NCFM Certifications India Exam Questions and Answers
Question 1. Using CAPM, what required return is implied by a risk-free rate of 4.0%, a market return of 10.0%, and a
beta of 0.9?
A. 9.40%
B. 14.00%
C. 10.00%
D. 9.00%
Correct Answer: A. 9.40%
Explanation: CAPM estimates required return as the risk-free rate plus beta multiplied by the market risk premium. The calculation
is 4.0% + 0.9 × (10.0% - 4.0%) = 9.40%. The beta applies to the market risk premium, not to the entire expected market return.
Question 2. A candidate preparing for NCFM Certifications (India) encounters the following description: “The
sensitivity of an option's delta to changes in the underlying price.” Which term is most directly associated with
this description?
A. Gamma
B. Currency swap
C. Futures contract
D. Vega
Correct Answer: A. Gamma
Explanation: Gamma is best understood as the sensitivity of an option's delta to changes in the underlying price. This
interpretation is consistent with the way the concept is applied in professional securities and investment practice, including activity
overseen by SEBI and the applicable Indian market authorities. The other choices describe different concepts or would lead to a
materially different risk, trading, valuation, or compliance conclusion.
Question 3. A one-period project requires an initial outlay of ■100,000.00 and is expected to pay ■110,000.00 one
year later. At a discount rate of 10.0%, what is the NPV?
A. ■21,000.00
B. ■0.00
C. ■-0.00
D. ■10,000.00
Correct Answer: C. ■-0.00
Explanation: NPV equals the present value of future cash flows minus the initial outlay. Discounting ■110,000.00 for one year at
10.0% and subtracting ■100,000.00 gives ■-0.00. The undiscounted difference ignores the time value of money and therefore is
not NPV.
Question 4. An investment earns a nominal return of 6.0% while inflation is 3.0%. Using the exact Fisher
relationship, what is the real return?
A. 3.00%
B. 50.00%
C. 9.00%
D. 2.91%
Correct Answer: D. 2.91%
Explanation: The exact real return is (1 + nominal return) / (1 + inflation) - 1. Using the stated values gives 2.91%. Simply
subtracting inflation from nominal return is a useful approximation at low rates, but it is not the exact calculation requested.
Page 1
,Question 5. A company has current assets of 100 million and current liabilities of 75 million. What is its current
ratio?
A. 2.33
B. 1.33
C. 0.75
D. 25.00
Correct Answer: B. 1.33
Explanation: The current ratio equals current assets divided by current liabilities. = 1.33. Subtracting the two amounts
produces working capital, which is a different liquidity measure.
Question 6. A one-period project requires an initial outlay of ■120,000.00 and is expected to pay ■90,000.00 one
year later. At a discount rate of 8.0%, what is the NPV?
A. ■-22,800.00
B. ■36,666.67
C. ■-36,666.67
D. ■-30,000.00
Correct Answer: C. ■-36,666.67
Explanation: NPV equals the present value of future cash flows minus the initial outlay. Discounting ■90,000.00 for one year at
8.0% and subtracting ■120,000.00 gives ■-36,666.67. The undiscounted difference ignores the time value of money and therefore
is not NPV.
Question 7. In the context of NSE securities markets, which statement about Return on equity is most accurate?
A. Current assets divided by current liabilities.
B. Net income attributable to common equity divided by average or stated common shareholders' equity, depending on the
convention used.
C. Earnings available to common shareholders divided by the applicable weighted-average common shares outstanding.
D. A leverage measure comparing debt to shareholders' equity under the stated accounting definition.
Correct Answer: B. Net income attributable to common equity divided by average or stated common shareholders'
equity, depending on the convention used.
Explanation: Return on equity is best understood as net income attributable to common equity divided by average or stated
common shareholders' equity, depending on the convention used. This interpretation is consistent with the way the concept is
applied in professional securities and investment practice, including activity overseen by SEBI and the applicable Indian market
authorities. The other choices describe different concepts or would lead to a materially different risk, trading, valuation, or
compliance conclusion.
