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Archive for October, 2010

Bond Theorems

Posted by Prashant Shah on October 6, 2010

For better understanding of bonds learning bond theorems thoroughly is a must. Here is the list of bond theorems

  1. Price and interest rates move inversely
  2. A decrease in interest rates raises bond prices by more than a corresponding increase in rates lowers the price
  3. Price volatility is inversely related to coupon
  4. Price volatility is directly related to maturity
  5. Price volatility increases at a diminishing rate as maturity increases

 Lets understand the theorems with illustrations:

Theorem-1 : Price and interest rates move inversely

Lets assume 3 year 10% coupon paying bond for illustration

When YTM = 10% Price = 100
When YTM = 11% Price = 97.55
When YTM = 9% Price = 102.53

Hence it can be concluded that as yield increase price of the bond decline and vice-versa.

Theorem-2 : A decrease in interest rates raises bond prices by more than a corresponding increase in rates lowers price

Lets assume 3 year 10% coupon paying bond for illustration

When YTM = 10% Price = 100  
When YTM = 11% Price = 97.55 Change in price = -2.45%
When YTM = 9% Price = 102.53 Change in price = +2.53%

This the most important theorem of bond which says that price movement of bond with change is interest rate either side is not equal. Price of the bond increases more than it declines when equal change in interest rate is given. In above illustration you can clearly see that when yield declines by 1% price increases by 2.53% while in case of increase in yield by 1%, price decline is 2.45%. As price curve of the bond is convex, you gain more than you lose.

Theorem-3 : Price volatility is inversely related to coupon

Lets assume 3 year 10% coupon paying bond and 3 year 11% coupon paying bond for illustration.

3 year 10% coupon paying bond

When YTM = 10% Price = 100  
When YTM = 11% Price = 97.55 Change in price = -2.45%
When YTM = 9% Price = 102.53 Change in price = +2.53%

3 year 11% coupon paying bond

When YTM = 10% Price = 102.48  
When YTM = 11% Price = 100 Change in price = -2.42%
When YTM = 9% Price = 105.06 Change in price = +2.52%

Lets assume current YTM is 10% and then it increases to 11% and declines to 9%. You can clearly see in the above tables that price movement of the 11% coupon bond is lower than 10% coupon bond. It can be concluded that higher coupon bonds are less volatile than smaller coupon bonds.

To be continued…


Posted in Bond Analysis | 6 Comments »

FPSB CFP Mock Question/Practice Set

Posted by Prashant Shah on October 5, 2010

Here I have compiled the questions subjectwise. These questions are available on www.fpsbindia.org. You can also attempt a mock test on www.fpsbindia.org. These questions exclusively belongs to FPSB India I have just compiled.

Investment planning


The May futures contract on XYZ Ltd. closed at Rs. 3,940 yesterday. It closes today at Rs. 3,898.60. The spot closes at Rs. 3,800. Raju has a short position of 3,000 in the May futures contract. He further sells 2,000 units of May expiring put options on XYZ with a strike price of Rs. 3,900 for a premium of Rs. 110 per unit on the same day. What is his net obligation to/from the clearing corporation today? – Marks : 4

(a)    Pay Rs. 3,44,200..

(b)   Receive Rs. 3,44,200.

(c)    Receive Rs. 6,40,000.

(d)   Pay Rs. 95,800.


A client purchased a zero coupon bond 6.5 years ago for Rs. 525. If the bond matures today and the face value is Rs. 1,000, what is the average annual compound rate of return (calculated semi-annually) that the client realised on her investments? – Marks : 4

(a) 10.40%


(c) 11.34%



Mohan invested Rs. 10,000 in XYZ mutual fund on 1/1/2000. He received cash dividends of Rs. 200, Rs. 300, Rs. 200 &Rs. 300 on 31/12/2000, 31/12/2001, 31/12/2002 & 31/12/2003 respectively. He reinvested all the dividends received in the fund. He sold the fund on 1/1/2004. What is the IRR if he sold the fund for Rs. 15,000? – Marks : 4

