “Companies must diversify in order to spread the risks of economic slumps, therefore every diversification suits a company. ” [ 2 Marks ] (a) TRUE (b) FALSE

Q8. This statement forms a part of the strong form of the Efficient Market Hypothesis. [ 1 Mark ] (a) “Long-term gains, for the management of a company, with access to inside information’.” (b) “‘No long-term gains, even for the management of a company, with access to inside information’.” (c) “Short-term gains, for the management of a company, with access to inside information’.”

Q9. The Auditor’s Report will draw the attention of the reader to accounting changes and the effect that these have on the financial statements. [ 1 Mark ] (a) FALSE (b) TRUE

Q10. “When an investor buys stock, she generally expects to get only one type of cash-flow – dividends. ” [ 1 Mark ] (a) TRUE (b) FALSE

Q11. “The Director’s Report is a report submitted by the directors of a company to shareholders, informing them of the performance of the company under their stewardship.” [ 2 Marks ] (a) TRUE (b) FALSE

Q12. Estimated EPS of ABC Ltd. for next year is Rs. 132. Assume PE multiple of 22 (Forward P/E) for the next year. Then the target price of ABC Ltd. works out to Rs. ____. [ 3 Marks ] (a) 2904 (b) 3240 (c) 2869 (d) 3567

Q13. "As of March 31, with amounts expressed in Rs. crores, ABC Ltd.’s cash assets amounted to 7,797 , while current liabilities amounted to 3,050. The cash ratio of ABC Ltd. Is ______.” [ 3 Marks ] (a) 2.56 (b) 3.68 (c) 4.67 (d) 3.45

Q14. _______ is one of the most critical factors to be considered while investing in any company. [ 1 Mark ] (a) Management (b) Managing director (c) Location of the company (d) Auditors

Q15. Companies pledge assets when they take ______ loans. [ 2 Marks ] (a) secured (b) unsecured

Q16. Lower-beta stocks mean greater volatility and are therefore considered to be riskier. [ 1 Mark] (a) TRUE (b) FALSE

Q17. “To find the intrinsic value of a company, the fundamental analyst initially takes a bottom-up view of the company performance, its financial condition, industry analysis etc.” [ 1 Mark ] (a) TRUE (b) FALSE

Q18. The?concept of time value of money?arises from the relative importance of ________. [ 1 Mark ] (a) physical asset vs. financial asset (b) assets now vs. in future (c) now vs. future (d) money vs. time

Q19. “If the intrinsic value of a stock is below the market price, the investor would buy the stock because he believes that the stock price is going to fall and come closer to its intrinsic value.” [ 1 Mark ] (a) TRUE (b) FALSE

Q20. Indian listed companies must periodically report their financial statements to the regulators only. [ 1 Mark ] (a) FALSE (b) TRUE

Q21. “Consider the stock of ABC Technologies Ltd. which has a beta of 0.5. This essentially points to the fact that based on past trading data, ABC Technologies Ltd. as a whole has been relatively more volatile as compared to the market as a whole.” [ 2 Marks ] (a) FALSE (b) TRUE

Q22. The _______ ratio measures the degree to which a firm generates sales with its total asset base. [ 1 Mark ] (a) net asset turnover (NAT) (b) current asset turnover (CAT) (c) total asset turnover (TAT) (d) basic asset turnover (BAT)

Q23. Estimated EPS of ABC Ltd. for next year is Rs. 130. Assume PE multiple of 21 (Forward P/E) for the next year. Then the target price of ABC Ltd. works out to Rs. ____. [ 3 Marks ] (a) 2760 (b) 2730 (c) 2820 (d) 2790

Q24. Economic indicators allow analysis of economic performance and predictions?of future performance. [ 2 Marks ] (a) TRUE (b) FALSE

Q25. “Examples of leading indicators are the agricultural production, fixed capital investment etc.” [ 1 Mark ] (a) TRUE (b) FALSE

