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Answer List

Chapter 1

1) What should be a reasonable expectation from the stock market in term of

return on your investment? What% of annual return would you expect?
a. 5-15%
b. 15-25%
c. 25-35%
d. Above 30%

2) What is more important in investing 7

a. Higher returns
b. Safety of Capital
c. None of the above
d. Both A and B

3) Investors expect a higher rate of return than speculators?

a. True
b. False

4) What is the most important quality to be a successful investor 7

a. Patience
b. Lack of Mental biases
c. Deep knowledge of Accountancy and mathematics
d. A&B

5) Intrinsic value is constant for every investor?

a. True
b. False

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6) A business earns Rs.10 Lacs every year. lt has zero debt. Assume that it will
keep earning Rs.10 Lacs per year, for the next 20 years. What is the price that
you would pay, to buy 100% stake of that business? Just provide an
instinctive answer that comes to your mind.

a. Less than O lacs

b. 40 - 60 lacs

c. 60-90 lacs

d. more than 9 lacs

7) What% of margin of safety is ideal ?

a. 0-10%
b. 10-20%
c. 20-30%
d. Depends on the individual

8) What is the chief characteristic of Mr Market?

a. He is very disciplined

b. He has extreme mood swings

c. He likes offering bargains

d. He is a good negotiator

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Chapter 2

1) Which of the following is not a component of value investing?

a) Understanding the businessmodel
b) Analyzing the Industry Dynamics
c) Studying the People managing the company
d) Historical Price of the company

2) The bargaining power of buyers are dependent on which of these factor

a) Demand for the product
b) Substitute available
c) Government Policy prevailing in the industry
d) Both A and B

3) When inputs are scarce,which component of the porter 5 forces would show
a negative signal.
a) Bargaining power of supplier
b) Bargaining Power of buyer
c) Threat of substitute
d) Threat of new entrant

4) As per Porter's five forces model, conditions are more favorable for firms
within an industry if-
a. Bargaining power of buyer is low
b. Bargain power of supplier is high
c. Entry threat is high
d. Substitute threat is high

5) Which of this following statement is not true in case of a banking industry?

a) High Switching Cost for the customer

b) Customers are not cautious about brand value while choosíng their bank
c) Requirement of high capital to start operation

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d) Too much compliance and regulation for a new entrant

6) Which of these companies will get lowest score in terms of Threat of new
entrant?
a. Coal India
b. Dabur India
c. Flipkart
d. Both B & e

7) The threat of new entrant reduces, because of

a. Low brand loyalty
b. Wide access to distribution network
c. License requirement
d. Low investment needed

8) The bargaining power of customer in case of airline industry is very high

because customers are very price cautious.
a. True
b. False

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Chapter 3

1) Which of these brand does not enjoy the advantage of customer stickiness?
a. Maggi
b. Tata Salt
c. SBI
d. Airtel
2) Which of the following is not a moat for a company?
a. Patent and Copyrights
b. Network effect
c. Low cost of production
d. High Product diversification

3) The company Pidilite Industries enjoys economic moat due to

a. Strong brand recall
b. Regulatory license
c. Switching cost
d. None of these
4) A business is said to be fall within your circle of competence if you
understand it
a. True
b. False
5) The business model of companies operating in the same industry will be
always same
a. True
b. False
6) The aspect which creates a short-term monopoly for a pharma company
a. Patent
b. Brand Value
c. Low price than competitor
d. None of these

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7) Despite having a great product and an excellent marketing strategy it's

difficult for Patanjali to compete with other FMCG giants like HUL and P&G.
The reason for this
a. Economies of large scale
b. Huge distribution network
c. Regulatory barrier
d. None of these

Chapter 4

1) Margin of safety depends on the risk-taking ability of the investor. If you seek
higher safety of capital, you should have a lower margin of safety
a. True
b. False
2) At what price would you prefer to buy a stock, if its intrinsic value is Rs 540
and your margin of safety is 25%
a) Less than 405
b) 405 - 500
c) 500-540
d) More than 540
3) Suppose there is drastic fall in the price of pharma stocks due to recent
change US FDA approval policies. As a value investor what should be your
decision -
a. Buying these stocks because they are incredibly cheap
b. Selling these stocks as it may fall further
c. Avoiding such stocks because there is regulatory disturbance in the
industry
d. None of these
4) Buying companies whose earnings are declining or that are facing regulatory
or competitive pressure can be termed as
a. Cigar Butt Approach
b. Buffetology
c. Top down approach

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d. Bottom Up approach
5) The consumer durable sector (Mobile/Laptop/TV etc.) always faces
competition threat becauseof fast change in technology
a. True
b. False
6) Which of this is not a favorable indicator while evaluating a company?
a. High Institutional holdings
b. Low debt
c. High Promoter stake
d. A & B
7) Company like Kodak and Nokia disappeared from the market due to
a. Lack of innovation
b. Expensive product
c. Poor marketing strategy
d. Bad management
8) Which of these companies are dependent on external factor for their
earning?
a. Naukri.com
b. Air India
c. HUL
d. Maruti

Chapter-5

1) The CEO of XYZ company is withdrawing salary which is not linked to the
profitability of the company. lt can be:-

a. Unfavorable signal as it shows that management does not care about

shareholder's interest.
b. lt does not Indicate anything about management ethics.
c. Favorable signal as it shows management cares more about
shareholder's interest than personal interest.

