NISM Series 4 Mock Test 1: Free Interest Rate Paper

How this mock is marked

• 50 questions, one mark each.
• 60 minutes on the clock. That is the real exam's pace: 120 minutes for 100 questions.
• A wrong answer loses a quarter of a mark. A blank loses nothing.
• You pass with 60% or more.
• Submit to see your score and the chapters to work on. Then check each right answer and why it is right.

What this paper covers

50 questions from 10 chapters. Each chapter gets a share that follows our question bank.

• Introduction to Interest Rate, Interest Rate Instruments and Fixed Income Market: 10 questions.
• Interest Rate Derivatives: 4 questions.
• Exchange Traded Interest Rate Futures: 6 questions.
• Exchange Traded Interest Rate Options: 7 questions.
• Strategies Using Exchange Traded Interest Rate Futures and Options: 8 questions.
• Trading Mechanism in Exchange Traded Interest Rate Derivatives: 4 questions.
• Clearing, Settlement and Risk Management of Interest Rate Derivatives: 5 questions.
• Regulatory Framework for Interest Rate Derivatives: 3 questions.
• Accounting and Taxation of Interest Rate Derivatives: 1 question.
• Code of Conduct and Investor Protection Measures in Interest Rate Derivatives: 2 questions.

By level: Beginner 4 · Intermediate 36 · Advanced 10.

Chapter split of Mock 1

How Mock 1 shares its questions between chapters and levels. This split belongs to this paper. The other mocks of this exam have their own.

• Introduction to Interest Rate, Interest Rate Instruments and Fixed Income Market: Beginner 2 · Intermediate 7 · Advanced 1.
• Interest Rate Derivatives: Beginner 1 · Intermediate 2 · Advanced 1.
• Exchange Traded Interest Rate Futures: Beginner 0 · Intermediate 6 · Advanced 0.
• Exchange Traded Interest Rate Options: Beginner 0 · Intermediate 5 · Advanced 2.
• Strategies Using Exchange Traded Interest Rate Futures and Options: Beginner 0 · Intermediate 5 · Advanced 3.
• Trading Mechanism in Exchange Traded Interest Rate Derivatives: Beginner 1 · Intermediate 2 · Advanced 1.
• Clearing, Settlement and Risk Management of Interest Rate Derivatives: Beginner 0 · Intermediate 4 · Advanced 1.
• Regulatory Framework for Interest Rate Derivatives: Beginner 0 · Intermediate 2 · Advanced 1.
• Accounting and Taxation of Interest Rate Derivatives: Beginner 0 · Intermediate 1 · Advanced 0.
• Code of Conduct and Investor Protection Measures in Interest Rate Derivatives: Beginner 0 · Intermediate 2 · Advanced 0.

3 sample questions, with answers

These 3 questions are not in Mock 1, so reading them spoils nothing here. They come from Mock 3 of this exam. Each one shows the hint, the answer and why every wrong option is wrong.

1. Q1A bond pays an annual coupon of ₹8 and redeems ₹100 in exactly two years. The first coupon is due in one year. At a 10% annual-compounded required yield, its price is closest to:

   • A

     Option A. ₹89.26

     Why it is wrong: This discounts only the final ₹108 and omits the first coupon.

   • B

     Option B. ₹96.53 — Correct answer

   • C

     Option C. ₹98.18

     Why it is wrong: This discounts the coupon-yield difference over only part of the cash-flow schedule.

   • D

     Option D. ₹100.00

     Why it is wrong: Par would be consistent with an 8% yield, not the stated 10%.

   Answer: B. The first cash flow is ₹8 after one year. The second is ₹108 after two years. Price = 8/1.10 + 108/1.21 = ₹96.5289. The price below par is consistent with the required yield being above the coupon rate. Remember: List every cash-flow date before discounting.

   Hint, shown before you answer in practice mode: Common mistake: Forgetting the final coupon or an intermediate coupon.

   IV-014mediumnumerical

   Study this unit

2. Q2A trader buys a bond-price call at strike 100 for 1.20 and sells an otherwise matching call at strike 103 for 0.40. What is the spread’s maximum expiry profit per unit, excluding costs?

   • A

     Option A. 3.00

     Why it is wrong: This is the maximum gross exercise payoff before the net debit.

   • B

     Option B. 0.80

     Why it is wrong: This is the net premium paid and maximum loss, not maximum profit.

   • C

     Option C. 2.20 — Correct answer

   • D

     Option D. 3.80

     Why it is wrong: This adds the premium paid instead of subtracting it.

   Answer: C. The lower-strike long call and higher-strike short call create a bull call spread. Net debit = 1.20 − 0.40 = 0.80. At or above 103, the payoff difference is capped at 103 − 100 = 3, so maximum profit is 3 − 0.80 = 2.20. Below 100 both expire worthless and the debit is lost. Remember: For a debit vertical spread, maximum profit is strike width minus net premium paid.

   Hint, shown before you answer in practice mode: Common mistake: Ignoring the short option when extrapolating gains above its strike.

   IV-096mediumnumerical

   Study this unit

3. Q3A bond future is quoted 99.90 bid and 99.95 offer. A trader buys 4 contracts at the offer and immediately sells all 4 at the unchanged bid. Each contract has a multiplier of 2,000. What is the spread cost, excluding other charges?

   • A

     Option A. ₹800

     Why it is wrong: This counts the same complete round-trip spread twice.

   • B

     Option B. ₹100

     Why it is wrong: This is the spread cost for only one contract.

   • C

     Option C. ₹400 — Correct answer

   • D

     Option D. Zero

     Why it is wrong: Unchanged mid-price does not eliminate the cost of crossing the spread.

   Answer: C. An immediate buyer pays the offer. An immediate seller receives the bid. The round-trip difference is 99.95 − 99.90 = 0.05 per unit. Multiplying by 2,000 units and 4 contracts gives ₹400. This cost exists even with no movement in the quoted prices and before brokerage or statutory charges. Remember: The bid-ask spread is an execution cost separate from explicit fees.

   Hint, shown before you answer in practice mode: Common mistake: Assuming no price movement means no trading cost.

   IV-115mediumnumerical

   Study this unit

Then take Mock 2

Read the chapters your result names first. A new paper then shows whether those gaps have closed.