Q26. “According to the Efficient Market Hypothesis, stocks always tend to trade _________ on stock exchanges, making it impossible for investors to either consistently purchase undervalued stocks or sell stocks at inflated prices.” [ 1 Mark ] (a) at their fair value (b) at their mis-priced value (c) at their technical value (d) at their expected value

Q27. Professionally managed companies are those that have at the helm a member of the controlling family. [ 1 Mark ] (a) FALSE (b) TRUE

Q28. “As of March 31, with amounts expressed in Rs. crores, ABC Ltd.’s current assets amounted to 11,304, while current liabilities amounted to 4353. The current ratio of ABC Ltd. Is _____.” [ 3 Marks ] (a) 3.46 (b) 1.6 (c) 4.35 (d) 2.6

Q29. The Beta is a measure of the ______ of a security that cannot be avoided through diversification. [ 1 Mark ] (a) pro-cyclical risk (b) cyclical risk (c) un-systematic risk (d) systematic risk

Q30. The published financial statements of a company in an _______ consist of its Balance Sheet as at the end of the accounting period detailing the financial condition of the company on that date. [ 1 Mark ] (a) Equity Report (b) Annual Report (c) Executive Report (d) Interim Report

Q31. “Based on ABC Ltd.’s EPS of Rs. 108 for the year, the trailing 12 month PE of ABC Ltd. at a price of Rs. 1300 per share works out to be _____. ” [ 3 Marks ] (a) 17.02 (b) 15.06 (c) 18.09 (d) 12.04

Q32. The weak form of the ________ stipulates that current asset prices reflect past price and volume information. [ 1 Mark ] (a) Inefficient Market Hypothesis (b) Efficient Price Hypothesis (c) Efficient Market Hypothesis

Q33. The Balance Sheet details the financial position of a company on a particular date. [ 1 Mark ] (a) TRUE (b) FALSE

Q34. “As of March 31, with amounts expressed in Rs. crores, ABC Ltd.’s current assets amounted to 15,678, while current liabilities amounted to 6786. The current ratio of ABC Ltd. Is _____.” [ 3 Marks ] (a) 3.56 (b) 4.45 (c) 2.31 (d) 1.67

Q35. “The?risk-free interest rate?is the theoretical?rate of return?of an investment with ______, including?default risk. ” [ 1 Mark ] (a) zero risk (b) positive risk (c) negative risk (d) unlimited risk

Q36. A firm with a 5% growth rate and a return on equity of 15% will have a stable period pay-out ratio of _____. [ 2 Marks ] (a) 23% (b) 37% (c) 33% (d) 28%

Q37. The managing director represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by him or her. [ 2 Marks ] (a) TRUE (b) FALSE

Q38. Higher-beta stocks mean less volatility and are therefore considered to be less riskier. [ 1 Mark ] (a) FALSE (b) TRUE

Q39. “In the bottom-up approach, an analyst investigates both international and domestic economic?indicators, such as GDP growth rates, energy prices, inflation and interest rates. ” [ 1 Mark ] (a) TRUE (b) FALSE

Q40. Rs. 100 of today’s money invested for one year and earning 8% interest will be worth Rs. _____ after one year. [ 1 Mark ] (a) 110 (b) 108 (c) 120 (d) 125

Q41. A firm with a 7% growth rate and a return on equity of 20% will have a stable period pay-out ratio of _____. [ 2 Marks ] (a) 35% (b) 38% (c) 28% (d) 39%

Q42. A firm with a 3% growth rate and a return on equity of 10% will have a stable period pay-out ratio of _____. [ 2 Marks ] (a) 30% (b) 25% (c) 26% (d) 22%

Q43. Behavioural Finance is a field of finance that proposes _______ theories to explain stock market anomalies. [ 2 Marks ] (a) relationship-based (b) neural-based (c) consumer-based (d) psychology-based

Q44. A procyclic economic indicator is one that moves in the opposite direction as the economy. [ 2 Marks ] (a) FALSE (b) TRUE

Q45. Examples where Efficient Market Hypothesis is purported to succeed are anomalies like cheap stocks outperforming the market in the long term. [ 2 Marks ] (a) FALSE (b) TRUE

