NISM Series XV Chapter 3 MCQs: Equity and Debt Market Terminology
Practise 20 multiple-choice questions with answers and explanations covering share valuation, market capitalisation, PE and P/S ratios, bond yields, duration, convexity and money market instruments.
Preparing for the NISM Series XV Research Analyst Certification Examination? This chapter-wise practice set focuses on important terminology used in equity and debt markets.
Understanding these terms is essential for research analysts because they form the foundation of company valuation, financial statement analysis, bond analysis and investment research. Concepts such as face value, book value, intrinsic value, enterprise value, yield to maturity and duration also appear in practical financial analysis.
This article contains 20 NISM Series XV Chapter 3 MCQs with answers. Attempt the questions first, then open each explanation to revise the underlying concept.
Part 1: Equity Market Terminology MCQs
These questions cover share value, company valuation, market capitalisation, earnings and commonly used equity valuation ratios.
1. What represents the nominal price of a share?
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Correct answer: C) Face Value
Face value, also called par value or nominal value, is the value assigned to a share by the company. It is different from the market price, which changes according to demand, supply and market expectations.
Exam tip: Face value is not necessarily the price at which a share is traded.
2. How is the book value per share computed?
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Correct answer: B) Net worth divided by outstanding shares
Book value per share is generally calculated by dividing shareholders' equity by the number of outstanding equity shares.
Formula: Book Value per Share = Shareholders' Equity ÷ Outstanding Equity Shares.
Depending on the calculation being used, adjustments may be needed for preference share capital or other relevant items.
3. Which term describes the discounted value of the cash that can be taken out of a business during its remaining life?
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Correct answer: C) Intrinsic Value
Intrinsic value is an estimate of an asset's or share's underlying economic value based on its expected future benefits. In a discounted cash flow approach, expected future cash flows are discounted to their present value using an appropriate discount rate.
Intrinsic value is an estimate, not a guaranteed market price. Different assumptions about growth, risk and discount rates can produce different valuations.
4. The theoretical takeover value of a firm, considering equity, debt and cash reserves, is called:
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Correct answer: D) Enterprise Value
Enterprise Value (EV) measures the value of a company's operating business to all capital providers. A common simplified formula is:
EV = Market Capitalisation + Debt − Cash and Cash Equivalents.
Depending on the company and valuation method, preferred equity, minority interests and other adjustments may also be included. EV is often used to compare businesses with different capital structures.
5. Stocks representing some of the largest companies by market capitalisation and generally having high liquidity are commonly known as:
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Correct answer: B) Blue-chip or large-cap stocks
Large-cap stocks represent companies with relatively high market capitalisation. The term blue-chip is commonly used for established companies with strong market recognition.
Large market capitalisation does not guarantee high liquidity, financial strength or positive future returns. These characteristics should be assessed separately.
6. Earnings calculated using the latest four quarters on a rolling basis are known as:
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Correct answer: B) Trailing earnings
Trailing earnings refer to earnings reported over the most recent completed four-quarter period. This is commonly called trailing twelve-month (TTM) earnings.
Forward earnings, by contrast, refer to expected future earnings, usually based on analyst estimates or company guidance.
7. How is the Price-to-Earnings (P/E) ratio calculated?
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Correct answer: C) Market price per share ÷ Earnings per share
The P/E ratio shows how much investors are paying for each unit of a company's earnings per share.
Formula: P/E Ratio = Market Price per Share ÷ Earnings per Share (EPS).
For example, if a share trades at ₹200 and its annual EPS is ₹10, its P/E ratio is 20. The ratio should be interpreted alongside growth, risk, profitability and industry conditions.
8. Which ratio measures the price investors are willing to pay for each rupee of sales?
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Correct answer: B) Price-to-Sales Ratio
The Price-to-Sales ratio compares a company's market value of equity with its revenue. On a per-share basis, it can be calculated as market price per share divided by sales per share.
Formula: P/S Ratio = Market Capitalisation ÷ Annual Revenue.
This ratio can be useful when comparing companies with low or negative earnings, but sales alone do not reveal profitability or cash generation.
