Basics of Security Analysis and Portfolio Management
Q1. What is the primary goal of Security Analysis and Portfolio Management (SAPM)?
A. Maximizing tax benefits
B. Achieving investment goals with managed risk
C. Minimizing portfolio size
D. Avoiding all forms of market risk
✅ Answer: B. Achieving investment goals with managed risk
Q2. Which of the following is NOT a type of security in the financial market?
A. Stocks
B. Bonds
C. Real estate property
D. Derivatives
✅ Answer: C. Real estate property
Q3. What is a derivative?
A. A fixed-income instrument
B. An ownership certificate
C. A contract whose value depends on another asset
D. A form of savings account
✅ Answer: C. A contract whose value depends on another asset
Q4. What are the two primary types of analysis used in SAPM?
A. Sector and currency analysis
B. Credit and equity analysis
C. Fundamental and technical analysis
D. Ratio and balance sheet analysis
✅ Answer: C. Fundamental and technical analysis
Q5. Which financial instrument represents ownership in a company?
A. Bonds
B. Stocks
C. Debentures
D. Options
✅ Answer: B. Stocks
Q6. What does fundamental analysis primarily focus on?
A. Daily price fluctuations
B. Investor sentiment
C. Company’s financial and economic data
D. Market rumors
✅ Answer: C. Company’s financial and economic data
Q7. Which of the following is NOT typically analyzed in fundamental analysis?
A. Income statement
B. Balance sheet
C. Candlestick charts
D. Industry trends
✅ Answer: C. Candlestick charts
Q8. A high P/E ratio typically suggests:
A. The stock is undervalued
B. The company has no growth potential
C. High investor expectations for growth
D. Poor earnings performance
✅ Answer: C. High investor expectations for growth
Q9. What does technical analysis rely on?
A. Macroeconomic indicators
B. Financial statements
C. Historical price and volume patterns
D. Company announcements
✅ Answer: C. Historical price and volume patterns
Q10. Which tool is commonly used in technical analysis?
A. Cash Flow Statement
B. Price-to-Book Ratio
C. Moving Average
D. Debt-to-Equity Ratio
✅ Answer: C. Moving Average
Q11. The RSI (Relative Strength Index) helps measure:
A. Company profitability
B. Market share
C. Overbought or oversold conditions
D. Return on investment
✅ Answer: C. Overbought or oversold conditions
Q12. What is the main objective of portfolio management?
A. Maximizing tax savings
B. Minimizing the number of securities
C. Achieving the best possible return for a given risk
D. Avoiding diversification
✅ Answer: C. Achieving the best possible return for a given risk
Q13. What is asset allocation?
A. Choosing the safest asset
B. Distributing investments across asset classes
C. Investing all funds into one asset
D. Eliminating portfolio risk
✅ Answer: B. Distributing investments across asset classes
Q14. Which strategy spreads investments across various sectors and geographies?
A. Arbitrage
B. Diversification
C. Hedging
D. Speculation
✅ Answer: B. Diversification
Q15. The concept of risk-return tradeoff means:
A. Higher return guarantees lower risk
B. Return is independent of risk
C. Higher returns come with higher risks
D. Risk and return should be minimized
✅ Answer: C. Higher returns come with higher risks
Q16. What is portfolio rebalancing?
A. Replacing all assets every quarter
B. Adjusting asset allocation to maintain original investment strategy
C. Selling only underperforming stocks
D. Avoiding taxes through reallocation
✅ Answer: B. Adjusting asset allocation to maintain original investment strategy
Q17. One key benefit of diversification is:
A. Reducing transaction fees
B. Avoiding taxes
C. Reducing overall investment risk
D. Increasing inflation
✅ Answer: C. Reducing overall investment risk
Q18. How does SAPM help investors adapt to market conditions?
A. By buying low and selling high
B. Through static investment planning
C. By allowing periodic review and adjustments
D. By avoiding equities
✅ Answer: C. By allowing periodic review and adjustments
Q19. What is a major challenge in portfolio management today?
A. Limited number of stocks
B. Technological stagnation
C. Market volatility and uncertainty
D. Stable interest rates
✅ Answer: C. Market volatility and uncertainty
Q20. Why is technological adaptation crucial in SAPM?
