Quiz for Chapter 11:

Fundamentals of Risk
and Return
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Details:

Total Number of Questions = 28

Total Marks for Quiz = 28
This is the practice questions with 1 marks each
This quiz has no negative marking and no time
limit.

Disclaimer:

1. In the real/actual exam there will be 100

questions with 1 mark each from all the chapters
weightage wise.The structure of the exam is as
follows:
i. Multiple Choice Questions [ 92 Questions of 1
mark each ] which results in 92 marks &
ii. Case-based Questions [ 2 cases (each case with
4 questions of 1 mark each )] which results in 8
marks.

2. In the real/actual exam there will be a negative

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 marking of 25% of the marks assigned to the
question for each wrong answer which is 0.25 mark
per wrong answer. So please keep that in mind !!

3. In the real/actual exam the questions are not

mandatory to solve and you can skip the questions.
There is no negative marking for un-attempted
questions.

4. The time duration of the real/actual exam is 2

hours and the passing marks is 60.

5. This quiz is just for practice purpose and it

doesn't hold the fact that the same questions
appear in the real examination.

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 1 point
Calling feature in bonds refers to
____________.

Is not in the interest of issuers.

Is most common when there is an

anticipation of rising interest rates.

Favors investors.

Is most common when there is an

anticipation of declining interest rates.

1 point
____________ bias can hinder investors
from taking advantage of market
corrections.

Anchoring

Herd Mentality

Projection

Confirmation

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 1 point
Business risk, also referred to as
operating risk, arises due to factors
impacting the company's operations.
State whether True or False.

False

True

1 point
Dividend represents a minor portion of
the overall returns generated from equity.
State whether True or False.

False

True

1 point
What does an investor expect from an
investment?

Neither returns nor capital preservation

Only high returns

Only capital preservation

Both returns and capital preservation

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 1 point
How is Return on Investment (ROI)
calculated for a particular period?

(Dividends + Sales Proceeds) / Total Cost

(Net profit / Total Cost) x 100

(Net profit / Investment)

(Total Returns / Total Cost) x 100

1 point
How is Compound Annual Growth Rate
(CAGR) calculated?

{(End Value / Beginning Value)^(1/n)} - 1

(Net profit / Investment) x 100

(End Value / Beginning Value) x 100

(Total Returns / Total Cost) x 100

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 1 point
What is the relationship between risk and
return in investing?

Inverse correlation

Direct correlation

Risk and return are unrelated

Independent factors

1 point
Why is a fixed deposit with a bank
considered a lower risk product?

Guaranteed returns

Inverse correlation with inflation

Low market demand

Higher interest rates

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 1 point
What does inflation risk refer to in
investing?

Loss of capital invested

Volatility in market prices

Decline in purchasing power of money

Uncertainty in dividend payments

1 point
What is the impact of rising interest rates
on bond prices?

Bond prices rise

Bond prices become unpredictable

Bond prices decline

No impact on bond prices

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 1 point
What is the primary factor causing
business risk in a company's operations?

Shrinkflation

Employee costs

Interest rates

Inflation

1 point
How is risk commonly defined in terms
of uncertainty and unpredictability?

Standard deviation

Rate of return

Value at Risk (VaR)

Sensitivity

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 1 point
What does Beta measure in the context
of market risk?

Sensitivity of stock prices to interest rates

Sensitivity of bond prices to market

performance

Systematic risk of a security relative to the

market

Duration of a bond's price to small changes in

interest rates

1 point
What is sensitivity analysis used for in
securities analysis?

Assessing market risk

Calculating Value at Risk (VaR)

Identifying critical variables in a valuation

model

Measuring systematic risk

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 1 point
What does the Margin of Safety refer to
in investing?

Rate of return on investments

Level of diversification

Difference between expected and actual

returns

Difference between value and prices

1 point
According to conventional financial
theory, what do participants strive to
maximize?

Wealth prudently

Financial theory

Emotional well-being

Market logic

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 1 point
What is the Dean of Wall Street, Benjamin
Graham's view on markets?

Completely irrational and emotion-free

Highly logical and predictable

More psychological and less logical

Driven solely by economic factors

1 point
What is the Loss-aversion bias in
behavioral finance?

Preference for avoiding gains

Desire for higher returns

Tendency to strongly prefer avoiding losses

Willingness to take risks for gains

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 1 point
What is Confirmation bias in investing?

Ignoring information entirely

Tendency to search for information that

confirms beliefs

Preference for contradictory information

Tendency to avoid confirming information

1 point
What does Ownership bias, also known
as the endowment effect, reflect?

Willingness to sell owned positions at any

cost

Higher value placed on owned positions

Disregard for owned positions

Preference for diversified portfolios

1 point
Is it accurate to say that employee costs
are a source of Business Risk? True or
False?

False

True

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 1 point
What risk does the investment encounter
when finding a buyer takes a long time
and is delayed?

Credit risk

Reinvestment risk

Liquidity risk

Default risk

1 point
Following others for investment is an
example of __________ bias.

Herd Mentality

Projection bias

Confirmation bias

Anchoring

1 point
Is it true or false that Unsystematic risk is
also called undiversifiable risk?

False

True

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 1 point
What category of risk does alterations in
tax structure exemplify?

Inflation risk

Country Risk

Political Risk

Market risk

1 point
Which of the subsequent risks is not
associated with unsystematic factors?

Credit risk

Business risk

Liquidity risk

Inflation risk

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 1 point
If VaR(1%) of a portfolio is 20%, then
which one of the following is correct:

It means there is 99% probability of making

80%

None of the options

It means there is 20% probability of losing at

least 1%

It means there is 1% probability that loss

would exceed 20%

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