9. What is the defining characteristic of a Differential Voting Rights (DVR) share in the context of this question?
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Correct answer: B) It carries fewer voting rights than a comparable ordinary share
Differential Voting Rights shares have rights that differ from those attached to ordinary equity shares. The difference may relate to voting rights, dividends or other permitted features, depending on the share structure.
For this MCQ, the intended distinction is a share carrying fewer voting rights than a normal share. DVR structures can vary; not every DVR share necessarily has fewer voting rights.
Part 2: Debt Market Terminology MCQs
These questions focus on coupon rates, bond valuation, yield to maturity, duration, convexity and different types of debt and money market instruments.
10. In debt markets, what does the coupon rate represent?
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Correct answer: C) Interest as a percentage of face value
The coupon rate is the stated annual interest rate applied to a bond's face value. For a bond with a face value of ₹1,000 and a 7% annual coupon rate, the annual coupon payment would generally be ₹70, assuming a full year and no special terms.
The coupon rate is not the same as the current yield or yield to maturity, which depend on the bond's market price and cash flows.
11. Which measure of return on a debt security considers future coupon payments and principal repayment, equating their present value to the current market price?
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Correct answer: B) Yield to Maturity (YTM)
Yield to Maturity is the discount rate that equates the present value of a bond's expected contractual cash flows to its current market price.
YTM typically assumes the bond is held until maturity and that coupon payments can be reinvested at the yield rate. The actual realised return may differ if the bond is sold early, defaults or coupon reinvestment occurs at a different rate.
12. What does the duration of a bond help measure?
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Correct answer: B) Price sensitivity to interest-rate changes
Duration is an important measure in fixed-income analysis. Modified duration estimates how sensitive a bond's price is to a change in yield. As a general approximation, a higher modified duration means a larger price movement for the same change in yield.
Macaulay duration has a more specific meaning: it is the weighted-average time at which a bond's cash flows are received. Do not confuse duration with the bond's maturity date.
13. What is the bond-price characteristic in which the price gain from a fall in yield is generally greater than the price loss from an equal rise in yield?
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Correct answer: A) Convexity
Convexity describes the curvature of the relationship between a bond's price and its yield. For a conventional option-free bond with positive convexity, the price increase when yields fall is generally greater than the price decrease for an equal-sized yield rise, all else being equal.
Convexity improves on duration-based estimates, particularly when yield changes are larger.
14. Which bonds do not pay periodic coupon interest and are typically issued at a discount to face value?
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Correct answer: D) Zero-Coupon Bonds
Zero-coupon bonds do not make periodic coupon payments. They are commonly issued below face value and redeemed at face value at maturity, subject to the terms of the instrument.
The difference between the purchase price and the amount received at maturity represents the investor's return before considering taxes, transaction costs and other factors.
15. Treasury Bills (T-Bills) and Commercial Papers (CPs) are examples of which category of instruments?
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Correct answer: B) Short-term money market instruments
Treasury Bills are short-term government securities that are typically issued at a discount and redeemed at face value. Commercial Paper is a short-term money market instrument generally issued by eligible companies and financial institutions to raise funds.
Both belong to the money market, but they differ in issuer and credit risk. Commercial Paper is not a government security and should not automatically be described as risk-free.
16. Which type of bond has an interest rate that resets periodically with reference to a defined benchmark?
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Correct answer: C) Floating-Rate Bonds
Floating-rate bonds have coupons that reset periodically according to a specified benchmark, often with a stated spread. Their coupon payments can therefore change as the benchmark changes.
Floating rates can reduce sensitivity to interest-rate movements compared with otherwise similar fixed-rate bonds, but they do not eliminate credit risk or all price risk.
17. Bonds that give the issuer the right to redeem them before the original maturity date are called:
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Correct answer: C) Callable Bonds
A callable bond gives the issuer the right to redeem the bond before its scheduled maturity, subject to the terms of the issue.
This feature can benefit the issuer when market interest rates fall because the issuer may be able to refinance at a lower rate. For investors, the call feature can limit potential gains and create reinvestment risk.
