NISM XV Risk & Behavioural Finance — Practice Questions
Questions on risk and behavioural finance for NISM Series XV — types of risk, risk measures, and common behavioural biases, each explained.
47 questions on Risk & Behaviour in the ScoreSetu bank — each with a detailed explanation and, where useful, a memory hook.
What this topic covers
- Systematic vs unsystematic risk
- Risk measures (beta, SD)
- Behavioural biases
- Risk management
Free sample questions
1. Find out the Cost of Equity if the risk free rate is 7%, the market risk premium is 9% and the Beta is 0.60.
- A. 8.1%
- B. 13.8%
- C. 10.5%
- D. 12.4% ✅
Answer: D — 12.4%
Why: To find the Cost of Equity, we use the Capital Asset Pricing Model (CAPM) formula: Cost of Equity = Rf + β × (Rm−Rf) Where: Rf = Risk-free rate = 7% Rm − Rf = Market risk premium = 9% (Note : ' Rm − Rf' ie. the Market risk premium, is directly given as 9%) β = Beta = 0.60 Substituting the value : Cost of Equity = 7% + ( 0.60 × 9% ) = 7% + 5.4% = 12.4%
💡 Market risk = losses from overall market/price falls (systematic).
2. Beta of a stock which is more volatile than market is likely to be ________ .
- A. Below zero
- B. Between zero and one
- C. Exactly zero
- D. Greater than one ✅
Answer: D — Greater than one
Why: Beta of 1 indicates that the security's price will move with the market. Beta of less than 1 means that the security will be less volatile than the market. And, beta of greater than 1 indicates that the security's price will be more volatile than the market . For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market both on up and down moves.
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