Question 8. A candidate preparing for NCFM Certifications (India) encounters the following description: “The
natural person who ultimately owns, controls, or benefits from an account, entity, or transaction.” Which term is
most directly associated with this description?
A. Suspicious transaction reporting
B. Sanctions screening
C. Politically exposed person
D. Beneficial owner
Correct Answer: D. Beneficial owner
Explanation: Beneficial owner is best understood as the natural person who ultimately owns, controls, or benefits from an account,
entity, or transaction. This interpretation is consistent with the way the concept is applied in professional securities and investment
practice, including activity overseen by SEBI and the applicable Indian market authorities. The other choices describe different
concepts or would lead to a materially different risk, trading, valuation, or compliance conclusion.
Page 2
,Question 9. An investor owns a share purchased at ■100.00 and writes one call with strike ■115.00, receiving a
premium of ■5.00 per share. What is the maximum gain per share at expiration, ignoring dividends and costs?
A. ■-10.00
B. ■20.00
C. ■5.00
D. ■15.00
Correct Answer: B. ■20.00
Explanation: A covered call's upside is capped because the written call can require sale of the share at the strike price. Maximum
gain per share is strike minus stock cost plus premium: 115 - 100 + 5 = ■20.00. The premium adds income, but it does not remove
the downside risk of owning the stock.
Question 10. A candidate preparing for NCFM Certifications (India) encounters the following description: “An
increase in shares outstanding with a proportional reduction in price per share, absent other market effects.”
Which term is most directly associated with this description?
A. Stock split
B. Preferred share
C. Price-earnings ratio
D. Dividend
Correct Answer: A. Stock split
Explanation: Stock split is best understood as an increase in shares outstanding with a proportional reduction in price per share,
absent other market effects. This interpretation is consistent with the way the concept is applied in professional securities and
investment practice, including activity overseen by SEBI and the applicable Indian market authorities. The other choices describe
different concepts or would lead to a materially different risk, trading, valuation, or compliance conclusion.
Question 11. A candidate preparing for NCFM Certifications (India) encounters the following description: “A debt
instrument whose coupon resets periodically by reference to a specified benchmark plus or minus a spread.”
Which term is most directly associated with this description?
A. Yield to maturity
B. Puttable bond
C. Floating-rate note
D. Treasury bill
Correct Answer: C. Floating-rate note
Explanation: Floating-rate note is best understood as a debt instrument whose coupon resets periodically by reference to a
specified benchmark plus or minus a spread. This interpretation is consistent with the way the concept is applied in professional
securities and investment practice, including activity overseen by SEBI and the applicable Indian market authorities. The other
choices describe different concepts or would lead to a materially different risk, trading, valuation, or compliance conclusion.
Question 12. An investor buys a call with strike ■75.00 for a premium of ■2.00 per unit. Ignoring transaction costs,
what is the breakeven underlying price at expiration?
A. ■77.00
B. ■73.00
C. ■75.00
D. ■2.00
Correct Answer: A. ■77.00
Explanation: A long call breaks even at expiration when intrinsic value exactly offsets the premium paid. Therefore the breakeven
is strike plus premium, or ■75.00 + ■2.00 = ■77.00. Below this level the position has a net loss at expiration, while above it the
position has a net profit.
Page 3
, Question 13. A 58-year-old client has a 2-year stated horizon and identifies the primary objective as income with
limited volatility. Before recommending a complex high-volatility product, what should the representative do first?
A. Recommend the product whenever it is legal to sell, regardless of the client's profile.
B. Rely only on the client's age because age is the dominant suitability factor.
C. Confirm the client's current objectives, financial circumstances, knowledge, risk tolerance and capacity, then assess whether
the product fits those facts.