A. It increases paperwork
B. It reduces financial literacy
C. It enables better data analysis and decision-making
D. It eliminates all investment risks
✅ Answer: C. It enables better data analysis and decision-making
Q21. What makes client portfolio management increasingly complex?
A. Globalization
B. Diverse individual needs and goals
C. Lack of trading options
D. Uniform financial planning
✅ Answer: B. Diverse individual needs and goals
Q22. What is the main goal of agile investment strategies?
A. Long-term holding only
B. Respond quickly to market changes
C. Avoid risk entirely
D. Invest in only government bonds
✅ Answer: B. Respond quickly to market changes
Q23. ESG stands for:
A. Economic, Social, and Global
B. Equity, Security, and Growth
C. Environmental, Social, and Governance
D. Earnings, Shareholding, and Growth
✅ Answer: C. Environmental, Social, and Governance
Q24. Why is ESG investing gaining popularity?
A. It avoids taxes
B. It eliminates risk
C. Investors prefer sustainable and ethical businesses
D. It guarantees high returns
✅ Answer: C. Investors prefer sustainable and ethical businesses
Q25. Which tool is often used in modern portfolio management?
A. MACD indicators
B. Price control software
C. Project Portfolio Management (PPM) tools
D. SWOT analysis
✅ Answer: C. Project Portfolio Management (PPM) tools
Q26. What is the benefit of AI in portfolio management?
A. Replaces human analysts completely
B. Provides emotional decisions
C. Enhances prediction and decision-making through data
D. Avoids legal compliance
✅ Answer: C. Enhances prediction and decision-making through data
Advanced Security Analysis
Q27. What does the term "intrinsic value" refer to in security analysis?
A. Market value of a security
B. Historical cost of a security
C. Estimated true value based on fundamentals
D. Discounted price
✅ Answer: C. Estimated true value based on fundamentals
Q28. Fundamental analysts aim to:
A. Follow technical chart patterns
B. Predict short-term movements
C. Evaluate a company's actual worth
D. Avoid ratio analysis
✅ Answer: C. Evaluate a company's actual worth
Q29. A low P/E ratio may indicate:
A. Overvaluation
B. High growth
C. Undervaluation or financial concerns
D. Inflation risks
✅ Answer: C. Undervaluation or financial concerns
Q30. Technical analysis assumes that:
A. Past patterns repeat in the future
B. Market is always rational
C. Investors don't care about trends
D. Company reports are unnecessary
✅ Answer: A. Past patterns repeat in the future
Q31. The "head and shoulders" pattern in charts indicates:
A. Continuation of trend
B. Neutral signal
C. A possible trend reversal
D. Entry point for new IPO
✅ Answer: C. A possible trend reversal
Q32. Bollinger Bands are used to:
A. Track economic trends
B. Evaluate industry performance
C. Measure price volatility
D. Detect fraud
✅ Answer: C. Measure price volatility
Q33. Candlestick patterns are used in:
A. Financial ratio evaluation
B. Technical analysis
C. Credit risk analysis
D. Fundamental accounting
✅ Answer: B. Technical analysis
Q34. A stock with high beta is:
A. Less volatile than market
B. Unrelated to market
C. More volatile than market
D. Risk-free
✅ Answer: C. More volatile than market
Q35. Which tool is NOT typically used in technical analysis?
A. MACD
B. Balance Sheet
C. RSI
D. Moving Average
✅ Answer: B. Balance Sheet
Q36. Which industry metric is essential for evaluating cyclical businesses?
A. Debt-to-Equity Ratio
B. Gross Profit Margin
C. Operating Cycle
D. Price Movement History
✅ Answer: C. Operating Cycle
Q37. In fundamental analysis, the PEG ratio helps analyze:
A. Growth adjusted to P/E
B. Historical volume
C. Moving average
D. Book value
✅ Answer: A. Growth adjusted to P/E
Q38. What indicates a stock might be overbought in RSI?
A. RSI below 30
B. RSI at 50
C. RSI above 70
D. RSI equals moving average
✅ Answer: C. RSI above 70
Q39. A rising wedge pattern usually signals:
A. Bullish continuation
B. Consolidation
C. Bearish reversal
D. No change
✅ Answer: C. Bearish reversal
Advanced Portfolio Management Strategies
Q40. What is tactical asset allocation?