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d. None of these

2) Many a times the management enters into certain transactions which are
biased by the relation of the parties. Such transaction can be found under
the head:-
a. Management Remuneration
b. Management discussion and analysis
c. Related party transaction
d. Balance sheet
3) A proprietor, XYZ has asset worth of Rs 10 lakhs and liabilities amounting to
Rs 6 lakhs. So, as per accounting equation what is the amount of capital
invested?
a. 4 lakhs
b. 16 lakhs
c. 61akhs
d. Can't be determined
4) ITC, a FMCG company have invested certain money in share market. Such
invested can be termed as -
a. Operating Asset
b. Non- operating Asset
c. Current Liability
d. Non-Current Liability
5) A pharmaceutical company named ABC ltd. has been granted 500 patents in
the year 2017-18.Such patents comes under the head of-
a. Current Asset
b. Intangible Asset
c. Tangible Asset
d. Liability

6) ABC Ltd has a high P/B ratio than its rival PQR Ltd. Keeping factors constant
(profitability, business model, brand value), we can interpret that -
a. ABC ltd. is undervalued as compared to PQR ltd.
b. ABC ltd is overvalued than PQR ltd.

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c. ABC has high amount of debt than PQR

d. ABC has low amount of debt than PQR
7) A constant negative operating cash flow is a red signal for the investors as it
shows the inefficiency of management in managing the business.
a. True
b. False
8) Investors need to be suspicious when there is high difference between cash
flow from operation and Net profit
a. True
b. False
9) Which of this measure would be more appropriate for comparing 2
companies operating in the same industry but using different technology.(
Capital intensive/ Labor-intensive)?
a. Net Profit
b. Non-operating profit
c. Revenue
d. EBITDA

Chapter 6
1) Increase in stake held by promoters may indicate that are confident about
the outlook and they believe that stock is undervalued.
a. True
b. False
2) You are holding 50 shares of Nestle India Ltd. Supposethe company issued
a bonus of 1:1.lt indicates-
a. A good signal because it will increase your number of holdings
b. A negative signal because it will reduce the market price of the stock
c. No difference as it does not change your total Investment value
3) Find out the true statement
a. Pledging of shares by the promoters is acceptable if it is done to raise
fund for businessexpansion
b. Frequent pledging leads to high volatility and it may result in
significant decline in share price.

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c. Higher Promoter Pledging ils a good indicator as it increases the

shareholder's wealth
d. Both A and B
4) The MD of XYZ ltd. withdraws an annual salary equivalent to 9% of net profit.
lt may indicate
a. Good governance as it will motivate the MD to work harder
b. Bad governance as the salary drawn is very high

5) A parameter which breaks down the firm's profit on per share basis and
improves comparability between 2 companies
a. Dividend per share
b. Earnings per share
c. Book value per share
d. Market price per share

Chapter 7
1) An Automobile manufacturing company, ABC ltd has current asset worth Rs
50 creres and current liability worth Rs 40 creres. The other companies
operating in the same industry have an average current ratio of 3.lt implies
a. ABC ltd.is less likely to avoid insolvency in the short run than other
firms in the industry.
b. The firm has more amount of liquidity than its competitor.
c. ABC Ltd. is utilizing its current asset more efficiently than other firms
in the industry.
d. Both A and e
2) Cash does not form part of which of the following parameter
a. ROE
b. ROCE
c. ROIC
d. Both ROCE and ROI
3) The ROCE of First ltd. is more than of its competitor Second ltd. However, the
ROIC of First ltd is very less as compared to second ltd. lt implies

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a. There is huge cash balance lying on the balance sheet of Second Ltd
b. The net profit of company second limited is more than First Ltd.
c. First Ltd. has high amount of debt
d. Second ltd. is more expensive
4) A firm has a higher asset turnover ratio than the industry average hints about
a. the firm's valuation is more expensive than industry average
b. the firm is more profitable than other firms in the industry.
c. the firm is utilizing assets more efficiently than other firms in the
industry
d. None of these
5) High debtor collection period shows the inefficiency of the company rn
collecting the payment from the debtors.
a. False
b. True
6) The difference between Dividend per share and EPS is the amount reinvested
in the business per share.
a. True
b. False
7) Which of these does not form part of quick asset
a. Debtors
b. Cash
c. Stock
d. Marketable securities

8) Lower interest coverage ratio ensures timely payment of interest and

indicates less chances of default
a. True
b. False

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Chapter 8

1) Comparison of the market price of the share with the earnings per share
gives us which ratio?
e. P/E ratio
f. P/B ratio
g. DPS
h. EPS
2) A high P/E ratio is justified If the business has certain sustainable moat
a. True
b. False
3) The market cap of a company is Rs 2000 crore. The company has debt
amounting to Rs 540 crore. lt also holds cash balance worth Rs 300 crore.
Find the enterprise value.
a. 2300
b. 2240
c. 2540
d. None of these
4) Gujrat Textiles, a textile manufacturing company's stock is trading at a price
of Rs 350, and the last year dividend per share was RS 30. The appropriate
discount rate is 15%. Assuming 7% growth rate, find out the fair value of
share based on DDM model.
a. 401.25
b. 360.80
c. 260.50
d. 340.00
5) P/B ratio is an appropriate matrix measure for evaluating a Wipro Ltd.
a. True
b. False
6) Suppose, Renuka Sugar a sugar manufacturing company is trading at a P/E of
1.lt implies
a. The stock is trading at fair value as it is trading at a P/E of 1.
b. The stock is overvalued

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c. The stock is undervalued

d. Valuation can't be judged on P/E basis as it is a cyclical industry
7) A valuation matrix which takes into consideration the growth rate of the
company-
ª· P/E
b. P/B
c. PEG
d. ROE
8) The net-worth of the company indicates
a. The theoretical cost of acquiring a company
b. The current market price of the company
c. The book value of the company which belongs to the shareholder
after the liquidation
d. Both Band e

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