18. Which bond gives the investor the right to request early redemption before the original maturity date?
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Correct answer: A) Puttable Bonds
A puttable bond gives the investor the right to sell the bond back to the issuer at specified dates and under specified conditions. This feature can be valuable when market yields rise or the issuer's credit quality deteriorates, depending on the terms.
Remember: Callable = issuer's early-redemption option. Puttable = investor's early-redemption option.
19. In which type of bond can the coupon be paid by issuing additional bonds instead of paying cash?
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Correct answer: B) Payment-in-Kind (PIK) Bonds
Payment-in-Kind bonds allow interest to be paid in a non-cash form, such as additional debt securities, instead of immediate cash payments. The exact structure depends on the bond's terms.
PIK structures can preserve cash in the short term for the issuer, but the outstanding debt may increase and the investor faces risks associated with the issuer's ability to repay.
20. Which category of government securities is designed to help protect investors against inflation by adjusting the principal used to calculate interest?
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Correct answer: C) Inflation-Indexed Bonds (IIBs)
Inflation-indexed bonds are designed to link specified cash-flow components to an inflation index. Under structures where principal is adjusted for inflation, the coupon rate may be applied to the adjusted principal, helping protect the investor's purchasing power.
The precise mechanism depends on the instrument's terms. Inflation protection does not mean that the investor is guaranteed a positive real return under every circumstance.
Quick Revision: Key Formulas and Concepts
| Term | Meaning / Formula |
|---|---|
| Face Value | Nominal value assigned to a share or debt security. |
| Book Value per Share | Shareholders' equity ÷ outstanding equity shares, subject to relevant adjustments. |
| Enterprise Value | Common simplified formula: market capitalisation + debt − cash and cash equivalents. |
| Trailing Earnings | Earnings for the most recent completed four quarters. |
| P/E Ratio | Market price per share ÷ earnings per share. |
| P/S Ratio | Market capitalisation ÷ annual revenue. |
| Coupon Rate | Stated annual coupon as a percentage of face value. |
| Yield to Maturity | Discount rate equating the present value of expected contractual bond cash flows to market price. |
| Modified Duration | Approximate sensitivity of bond price to changes in yield. |
| Convexity | Measures the curvature of the bond price-yield relationship. |
| Callable Bond | Issuer has an option to redeem early under specified conditions. |
| Puttable Bond | Investor has an option to request early redemption under specified conditions. |
Frequently Asked Questions
What does Chapter 3 of NISM Series XV cover?
This practice set focuses on terminology in equity and debt markets, including share valuation, valuation ratios, bond yields, duration, convexity and types of debt instruments. Use the current official NISM curriculum and workbook to confirm the prescribed scope.
How many MCQs are included in this Chapter 3 practice set?
This article includes 20 multiple-choice questions with four options and expandable answer explanations.
Are these official NISM examination questions?
These are practice questions based on the concepts represented in this article. They should not be treated as official past examination questions unless their official source and status are independently confirmed.
Should I memorise the answers or understand the concepts?
Understanding the concepts is more useful. Learn the definition, formula, interpretation and limitations of each term, then practise similar questions.
Where can I study the complete NISM Series XV syllabus?
Refer to the official NISM Series XV study material and examination information for the applicable exam cycle. Use chapter-wise MCQs as a supplement, not a replacement for the prescribed workbook.
Conclusion
Equity and debt market terminology forms the foundation of research analysis. From understanding a share's face value and intrinsic value to interpreting a bond's yield, duration and convexity, these concepts help investors and analysts evaluate securities more systematically.
Attempt all 20 questions, review the explanations, and revisit the concepts you find difficult. Consistent practice combined with the official workbook can help you build a stronger foundation for the NISM Series XV Research Analyst Certification Examination.
Continue your preparation: Visit the NISM Series XV chapter-wise MCQ collection on EduCatn for more practice questions as additional chapters become available.
Disclaimer: This article is intended for educational and exam-preparation purposes. Verify syllabus details and examination rules using the official NISM material applicable to your examination.
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