A. Ignoring market trends
B. Changing allocation based on short-term predictions
C. Investing only in bonds
D. Holding assets till maturity
✅ Answer: B. Changing allocation based on short-term predictions
Q41. Strategic asset allocation focuses on:
A. Daily changes in stocks
B. Long-term investment goals
C. Arbitrage trading
D. Buying only debt instruments
✅ Answer: B. Long-term investment goals
Q42. Which of these portfolios is likely to be most aggressive?
A. 90% bonds, 10% cash
B. 20% stocks, 80% debt
C. 80% equities, 20% commodities
D. 50% fixed deposits, 50% mutual funds
✅ Answer: C. 80% equities, 20% commodities
Q43. A conservative investor typically prefers:
A. High-risk derivatives
B. Penny stocks
C. Government bonds
D. IPO speculation
✅ Answer: C. Government bonds
Q44. The Sharpe Ratio measures:
A. Liquidity of a portfolio
B. Tax efficiency
C. Risk-adjusted returns
D. P/E movement
✅ Answer: C. Risk-adjusted returns
Q45. Which combination increases portfolio risk the most?
A. Highly correlated assets
B. Diversified assets
C. Fixed-income instruments only
D. Only blue-chip stocks
✅ Answer: A. Highly correlated assets
Q46. Passive portfolio management implies:
A. Constant rebalancing
B. Actively buying and selling
C. Tracking a benchmark index
D. High churn strategy
✅ Answer: C. Tracking a benchmark index
Q47. An example of an index fund would be:
A. Nifty ETF
B. IPO allocation
C. Tax-free bond
D. Liquid mutual fund
✅ Answer: A. Nifty ETF
Q48. What does ALPHA represent in portfolio performance?
A. Tax benefit
B. Return above market benchmark
C. Risk score
D. Investor's age
✅ Answer: B. Return above market benchmark
Q49. The CAPM model calculates:
A. Maximum loss
B. Portfolio duration
C. Expected return on an asset
D. Cost of capital
✅ Answer: C. Expected return on an asset
Q50. Which factor does not influence portfolio construction?
A. Investor’s age
B. Investor’s risk profile
C. Current inflation
D. Social media usage
✅ Answer: D. Social media usage
Q51. Dollar-cost averaging helps to:
A. Time the market
B. Increase volatility
C. Reduce average investment cost
D. Avoid asset diversification
✅ Answer: C. Reduce average investment cost
Q52. Portfolio turnover ratio indicates:
A. Dividend yield
B. Tax savings
C. Frequency of asset buying/selling
D. Return on capital
✅ Answer: C. Frequency of asset buying/selling
Q53. Risk appetite generally decreases when:
A. Age increases
B. Inflation drops
C. Interest rates rise
D. GDP grows
✅ Answer: A. Age increases
Q54. A well-diversified portfolio typically includes:
A. Only small-cap stocks
B. Only real estate
C. Equities, bonds, and commodities
D. Only government securities
✅ Answer: C. Equities, bonds, and commodities
Q55. Which of the following is a liquidity risk?
A. Unable to find a buyer for a stock
B. Company’s earnings decline
C. Market crashes
D. Currency devaluation
✅ Answer: A. Unable to find a buyer for a stock
Q56. A portfolio aligned to ESG values may exclude:
A. Green energy firms
B. Tobacco companies
C. Renewable sector
D. Sustainable funds
✅ Answer: B. Tobacco companies
Q57. Portfolio beta of 1.5 means:
A. Less risky than market
B. Equal to risk-free rate
C. 50% more volatile than market
D. Fixed income instrument
✅ Answer: C. 50% more volatile than market
Q58. Systematic risk is also known as:
A. Unique risk
B. Diversifiable risk
C. Market risk
D. Internal risk
✅ Answer: C. Market risk
Q59. Unsystematic risk can be reduced by:
A. Market timing
B. Investing in only one stock
C. Diversification
D. Increasing leverage
✅ Answer: C. Diversification
Q60. Risk that affects the entire market is:
A. Credit risk
B. Liquidity risk
C. Systematic risk
D. Operational risk
✅ Answer: C. Systematic risk
Case-Based & Scenario-Based MCQs
Q61. Rahul is a 25-year-old investor looking for high long-term returns and is comfortable with market volatility. What portfolio type suits him best?