(a) 8.53%


(c) 8.00%



The NAV of a debt oriented Mutual Fund is 22.25 cum dividend. It has declared a dividend of 6%, record date being 25th June 2006. Calculate the dividend receivable by an individual investor if he holds 10,000 units – Marks : 2

(a) Rs. 4,653.60

(b)Rs. 6,000.00

(c) Rs. 5,158.50

(d)Rs. 5,250.00


Consider that an investor writes a covered call on XYZ share. Spot price is Rs. 38, Exercise price is Rs. 40 and a 3 month call on XYZ share is traded at Rs. 3. What is the initial cash flow incurred at the time of investment? – Marks : 2

(a) Rs. 37

(b)Rs. 41

(c) Rs. 38

(d)Rs. 35


Dividend received by the writer of a Call during the life span of an Option __________. – Marks : 2

(a) can be pocketed by the writer

(b)has to be given to the buyer of the option, only if he eventually exercises the option

(c) increases the premium value by an equivalent amount

(d)decreases the strike price


Risk free return rate is 8%. You expect that the return on market would be 14%. The expected return of Security A with Beta of 0.70 is ________. – Marks : 2

(a) 17.8%


(c) 12.2%



If a Company declares and pays dividend, this transaction will________. – Marks : 2

(a) reduce stockholders equity

(b)increase liabilities

(c) decrease net income

(d)not affect total assets


The ” Trigger option ” in a mutual fund refers to a facility ___________. – Marks : 1

(a) Enabling pre – determined exit from a scheme once a certain profit level has been attained

(b)Enabling pre – determined entry into a scheme once a certain NAV level has been attained

(c) similar to an SIP

(d)Similar to an SWP


If a new issue was offered to the public at 15 times earnings but the market was pricing similar shares at 19 times, this would be_______. – Marks : 1

(a) an example of low gearing

(b)a situation where the investor cannot take a position

(c) an appalling proposition to the investor

(d)a bargain not to be missed


In the calculation of the present value of shares, increasing the growth factor (all other things being equal) will cause the value to________. – Marks : 1

(a) Stay the same


(c) Increase

(d)Increase then Decrease


The bid-ask spread is________. (A) Broker’s commission (B) Dealer’s gross income from a transaction (C) Larger for illiquid securities than for liquid ones. – Marks : 1

(a) (C) only

(b)(B) only

(c) (A), (B) & (C)

(d)(A) only


Bond prices are sensitive to the coupon rate of the bond and the maturity term of the bond. Bond prices are less sensitive to changes in interest rates when the bonds have_______. – Marks : 1

(a) large coupon rate and short maturity

(b)large coupon and long maturity

(c) small coupon rate and short maturity

(d)small coupon rate and long maturity


A share holder who has paid for the first call, in a limited company, is liable for _______. – Marks : 1

(a) his share in the total liabilities of the company

(b)partially paid-up amount of the shares allotted to him

(c) fully paid-up value of the shares allotted to him

(d)   only the secured debt of the company


The Key reference rate for Inter Bank overnight borrowings in Mumbai is known as – Marks : 1






Retirement planning


Mahesh is employed in a company on a basic salary of Rs. 20,000 pm and is allowed a dearness allowance of 30% of which 50% is included in salary for retirement benefits. His company pays him HRA of Rs. 5,000 pm. Compute his exemption on HRA for FY 2007-08. Mahesh is staying in Meerut and pays a house rent of Rs. 5,000 pm. – Marks : 4

(a)    Rs. 35,160.

(b)   Rs. 24,840.

(c)    Rs. 32,400.

(d)   Rs. 60,000.


Sanjay, a resident of Nagpur, receives Rs. 78,000 as basic salary during FY 2007-08. He stays with his parents up to August 31, 2007 (for which he does not pay any rent) and thereafter in an accommodation taken on monthly rent of Rs. 3,000. His employer pays Rs. 700 per month as house rent allowance throughout the previous year. Determine the taxable portion of House Rent Allowance for Sanjay. – Marks : 4

(a)    Rs. 4,900.

(b)   Nil

(c)    Rs. 8,400.

(d)   Rs. 3,500.