D. Recommend the product if its recent return exceeds the client's existing portfolio return.
Correct Answer: C. Confirm the client's current objectives, financial circumstances, knowledge, risk tolerance and
capacity, then assess whether the product fits those facts.
Explanation: Suitability or analogous appropriateness standards require the recommendation process to start with a sufficiently
current understanding of the client and the product. Under a framework overseen by SEBI and the applicable Indian market
authorities, recent performance or legal availability alone does not establish that a product fits the client's circumstances. A complex
or volatile product generally requires particular attention to knowledge, loss capacity, time horizon, liquidity needs, and relevant risk
disclosures.
Question 14. A company earns net income of 18 million and has average common equity of 90 million. What is
return on equity?
A. 20.00%
B. 80.00%
C. 18.00%
D. 5.00%
Correct Answer: A. 20.00%
Explanation: Return on equity compares earnings available to common equity with the equity capital supporting those earnings.
Using the stated figures, × 100 = 20.00%. The measure should not be inverted because equity divided by income answers a
different question.
Question 15. A bond has a face value of ■1,000.00, an annual coupon rate of 4.0%, and a market price of ■970.00.
What is its current yield?
A. 4.00%
B. 4.12%
C. 5.00%
D. 3.09%
Correct Answer: B. 4.12%
Explanation: Current yield equals annual coupon cash flow divided by current market price, so the numerator is ■40.00. Dividing
by ■970.00 gives 4.12%. Current yield is not the coupon rate and it is not yield to maturity because it ignores the timing and amount
of the redemption cash flow.
Question 16. A company's share price is ■72.00 and earnings per share are ■6.00. What is the price-earnings
ratio?
A. 0.08 times
B. 12.00 times
C. 66.00 times
D. 78.00 times
Correct Answer: B. 12.00 times
Explanation: The price-earnings ratio equals market price per share divided by earnings per share. ■72.00 divided by ■6.00
equals 12.00 times. The reciprocal would be an earnings-yield style measure, not the P/E ratio.
Page 4
Question 1. Using CAPM, what required return is implied by a risk-free rate of 4.0%, a market return of 10.0%, and a
beta of 0.9?
A. 9.40%
B. 14.00%
C. 10.00%
D. 9.00%
Correct Answer: A. 9.40%
Explanation: CAPM estimates required return as the risk-free rate plus beta multiplied by the market risk premium. The calculation
is 4.0% + 0.9 × (10.0% - 4.0%) = 9.40%. The beta applies to the market risk premium, not to the entire expected market return.
Question 2. A candidate preparing for NCFM Certifications (India) encounters the following description: “The
sensitivity of an option's delta to changes in the underlying price.” Which term is most directly associated with
this description?
A. Gamma
B. Currency swap
C. Futures contract
D. Vega
Correct Answer: A. Gamma
Explanation: Gamma is best understood as the sensitivity of an option's delta to changes in the underlying price. This
interpretation is consistent with the way the concept is applied in professional securities and investment practice, including activity
overseen by SEBI and the applicable Indian market authorities. The other choices describe different concepts or would lead to a
materially different risk, trading, valuation, or compliance conclusion.
Question 3. A one-period project requires an initial outlay of ■100,000.00 and is expected to pay ■110,000.00 one
year later. At a discount rate of 10.0%, what is the NPV?
A. ■21,000.00
B. ■0.00
C. ■-0.00
D. ■10,000.00
Correct Answer: C. ■-0.00
Explanation: NPV equals the present value of future cash flows minus the initial outlay. Discounting ■110,000.00 for one year at
10.0% and subtracting ■100,000.00 gives ■-0.00. The undiscounted difference ignores the time value of money and therefore is
not NPV.
Question 4. An investment earns a nominal return of 6.0% while inflation is 3.0%. Using the exact Fisher
relationship, what is the real return?