A. Conservative portfolio
B. Fixed-income portfolio
C. Growth-oriented equity portfolio
D. Retirement-only fund
✅ Answer: C. Growth-oriented equity portfolio
Q62. Priya wants to invest in stocks based on financial performance, management quality, and industry trends. Which approach will she use?
A. Technical analysis
B. Random walk theory
C. Fundamental analysis
D. Quantitative trading
✅ Answer: C. Fundamental analysis
Q63. A mutual fund manager observes that the stock prices of a pharmaceutical company are consistently hitting upper circuit without any changes in fundamentals. What should the manager rely on?
A. Income Statement
B. RSI & Moving Averages
C. Annual Reports
D. IPO Reports
✅ Answer: B. RSI & Moving Averages
Q64. If a stock’s beta is 1.2, what does it imply?
A. The stock is 20% more volatile than the market
B. The stock is safer than the market
C. The stock has a fixed return
D. The stock is undervalued
✅ Answer: A. The stock is 20% more volatile than the market
Q65. An investor checks RSI of 80 on a stock. What does this usually indicate?
A. The stock is undervalued
B. The stock is overbought
C. A buy signal
D. A strong balance sheet
✅ Answer: B. The stock is overbought
Q66. A portfolio with 100% investment in gold is lacking:
A. Tactical asset allocation
B. Diversification
C. Risk
D. Profitability
✅ Answer: B. Diversification
Q67. Suresh wants steady income and low risk. He should consider:
A. Growth equity fund
B. High-beta stocks
C. Government bonds
D. Crypto portfolio
✅ Answer: C. Government bonds
Q68. A 60-40 equity-debt portfolio is commonly known as:
A. Conservative
B. Aggressive
C. Balanced
D. Tactical
✅ Answer: C. Balanced
Q69. During a market crash, which portfolio would lose value the least?
A. All equities
B. Diversified across equities, bonds, and gold
C. Crypto-heavy portfolio
D. Penny stocks portfolio
✅ Answer: B. Diversified across equities, bonds, and gold
Q70. A company's P/E ratio is extremely high. What could this suggest?
A. The company is undervalued
B. No market interest
C. High investor expectations
D. Negative earnings
✅ Answer: C. High investor expectations
Q71. Meena checks moving average charts before making trades. She is applying:
A. Fundamental analysis
B. Technical analysis
C. Portfolio balancing
D. Risk tolerance strategy
✅ Answer: B. Technical analysis
Q72. In a diversified portfolio, which correlation is ideal between assets?
A. Perfectly positive
B. Perfectly negative or low correlation
C. Random
D. All high correlation
✅ Answer: B. Perfectly negative or low correlation
Q73. ESG-focused investors typically avoid companies in:
A. Renewable energy
B. Tobacco and fossil fuels
C. Healthcare
D. Technology
✅ Answer: B. Tobacco and fossil fuels
Q74. Vaibhav wants to match market returns with minimum cost. What strategy is best?
A. Active management
B. Portfolio churning
C. Index fund investment
D. Intraday trading
✅ Answer: C. Index fund investment
Q75. A risk-averse retiree should focus on:
A. Small-cap growth funds
B. Equity derivatives
C. Debt mutual funds and fixed deposits
D. IPOs
✅ Answer: C. Debt mutual funds and fixed deposits
Q76. When should portfolio rebalancing ideally occur?
A. Every day
B. When asset values deviate from the original allocation
C. Only during bull markets
D. Every 10 years
✅ Answer: B. When asset values deviate from the original allocation
Q77. The biggest benefit of mutual funds for small investors is:
A. Unlimited leverage
B. Diversification and professional management
C. High fees
D. No transparency
✅ Answer: B. Diversification and professional management
Q78. A rising interest rate environment generally affects bond prices how?
A. Bond prices increase
B. Bond prices remain constant
C. Bond prices decline
D. Bond prices stay above par
✅ Answer: C. Bond prices decline
Q79. Which of these scenarios represents systematic risk?
A. Strike in one company
B. Global economic recession
C. New product failure in one firm
D. Managerial fraud
✅ Answer: B. Global economic recession
Q80. Which ratio is most useful for comparing profitability across firms of different sizes?
