Investing in Fixed Income Securities
25 questions. Each answer is explained.
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Learn these topics
More units in NISM Series X-A
- Introduction to Personal Financial Planning4
- Time Value of Money14
- Evaluating the Financial Position of Clients5
- Debt Management and Loans2
- Introduction to the Indian Financial Markets4
- Securities Market Segments21
- Introduction to Investment5
- Investing in Stocks20
- Understanding Derivatives25
- Mutual Funds25
- Portfolio Manager10
- Overview of Alternative Investment Funds (AIFs)15
- Introduction to Modern Portfolio Theory14
- Portfolio Construction Process11
- Portfolio Performance Measurement and Evaluation25
- Operational Aspects of Investment Management15
- Key Regulations15
- Ethical Issues15
- Grievance Redress Mechanism15
Exam format
| Questions | 135 · 1 or 2 marks each |
|---|---|
| Duration | 180 min · 3 hours |
| Pass mark | 60% · 90 of 150 marks |
| Negative marking | 25% · 0.25 or 0.5 marks off per wrong answer |
| Certificate validity | 3 years · from the date of the examination |
| Marks for this unit | Not published by NISM |
NISM Series X-A Investment Adviser (Level 1)
Exam rules read on NISM's site on 3 October 2026. Check the current rules on NISM's site (opens in a new tab)
What these answers assume, and when it was last checked
Each question uses the rules listed below. We last checked them on 5 September 2026. A Budget or SEBI circular can change a rate, lot size or expiry day. If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.
- NSE uses Tuesday expiry and BSE uses Thursday expiry. This applies from 1 September 2025.
- The January 2026 index lot sizes are NIFTY 65, BANKNIFTY 30, FINNIFTY 60, MIDCPNIFTY 120 and NIFTYNXT50 25.
- The October 2024 SEBI framework sets a minimum index contract value of Rs 15–20 lakh. Each exchange may list one weekly benchmark index.
- Option buyers pay the premium upfront from 1 February 2025. A short index option has an extra 2% Extreme Loss Margin on expiry day from 20 November 2024.
- Equity short-term capital gains are taxed at 20%. Long-term gains are taxed at 12.5% above Rs 1.25 lakh. Both rates apply from 23 July 2024.
- F&O income is non-speculative business income in ITR-3. NSE equity derivatives trade from 9:15 a.m. to 3:40 p.m.
- The final ten-minute session began on 3 August 2026. It aligns with the cash market Closing Auction Session.
- Most Securities Transaction Tax questions test the base and who pays. On an option sale, it is the premium and the seller pays. On a futures sale, it is the traded value and the seller pays.
- On exercise, Securities Transaction Tax uses intrinsic value: settlement price minus strike price. The buyer pays it.
- Two questions test the current rate. From 1 April 2026, option sales carry 0.15% on the premium and futures sales carry 0.05% on traded price. The earlier rates were 0.10% and 0.02% from 1 October 2024.
- This section uses the T+1 rolling settlement cycle. Obligations are fixed on T+1. A short delivery goes to buy-in auction on T+1 and settles on T+2.
- The trade-for-trade surveillance segment uses direct close-out. Funds pay in by 10:30 a.m. and pay out on or after 1:30 p.m. on settlement day.
- Securities pay in to the settlement pool by 10:30 a.m. They pay out directly to the client’s demat account by 3:30 p.m.
- The 3:30 p.m. deadline replaced 1:30 p.m. under SEBI’s 10 October 2024 circular. Direct client credit was required by SEBI’s 5 June 2024 circular.
- The optional T+0 cycle trades until 1:30 p.m. Obligations are fixed by 2:30 p.m. on the trade day. An early pay-in shortage is closed out directly.
- Cash-market Value at Risk margin is six times exponentially weighted moving-average volatility. It has a 9% floor for Group I, a 21.5% floor for Group II, and a fixed 50% or 75% level for Group III.