A. 3.00%
B. 50.00%
C. 9.00%
D. 2.91%
Correct Answer: D. 2.91%
Explanation: The exact real return is (1 + nominal return) / (1 + inflation) - 1. Using the stated values gives 2.91%. Simply
subtracting inflation from nominal return is a useful approximation at low rates, but it is not the exact calculation requested.
Page 1
,Question 5. A company has current assets of 100 million and current liabilities of 75 million. What is its current
ratio?
A. 2.33
B. 1.33
C. 0.75
D. 25.00
Correct Answer: B. 1.33
Explanation: The current ratio equals current assets divided by current liabilities. = 1.33. Subtracting the two amounts
produces working capital, which is a different liquidity measure.
Question 6. A one-period project requires an initial outlay of ■120,000.00 and is expected to pay ■90,000.00 one
year later. At a discount rate of 8.0%, what is the NPV?
A. ■-22,800.00
B. ■36,666.67
C. ■-36,666.67
D. ■-30,000.00
Correct Answer: C. ■-36,666.67
Explanation: NPV equals the present value of future cash flows minus the initial outlay. Discounting ■90,000.00 for one year at
8.0% and subtracting ■120,000.00 gives ■-36,666.67. The undiscounted difference ignores the time value of money and therefore
is not NPV.
Question 7. In the context of NSE securities markets, which statement about Return on equity is most accurate?
A. Current assets divided by current liabilities.
B. Net income attributable to common equity divided by average or stated common shareholders' equity, depending on the
convention used.
C. Earnings available to common shareholders divided by the applicable weighted-average common shares outstanding.
D. A leverage measure comparing debt to shareholders' equity under the stated accounting definition.
Correct Answer: B. Net income attributable to common equity divided by average or stated common shareholders'
equity, depending on the convention used.
Explanation: Return on equity is best understood as net income attributable to common equity divided by average or stated
common shareholders' equity, depending on the convention used. This interpretation is consistent with the way the concept is
applied in professional securities and investment practice, including activity overseen by SEBI and the applicable Indian market
authorities. The other choices describe different concepts or would lead to a materially different risk, trading, valuation, or
compliance conclusion.
Question 8. A candidate preparing for NCFM Certifications (India) encounters the following description: “The
natural person who ultimately owns, controls, or benefits from an account, entity, or transaction.” Which term is
most directly associated with this description?
A. Suspicious transaction reporting
B. Sanctions screening
C. Politically exposed person
D. Beneficial owner
Correct Answer: D. Beneficial owner
Explanation: Beneficial owner is best understood as the natural person who ultimately owns, controls, or benefits from an account,
entity, or transaction. This interpretation is consistent with the way the concept is applied in professional securities and investment
practice, including activity overseen by SEBI and the applicable Indian market authorities. The other choices describe different
concepts or would lead to a materially different risk, trading, valuation, or compliance conclusion.
Page 2
,Question 9. An investor owns a share purchased at ■100.00 and writes one call with strike ■115.00, receiving a
premium of ■5.00 per share. What is the maximum gain per share at expiration, ignoring dividends and costs?
A. ■-10.00
B. ■20.00
C. ■5.00
D. ■15.00
Correct Answer: B. ■20.00
Explanation: A covered call's upside is capped because the written call can require sale of the share at the strike price. Maximum
gain per share is strike minus stock cost plus premium: 115 - 100 + 5 = ■20.00. The premium adds income, but it does not remove
the downside risk of owning the stock.
Question 10. A candidate preparing for NCFM Certifications (India) encounters the following description: “An
increase in shares outstanding with a proportional reduction in price per share, absent other market effects.”
Which term is most directly associated with this description?
A. Stock split
B. Preferred share
C. Price-earnings ratio
D. Dividend
Correct Answer: A. Stock split
Explanation: Stock split is best understood as an increase in shares outstanding with a proportional reduction in price per share,
absent other market effects. This interpretation is consistent with the way the concept is applied in professional securities and
investment practice, including activity overseen by SEBI and the applicable Indian market authorities. The other choices describe
different concepts or would lead to a materially different risk, trading, valuation, or compliance conclusion.