Ajay has worked in two companies viz. A Co. and B Co. He retires from A Co. on Nov 30, 1989 (salary at the time of retirement Rs. 2,600) and receives Rs. 22,000 as gratuity out of which Rs. 20,000 were exempted. He also retires from B Co. on Dec 10, 2007 after 28 years and 8 months of service and receives Rs. 2.90 lakh as death-cum-retirement gratuity. His average basic salary drawn from B Co. for the preceding 10 months ending on Nov 30, 2007 is Rs. 18,200 per month. Further he receives Rs.1000 per month as DA , 80% of which forms a part of his retirement benefits and 6% commisson on turnover achieved by him . total turnover achieved by him during 10 months ending Nov.30 2007is Rs. 2,00,000. What is the gratuity exempted from tax for Ajay for AY 2008-09? Assume neither of the companies A and B are covered under payment of Gratuity Act 1972. – Marks : 4

(a)    Rs. 2,82,800

(b)   Rs. 2,80,000

(c)    Rs. 3,30,000

(d)   Rs. 2,62,800


Nitish is a 30 year-old self employed youth and has been using the PPF account to accumulate Rs. 30,000 per year, for his future needs. The PPF account provides a compounded return of 8% p.a. He does not have a clear view yet on financial goals and needs but has been saving as a habit, for the last 5 years. Nitish is willing to look at a lifestyle after retirement that fits into a fixed Rs. 3,00,000 per annum spend, for an estimated 15 years. What is the spending opportunity for Nitish, at the time of his retirement at 60 years, given his saving and assuming a rate of 6% on his funds after retirement? (Assumption: All computations for interest, spend and savings compound annually, assuming beginning of the period investment). -Marks:4

(a)    Rs. 20,81,345

(b)   Rs. 18,54,425

(c)    Rs. 14,26,890

(d)   Rs. 24,94,570


Prashant is an employee in the private sector to whom Payment of Gratuity Act does not apply. He retires after eight years of service. Amongst other retirement benefits, he also receives a gratuity of Rs. 2,50,000. His average salary for the past ten months, before resigning, was Rs. 42,000 per month. He desires to know how much of the gratuity amount, if any, is taxable? – Marks : 4

(a) Rs. 82,000


(c) Rs. 2,50,000

(d)Rs. 1,68,000


A client has the need to provide for the cost of his child’s college education. He envisages that four annual payments of Rs. 20,000, in current money terms, would be needed beginning 15 years from now. Assuming level of inflation at 5% per annum and that the fund earns 8% per annum returns throughout, calculate the present value to be placed on this liability when carrying out a needs analysis for this client. (Round of your answer to the nearest ‘000’) – Marks : 4

(a) Rs. 50000

(b)Rs. 49000

(c) Rs. 24,000

(d)Rs. 23,000


Vishal is working with Amex Ltd since October 1, 1994. He is entitled to a basic salary of Rs. 6,000 pm. Dearness Allowance is 40% of Basic Salary for retirement benefits. He retired from his job on January 1, 2008 (3 months before the end of F.Y 2008) and shifted to his village. He is entitled to the following benefits at the time of retirement. Gratuity = Rs. 98,000. Pension from January 1, 2008 = Rs. 2,000 per month. Payment from recognized PF = Rs. 3,00,000. Encashment of earned leave for 150 days = Rs. 36,000. He was entitled to 40 days leave for every completed year of service.He got 50% of his pension commuted in lump sum w.e.f April 1, 2008 and received Rs. 1,20,000 as commuted pension. Vishal contributes Rs. 900 per month to RPF to which his employer contributes an equal amount. What will be the amount of uncommuted pension for Vishal that will form part of his total income for the A.Y. 2008-09? – Marks : 4

(a) NIL

(b)Rs. 4,000.

(c) Rs. 6,000.

(d)Rs. 1,000.