- Extreme Loss Margin is 3.5% for a share and 2% for a broad-market-index exchange traded fund. Mark-to-market margin is collected before the next day’s trading. The trade-for-trade segment has 100% upfront margin.
- Close-out uses the higher of the highest price from trade day to auction day and 20% above the auction day’s official close.
- A funds shortage costs 0.07% a day. The trading facility is withdrawn at a shortage of Rs 5 lakh or more.
- SCORES allows 21 calendar days, then two 15-day review levels. Online Dispute Resolution moves from conciliation to arbitration after the market participant and SCORES steps.
- At NSE, the Investor Protection Fund limit is Rs 35 lakh per investor for each defaulting or expelled member. This applies to claims arising after 13 August 2024.
- A Basic Services Demat Account has no annual maintenance charge up to Rs 4 lakh of holdings. It costs up to Rs 100 above that, until the Rs 10 lakh eligibility ceiling. These slabs apply from 1 September 2024.
- The rupee pairs are USD-INR, EUR-INR, GBP-INR and JPY-INR. The cross-currency pairs are EUR-USD, GBP-USD and USD-JPY.
- Each contract covers 1,000 units of the foreign currency, except JPY-INR. JPY-INR covers 100,000 yen and is quoted in rupees per 100 yen.
- The tick is 0.25 paise, or Rs 0.0025. It equals Rs 2.50 a contract.
- Rupee pairs trade from 9:00 a.m. to 5:00 p.m. A monthly contract stops trading at 12:30 p.m. two working days before the expiry month’s last business day.
- Final settlement is in cash at the FBIL reference rate on expiry day. FBIL, Financial Benchmarks India, has published this rate in place of the Reserve Bank since 2018. Premium-style European options are quoted in rupees. The buyer pays the premium in cash on T+1.
- Daily settlement is on T+1 and final settlement is on T+2.
- NSE Clearing circular 026/2020 sets SPAN margin plus Extreme Loss Margin. The futures margin is 0.50% for USD-INR, 0.15% for EUR-INR, 0.25% for GBP-INR and 0.35% for JPY-INR. A short option has 0.75%. These figures apply from 1 June 2020.
- A USD-INR client may hold 6% of total open interest or USD 20 million, whichever is higher. A trading member may hold 15% or USD 100 million.
- A resident user has one USD 100 million equivalent limit across all rupee pairs and exchanges. No document is needed below that limit, but a valid underlying contracted exposure must still exist. This clarification applies from 3 May 2024.
- The currency segment has no Securities Transaction Tax.
The exam figures (questions, time, pass mark, negative marking and certificate validity) come from NISM's own pages, read on 3 October 2026. Timed practice uses the same figures. Study with the official workbook as well.
The written-out answers on this page are hidden while your timed set runs.
All 25 questions on Investing in Fixed Income Securities, with answers
Q1A bond has face value ₹2,000 and a fixed annual coupon rate of 9%, paid in two equal instalments every year. It currently trades at ₹1,920. What is each six-month coupon payment?
Option A. ₹180
Why it is wrong: ₹180 is the total annual coupon. Using it for each instalment would double the agreed yearly interest.
Option B. ₹86.40
Why it is wrong: ₹86.40 incorrectly applies 9% to the ₹1,920 market price and then divides by two.
Option C. ₹90 — Correct answer
Option D. ₹172.80
Why it is wrong: ₹172.80 applies the coupon rate to market price and also fails to divide the annual amount.
Answer: C. ₹90 correctly divides the annual face-value-based coupon into two equal payments. Annual coupon = ₹2,000 × 9% = ₹180. This annual contractual amount does not change merely because the bond trades below face value. Two equal payments divide ₹180 by two, giving ₹90 every six months. The question asks for one instalment, not the whole year’s interest. The market price would matter when calculating the investor’s yield. It is not the base for the fixed coupon specified here. Remember: Keep face value, market price, annual coupon rate and payment frequency separate.
Hint, shown before you answer in practice mode: Common mistake: Using the purchase price as the base for a contractual coupon.