Q46. _______ are those to whom the company owes money for raw materials and other articles used in the manufacture of its products. [ 2 Marks ] (a) Unsecured creditors (b) Secured debtors (c) Trade creditors (d) Trade debtors

Q47. “Consider a stock, with an expected dividend per share next period of Rs. 2.00, a cost of equity of 16%, and an expected growth rate of 6% forever. The value of this stock is:” [ 2 Marks ] (a) 30 (b) 35 (c) 25 (d) 20

Q48. _________ uses financial analysis to envisage the movement of stock prices. [ 1 Mark ] (a) Fundamental analysis (b) Money analysis (c) Stock analysis (d) Inflation analysis

Q49. “Auditors are required to report any change, such as a change in accounting principles or the non-provision of charges that result in an increase or decrease in profits.” [ 1 Mark ] (a) TRUE (b) FALSE

Q50. The _________ is an example of a procyclic economic indicator. [ 2 Marks ] (a) Gross Domestic Product (GDP) (b) Unemployment rate

Q51. _______ are amounts set aside from profits for an estimated expense or loss. [ 2 Marks ] (a) Long term assets (b) Liabilities (c) Provisions (d) Current assets

Q52. “It is upon the quality, competence and vision of the auditors that the future of company rests. ” [ 1 Mark ] (a) TRUE (b) FALSE

Q53. “_________, which accounting helps to standardize, is presented in the companies? financial reports. ” [ 1 Mark ] (a) Internal information (b) Technical information (c) Financial information (d) Non public information

Q54. “The?moderately-strong form of the Efficient Market Hypothesis?stipulates that private information or insider information too, is quickly incorporated by market prices and therefore cannot be used to reap abnormal trading profits.” [ 2 Marks ] (a) FALSE (b) TRUE

Q55. “Evidence in the psychology literature reveals that individuals have unlimited information processing capabilities, do not exhibit systematic bias in processing information, are not prone to making mistakes, and never tend to rely on the opinion of others.” [ 2 Marks ] (a) TRUE (b) FALSE

Q56. “Based on ABC Ltd.’s EPS of Rs. 123 for the year, the trailing 12 month PE of ABC Ltd. at a price of Rs. 1400 per share works out to be _____. ” [ 3 Marks ] (a) 17.69 (b) 15.67 (c) 13.56 (d) 11.38

Q57. “Stock A generates a return of 12% while stock B generates a return of 15%. The risk free-rate is 5%. Stock A has a standard deviation (risk) of 15%, while stock B has a standard deviation of 20%. Which stock gives a better risk adjusted return?” [ 2 Marks ] (a) A (b) B

Q58. “As of March 31, with amounts expressed in Rs. crores, ABC Ltd.’s current assets amounted to 13,456, while current liabilities amounted to 5456. The current ratio of ABC Ltd. Is _____.” [ 3 Marks ] (a) 1.78 (b) 3.76 (c) 2.47 (d) 4.67

Q59. “Consider a stock, with an expected dividend per share next period of Rs. 1, a cost of equity of 15%, and an expected growth rate of 6% forever. The value of this stock is:” [ 2 Marks ] (a) 20 (b) 19 (c) 15 (d) 11

Q60. The usual unsecured loans a company has are debentures and term loans. [ 2 Marks ] (a) TRUE (b) FALSE

Answers
1 B 21 A 41 A 2 B 22 C 42 A 3 C 23 B 43 D 4 C 24 A 44 A 5 C 25 A 45 A 6 B 26 A 46 C 7 B 27 A 47 D 8 B 28 D 48 A 9 B 29 D 49 A 10 B 30 B 50 A 11 A 31 D 51 C 12 A 32 C 52 B 13 A 33 A 53 C 14 A 34 C 54 A 15 A 35 A 55 B 16 B 36 C 56 D 17 B 37 B 57 B 18 B 38 A 58 C 19 B 39 B 59 D 20 A 40 B 60 B

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