Abhishek is working for the Finance Ministry since October 1, 1994. He is entitled to a basic salary of Rs. 6,000 pm. Dearness Allowance is 40% of Basic Salary for retirement benefits. He retired from his job on January 1, 2008 (3 months before the end of F.Y 2007-08 ) and shifted to his village. He is entitled to the following benefits at the time of retirement. Gratuity = Rs. 98,000. Pension from January 1, 2008 = Rs. 2000 per month. Payment from recognized PF = Rs. 3,00,000. Encashment of earned leave for 150 days = Rs. 36,000.He was entitled to 40 days leave for every completed year of service. He got 50% of his pension commuted in lump sum w.e.f March 1, 2008 and received Rs. 1,20,000 as commuted pension. Abhishek contributes Rs. 900 per month to RPF to which his employer contributes an equal amount. What is the amount of commuted pension that will be exempt for Abhishek for the FY 2007-08? – Marks : 4

(a) NIL

(b)Rs. 40,000

(c) Rs. 80,000

(d)Rs. 1,20,000


A recognised Provident Fund acquires its status on recognition by ___________. – Marks : 2

(a) SEBI

(b)Income Tax authorities

(c) PF Commissioner

(d)Labour Ministry


If an employer has made contribution to an unrecognized provident fund of an employee, then such contribution in the hands of employee ____________. – Marks : 1

(a) is not treated as income of the year in which contribution is made

(b)contributions in excess of 12% is treated as income

(c) is treated as income of the year in which contribution is made

(d)None of the above


For a person aged 25 years retirement needs may best be calculated by _____________. – Marks : 1

(a) Income replacement method

(b)Expense replacement method

(c) Both

(d)None of the above.


Which one of the following statements is NOT true for a defined-benefit plan? (A) Favours older participants (B) Arbitrary annual contribution (C) Requires an actuary – Marks : 1

(a) (A), only

(b)(B), only

(c) (C), only

(d)None of the statements


Senior Citizen’s Savings Scheme introduced by the Government of India is governed by which Act? – Marks : 1

(a) The Companies Act, 1956

(b)The Small Savings & Misc. Savings Act, 1902

(c) The Banking Regulation Act, 1949

(d)The Government Savings Bank Act, 1873


An establishment, with 25 employees is covered under Employees Provident Fund and Miscellaneous Provision Act, 1952. What percentage of employee’s pay shall be contributed by the employer  in Employee’s Pension Fund? – Marks : 1

(a) 8.33%


(c) 3.67%



Interest rate on Post Office Savings Bank is payable__________. – Marks : 1

(a) Quarterly

(b)half yearly

(c) annually



The process of retirement planning would generally not involve ________. – Marks : 1

(a) making a plan for management & disposition of assets at death

(b)projecting individual needs and goals into the future and making sound financial plan

(c) concentrating on maximizing returns on Present / Past Investments

(d)planning for staying physically healthy & making necessary psychological adjustment and to plan for housing and leisure / work


Tax planning


An HUF consisted of a father, who is a widower, his three sons and a daughter. Upon death of the father what will be the share of his daughter? – Marks : 2

(a) One fourth of HUF property.

(b)One fourth plus one sixteenth of HUF property.

(c) One sixteenth of HUF property.

(d)None of the above.


Vinod invests Rs. 1,50,000 in shares of XYZ ltd on 1st December 2006 and receives a dividend of Rs. 25,000 on 31st March 2007, the record date. The investment is sold on 2nd June 2006 in NSE for Rs. 1,20,000. How much short term loss, if any, arising out of this investment is allowable for set-off in FY 2007-08? – Marks : 2

(a) Rs. 25,000.

(b)Rs. 5,000, since provisions of Sec. 94(7) will apply.

(c) NIL

(d)Rs. 30,000.


Mitesh has taken a loan from his employer, NTPC Ltd, for pursuing his higher studies. The amount that he pays to his employer for the loan for FY 2007–08 is Rs. 90,000. Out of this Rs. 90,000, Rs. 30,000 is towards repayment of the capital amount of the loan and the rest is towards repayment of interest. Deduction u/s 80E that is available to Mitesh would be _________. – Marks : 2

(a) Rs. 90,000

(b)Rs. 60,000

(c) NIL

(d)Rs. 30,000


(A) Interest income of the Employees’ contribution in an Unrecognised Provident fund is Tax exempt. (B) The employee’s contribution to an unrecognised Provident fund is tax exempt under Sec. 80 C upto the limit of Rs. 1,00,000. – Marks : 2

(a) (A), only is correct

(b)(A), & (B) both are wrong.