A. Net income
B. Market price
C. Return on Equity (ROE)
D. Working capital
✅ Answer: C. Return on Equity (ROE)
Q81. An investor looking to hedge against inflation should invest in:
A. Fixed deposits
B. Long-term bonds
C. Gold and commodities
D. Savings account
✅ Answer: C. Gold and commodities
Q82. What is a major risk of over-diversification?
A. Increased return
B. Missed growth opportunities
C. Zero correlation
D. Reduced cost
✅ Answer: B. Missed growth opportunities
Q83. What’s the advantage of SIP (Systematic Investment Plan)?
A. Lump-sum investment
B. Time the market
C. Rupee cost averaging and discipline
D. One-time return
✅ Answer: C. Rupee cost averaging and discipline
Q84. Which approach does not require deep knowledge of individual company financials?
A. Fundamental
B. Technical
C. Value investing
D. Growth investing
✅ Answer: B. Technical
Q85. What does the Capital Asset Pricing Model (CAPM) primarily estimate?
A. Portfolio alpha
B. Intrinsic stock value
C. Expected return based on risk
D. Mutual fund performance
✅ Answer: C. Expected return based on risk
Q86. A well-constructed investment portfolio should reflect:
A. Only market trends
B. Advisor’s preference
C. Investor’s financial goals and risk profile
D. Recent IPO activity
✅ Answer: C. Investor’s financial goals and risk profile
Q87. Portfolio churning refers to:
A. Long-term passive investment
B. Frequent buying/selling of securities
C. Rebalancing once a year
D. Ignoring market data
✅ Answer: B. Frequent buying/selling of securities
Q88. Which portfolio would have the lowest standard deviation?
A. 100% equity
B. Balanced portfolio
C. 100% commodities
D. Derivative-only portfolio
✅ Answer: B. Balanced portfolio
Q89. Which type of investor focuses on undervalued stocks with potential?
A. Technical trader
B. Arbitrageur
C. Value investor
D. Momentum investor
✅ Answer: C. Value investor
Q90. Which metric is best for comparing volatility between portfolios?
A. Sharpe Ratio
B. P/E Ratio
C. EPS
D. Beta
✅ Answer: D. Beta
Q91. If a bond’s YTM is higher than its coupon rate, the bond is selling:
A. At par
B. At a premium
C. At a discount
D. Above fair value
✅ Answer: C. At a discount
Q92. The higher the standard deviation in a portfolio, the:
A. Lower the return
B. Lower the risk
C. Greater the uncertainty in return
D. More tax-efficient it is
✅ Answer: C. Greater the uncertainty in return
Q93. An investor checking the Debt-to-Equity Ratio is analyzing:
A. Price movement
B. Technical trend
C. Financial leverage
D. Beta score
✅ Answer: C. Financial leverage
Q94. What is the main objective of asset allocation?
A. Increase transaction cost
B. Maximize taxes
C. Balance risk and reward
D. Only invest in stocks
✅ Answer: C. Balance risk and reward
Q95. What is the difference between stock investing and mutual fund investing?
A. Mutual funds provide direct ownership
B. Stocks are diversified
C. Mutual funds pool money and are managed
D. Mutual funds have higher risk
✅ Answer: C. Mutual funds pool money and are managed
Q96. A portfolio with high Sharpe ratio implies:
A. High risk, low return
B. Poor risk adjustment
C. Good risk-adjusted performance
D. Unpredictable return
✅ Answer: C. Good risk-adjusted performance
Q97. A PPM tool in SAPM helps in:
A. Buying only IPOs
B. Project tracking and portfolio alignment
C. Avoiding rebalancing
D. Reducing shareholding
✅ Answer: B. Project tracking and portfolio alignment
Q98. What is an ETF?
A. Fixed deposit
B. Equity Test Fund
C. Exchange Traded Fund
D. Earnings Tax Fund
✅ Answer: C. Exchange Traded Fund
Q99. A market anomaly that violates the efficient market hypothesis is:
A. Arbitrage
B. Earnings surprise
C. Technical chart pattern
D. January effect
✅ Answer: D. January effect
Q100. Which investor behavior is considered irrational in portfolio management?
A. Holding diversified assets
B. Panic selling during market dip
C. Buying blue-chip stocks
D. Setting financial goals
✅ Answer: B. Panic selling during market dip
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