Question 11. A candidate preparing for NCFM Certifications (India) encounters the following description: “A debt
instrument whose coupon resets periodically by reference to a specified benchmark plus or minus a spread.”
Which term is most directly associated with this description?
A. Yield to maturity
B. Puttable bond
C. Floating-rate note
D. Treasury bill
Correct Answer: C. Floating-rate note
Explanation: Floating-rate note is best understood as a debt instrument whose coupon resets periodically by reference to a
specified benchmark plus or minus a spread. This interpretation is consistent with the way the concept is applied in professional
securities and investment practice, including activity overseen by SEBI and the applicable Indian market authorities. The other
choices describe different concepts or would lead to a materially different risk, trading, valuation, or compliance conclusion.
Question 12. An investor buys a call with strike ■75.00 for a premium of ■2.00 per unit. Ignoring transaction costs,
what is the breakeven underlying price at expiration?
A. ■77.00
B. ■73.00
C. ■75.00
D. ■2.00
Correct Answer: A. ■77.00
Explanation: A long call breaks even at expiration when intrinsic value exactly offsets the premium paid. Therefore the breakeven
is strike plus premium, or ■75.00 + ■2.00 = ■77.00. Below this level the position has a net loss at expiration, while above it the
position has a net profit.
Page 3
, Question 13. A 58-year-old client has a 2-year stated horizon and identifies the primary objective as income with
limited volatility. Before recommending a complex high-volatility product, what should the representative do first?
A. Recommend the product whenever it is legal to sell, regardless of the client's profile.
B. Rely only on the client's age because age is the dominant suitability factor.
C. Confirm the client's current objectives, financial circumstances, knowledge, risk tolerance and capacity, then assess whether
the product fits those facts.
D. Recommend the product if its recent return exceeds the client's existing portfolio return.
Correct Answer: C. Confirm the client's current objectives, financial circumstances, knowledge, risk tolerance and
capacity, then assess whether the product fits those facts.
Explanation: Suitability or analogous appropriateness standards require the recommendation process to start with a sufficiently
current understanding of the client and the product. Under a framework overseen by SEBI and the applicable Indian market
authorities, recent performance or legal availability alone does not establish that a product fits the client's circumstances. A complex
or volatile product generally requires particular attention to knowledge, loss capacity, time horizon, liquidity needs, and relevant risk
disclosures.
Question 14. A company earns net income of 18 million and has average common equity of 90 million. What is
return on equity?
A. 20.00%
B. 80.00%
C. 18.00%
D. 5.00%
Correct Answer: A. 20.00%
Explanation: Return on equity compares earnings available to common equity with the equity capital supporting those earnings.
Using the stated figures, × 100 = 20.00%. The measure should not be inverted because equity divided by income answers a
different question.
Question 15. A bond has a face value of ■1,000.00, an annual coupon rate of 4.0%, and a market price of ■970.00.
What is its current yield?
A. 4.00%
B. 4.12%
C. 5.00%
D. 3.09%
Correct Answer: B. 4.12%
Explanation: Current yield equals annual coupon cash flow divided by current market price, so the numerator is ■40.00. Dividing
by ■970.00 gives 4.12%. Current yield is not the coupon rate and it is not yield to maturity because it ignores the timing and amount
of the redemption cash flow.
Question 16. A company's share price is ■72.00 and earnings per share are ■6.00. What is the price-earnings
ratio?
A. 0.08 times
B. 12.00 times
C. 66.00 times
D. 78.00 times
Correct Answer: B. 12.00 times
Explanation: The price-earnings ratio equals market price per share divided by earnings per share. ■72.00 divided by ■6.00
equals 12.00 times. The reciprocal would be an earnings-yield style measure, not the P/E ratio.
Page 4