(c) (A), & (B) both are correct

(d)(B), only is correct.


Under the provisions of Income Tax Act, 1961, “Transport Allowance” is exempt upto – Marks : 1

(a) Rs. 800 per month

(b)Rs.400 per month

(c) Rs. 500 per month

(d)Rs. 9000 per year lump sum


Which of the following is not the mode of revocation of a Will? – Marks : 1

(a) By Destruction

(b)By Marriage

(c) By another Will or Codicil

(d)By Insolvency of the testator


X is a property dealer who buys and sells housing property. He received some rent from a housing property held as stock-in-trade in the assessment year 2008-2009. This rental income would come under the head: – Marks : 1

(a) Income from house property.

(b)Income under the head capital gains.

(c) Income from other sources.

(d)Business income.


An immovable property will be termed as a short-term capital asset if it is held by the assessee for _______. – Marks : 1

(a) not more than 36 months

(b)more than 36 months

(c) exactly twelve months

(d)more than 12 months


Nihal, a salaried employee, receives medical allowance of Rs. 25,000 from his employer which is fully spent by Nihal in meeting medical expenses for himself. Determine the taxable amount of the medical allowance. – Marks : 1

(a) Rs. 10,000.

(b)Rs. 25,000.

(c) NIL

(d)Rs. 15,000.


Pension received from a former employer is classified under the head _________. – Marks : 1

(a) Gratuity

(b)Income from other sources

(c) Salary

(d)Capital Gains


Donations to a notified temple attract a deduction of________, u/s 80 G of IT Act. – Marks : 1

(a) 50% for any purpose


(c) 50% only if it is for renovation or repairs



Computing ‘salary’ for the purpose of ‘Rent free accommodation’ includes ____________. – Marks : 1

(a) Bonus

(b)advance salary

(c) both bonus and advance salary

(d)None of the above


Mr. Parmar is an NRI and 70 years of age. In his case, the maximum income not chargeable to tax in India for AY 2008-09 would be ________. – Marks : 1

(a) Rs. 1,85,000

(b)Rs. 1,10,000

(c) Rs. 50,000

(d)None of the above


Insurance planning


Suryakant has an accident insurance policy which pays Temporary Partial Disability (TPD) benefit of Rs. 3,000 per week, for upto 104 weeks. He meets with an accident and is disabled and bedridden for 6 months. He has available leave of 4 weeks, after which he is on loss of pay. What benefit amount will he get from the insurance company? – Marks : 4

(a) Rs. 60,000

(b)Rs. 72,000

(c) Rs. 66,000

(d)Rs. 78,000


Binding Authority of an insurance broker means __________. – Marks : 2

(a) the authority of brokers to accept risks within certain limits and term as set out by the Insurers

(b)the contract by which a broker is bound to the insurance companies

(c) the contract by which a broker is bound to the clients

(d)the regulatory authority that binds brokers to the regulations


A Life insurer receives an application for Rs. 20 crores. However the insurer is not ready to take this risk, but simultaneously does not want to leave the business. The insurer company shops around and contracts another insurer to assume a certain percentage of loss for a corresponding percentage of premiums. This is a case of _____________. – Marks : 2

(a) Facultative reinsurance

(b)Treaty reinsurance

(c) Both of the above

(d)None of the above


Reliable age proof must be given along with the proposal form of life insurance which could be a : (A) Certified copy of birth certificate of Municipal Corporation (B) Marriage certificate issued by Marriage Registrar (C) Registerd document of property ownership – Marks : 2

(a) (A)


(c) Either (A) or (B)

(d)Either (A) or (C)


Mr. Singh bought a Rs. 10 lakh term life Insurance Plan on 10 Aug 2006 by payment of Regular premium of Rs.3,200 for 15 years. On July 15 2008 Mr. Singh committed suicide. What is the benefit amount payable to Mr. Singh’s beneficiary, assuming the premiums were paid as agreed? – Marks : 2

(a) Rs. 3200


(c) Rs.3,200 + interest

(d)Rs. 10,00,000


(A) In level term insurance policies, the coverage remains constant throughout the term. (B) The premium payable in level term insurance policies can remain same or increase with change in working conditions of Insured. – Marks : 2

(a) Both (A) & (B) are incorrect

(b)Both (A) & (B) are correct

(c) (B) is correct

(d)(A), is correct


Any possible occurrence which may have a negative financial implication can be plotted on a graph with X axis measuring the frequency (low-high) and Y axis measuring the financial impact (low-high). It would not be practical to purchase insurance for events which would fall in the high frequency, high impact quadrant because _________. – Marks : 2

(a) the best way to cover such a risk would be to alter the functioning of the business

(b)such a risk cover would be very expensive

(c) usually this is a business risk, which is rewarded by profit motive

(d)such occurrences are so few that no insurer would be offering a risk cover


A type of risk with high frequency but low severity is probably best handled by: – Marks : 1

(a) Transfer.


(c) Reinsurance.

(d)Self Insurance.


Condition in an Insurance Contract is associated with_____________. – Marks : 1

(a) exclusions in the Insurance Contract.

(b)limitations on the Insurer’s promise to perform.

(c) repudiation of claims in the Insurance Contract.

(d)None of the above


Rationale behind principal of indemnity is that ____________. – Marks : 1

(a) insured gets compensation to the extent he has insured, irrespective of amount of loss

(b)insured does not profit from insured’s loss

(c) insured profits from insured’s loss

(d)None of the above


Which of the following benefits are available in an Endowment Policy? – Marks : 1

(a) A bulk of the premium is invested and a small portion is used to provide life cover.

(b)An Endowment Policy provides larger life cover than a Whole Life Policy, at lower premium due to its cash value.

(c) An Endowment Policy is similar to PPF in terms of returns but gives extra benefit of insurance cover.

(d)An Endowment Policy is usually less expensive than a Whole Life Policy due to the fixed nature of the term


Whole life insurance contracts contain cash surrender values. These cash surrender values: – Marks : 1

(a) Represent estimates based on projected mortality savings.

(b)Are based on the past experience of the insurance company and cannot be guaranteed.

(c) Represent an excess of the premiums collected over pure insurance costs and earnings credited.

(d)Are available only if the insurer chooses to terminate the coverage under the policy.


In case of a life insurance policy, if the gross annual premium amount does not exceed the sum assured by 20%, then _______. (A) Death benefit is tax free. (B) Death benefit is taxable. (C) Maturity benefit is tax free. – Marks : 1

(a) (A), only is correct

(b)(B), only is correct

(c) (C), only is correct

(d)Both (A) & (C) are correct


Which of the following statements is/are NOT true about a warranty in an insurance contract? (A) Declarations on the proposal form can be warranties by reference. (B) Warranties help the insurer to ensure that the risk stays the same during currency of the policy. (C) Warranties have to be followed literally. – Marks : 1

(a) (A), (B) & (C)


(c) (A)

(d)None of the above


Which of the following statements is/are correct? (A) Limits for transacting life insurance in rural sector are laid down in number of lives insured. (B) Limits for transacting life insurance in social sector are laid down in number of lives insured. – Marks : 1

(a) (A), is correct

(b)(B), is correct

(c) Both (A) & (B) are correct

(d)Both (A) & (B) are wrong


Adverse selection refers to an Insurance Company________. – Marks : 1

(a) Insuring a person in the high risk category

(b)Insuring a person in the high risk category without loading his premium

(c) Insuring a person susceptible to genetic diseases but at a substantially higher premium

(d)Insuring a person whose risk profile is low, hence compelling the company to offer him a discount in premium.


Introduction to financial planning1.

A firm needs to borrow funds on a short term basis without reducing its current ratio below 1.25. The firms’ current assets and current liabilities are Rs.1,600 and Rs.1,000 respectively. What amount can the fund borrow? – Marks : 4

(a)    Rs. 1,400

(b)   Rs. 1,200

(c)    Rs. 1,500

(d)   Rs. 1,000


Ajay has a net worth of Rs. 2,00,000 at the beginning of the Financial Year 2006-2007. The following transactions occurred during the Financial Year 2006-2007 with respect to his account. 1. Paid off credit card liability worth Rs. 10,000 using savings account 2. Transferred Rs. 4,000 from savings account to PPF account 3.Purchased Rs. 2,000 of furniture with credit. What is the net worth of Ajay after these transactions? – Marks : 4

(a) Rs. 1,90,000.

(b)Rs. 1,84,000.

(c) Rs. 1,98,000.

(d)Rs. 2,00,000


” Member should act with care and skill in providing Financial Planning Services”. This Forms part of ________ in the code of Ethics – Marks : 2

(a) Fairness


(c) Integrity



Divya, a CFP certificant, recently took Ajay as a client. After receiving an excessive number of questions from Ajay regarding his plan, Divya became desperate and changed her business phone number to an unlisted number. She notified Ajay that he could not have her new phone number, and that he must communicate with her via e-mail or fax. Which principle, if any, embodies Rules that require Divya to provide Ajay with her new number? – Marks : 2

(a) Integrity.


(c) Objectivity.



Quick asset ratio is used to : – Marks : 1

(a) Determine the Investment Capacity of the Firm

(b)Determine firm’s liquidity to cover unexpected payment

(c) Determine the current assets of the firm

(d)Determine the current liabilties of the firm


Possession of the property is transferred to the Mortgagee in _______________. – Marks : 2

(a) usufructuary mortgage

(b)English mortgage

(c) mortgage by conditional sale

(d)simple mortgage


While making an investment in a Debt fund for your client you make the following remarks: (A) Rate of return by the instrument in the past is 8.5% and is expected to continue in future. (B) The investment would have low risk. In view of the CFP code of Ethics, which of the above statement is voilative?-Marks : 2

(a) (A), Only

(b)(B), Only

(c) Both (A) and (B)

(d)None of the above


(A) In India, only the lessor is allowed to charge depreciation on the assets and claim tax deductions. (B) In India, only the lessee is allowed to charge depreciation on the assets and claim tax deductions. – Marks : 1

(a) Statement (A) is correct.

(b)Statement (B) is correct.

(c) Both are correct.

(d)None of the above is correct


Which of the following is a reasonable assumption to make about the understanding of a client on the Financial Planning process? – Marks : 1

(a) Client would have identified a desirable asset allocation.

(b)Client would have some knowledge of the assumptions on which Financial Plans are made

(c) Client would be able to identify his/her financial goals.

(d)Client would understand the financial products being recommended.


While presenting and reviewing a Financial Plan to the client, you would do all of the following except ______. – Marks : 1

(a) presenting the plan in writing to the client

(b)expressing your opinion as a matter of fact

(c) taking the client through the plan

(d)sharing the assumptions on which the plan is made


A client should be helped to set his/her financial goals in _________. – Marks : 1

(a) current money terms

(b)future money terms

(c) both current & future money terms

(d)None of the above


A Financial Planner identifies and distinguishes between the needs and wants of the client. Priority should be given to __________. – Marks : 1

(a) Equal priority should be given

(b)No need to give any priority

(c) Needs



Suresh, a Certified Financial Planner, is preparing a letter to circulate among prospective clients and the letter contains information on services provided by his firm. According to the Code of Ethics and Rules of Professional Conduct, all of the following information should appear in the letter except ________. -Marks: 1

(a) details of firm’s portfolio size and composition

(b)the fees and commission sources of the firm

(c) any significant financial relationships or connections with product providers

(d)identity of the firm providing the service and the nature of services offered


Deficit financing provision in the Budget will lead to the following/s: (A) Increase in money supply and rise in prices of goods and services in market(B) Fall in national income and Increase in GDP. – Marks : 1

(a) (A), only

(b)Both (A) & (B)

(c) (b) only

(d)None of the above


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