X-A-076easynumerical
Q2A non-callable bond has face value ₹1,000, pays an annual coupon of ₹80 and redeems at ₹1,000 in three years. Valuation is immediately after a coupon date, with the next coupon in one year. At an annual required yield of 8%, assuming all payments occur, what is its value?
Option A. ₹1,000 — Correct answer
Option B. ₹1,080
Why it is wrong: ₹1,080 confuses the final year’s undiscounted payment with the present value of the entire bond.
Option C. ₹920
Why it is wrong: ₹920 subtracts one coupon from face value without performing any cash-flow valuation.
Option D. ₹1,240
Why it is wrong: ₹1,240 adds all three coupons to principal but ignores their future payment dates.
Answer: A. ₹1,000 correctly values the matched coupon and yield at par. The coupon rate is ₹80 ÷ ₹1,000 = 8%, equal to the required annual yield. There is no accrued interest at the specified valuation time. Discount ₹80 in year one, ₹80 in year two, and ₹1,080 in year three at 8%. Their present values total ₹1,000. The final ₹1,080 contains the last coupon plus principal. That future receipt alone is not today’s price, and all receipts must be discounted. Remember: For a plain par-redemption bond, matching coupon and yield implies par value at a coupon date.
Hint, shown before you answer in practice mode: Common mistake: Comparing undiscounted future receipts with a price paid today.
X-A-077easynumerical
Q3A bond will pay ₹80 one year from today and ₹1,080 two years from today, after which it ends. The second payment includes principal. At a required yield of 10% per year, compounded annually, what is its value today, rounded to two decimal places?
Option A. ₹1,000.00
Why it is wrong: ₹1,000 would be par. It does not incorporate the higher required yield in this question.
Option B. ₹1,054.55
Why it is wrong: ₹1,054.55 discounts the combined ₹1,160 for just one year, incorrectly moving the final payment forward.
Option C. ₹892.56
Why it is wrong: ₹892.56 values only the final payment and omits the first coupon.
Option D. ₹965.29 — Correct answer
Answer: D. ₹965.29 discounts both dated receipts separately and adds their present values. The year-one payment has present value ₹80 ÷ 1.10 = ₹72.7273. The year-two payment has present value ₹1,080 ÷ 1.10² = ₹892.5620. Add the unrounded values to obtain ₹965.2893, or ₹965.29. An 8% coupon on ₹1,000 face value is below the assumed 10% required yield, so a price below ₹1,000 is a sensible cross-check. Remember: Draw the cash-flow dates before selecting discount factors.
Hint, shown before you answer in practice mode: Common mistake: Discounting every cash flow for the same number of years.
X-A-078mediumnumerical
Q4A hypothetical zero-coupon bond makes no interim payments and pays ₹12,100 exactly two years from today. At a required yield of 10% per year, compounded annually, what is its current value?
Option A. ₹11,000
Why it is wrong: ₹11,000 discounts for only one year and therefore overstates today’s value.
Option B. ₹10,000 — Correct answer
Option C. ₹12,100
Why it is wrong: ₹12,100 is the future payment without any discounting.
Option D. ₹9,680
Why it is wrong: ₹9,680 subtracts 20% from the future payment. Discounting is division by the growth factor, not this subtraction.
Answer: B. ₹10,000 discounts the single redemption payment over both years correctly. There is one cash flow, ₹12,100, and it is two years away. Use two annual discounting periods. Present value = ₹12,100 ÷ 1.10² = ₹10,000. A reverse check gives ₹10,000 × 1.10 × 1.10 = ₹12,100. The ₹2,100 difference is the total two-year accumulation under the assumed yield, not a separate coupon to add to redemption. Remember: No coupon means no interim cash flow, not no potential return.
Hint, shown before you answer in practice mode: Common mistake: Subtracting a multiple of the yield instead of reversing compound growth.
X-A-079easynumerical
Q5A bond has face value ₹1,000, an 8% annual coupon paid in equal half-yearly instalments, and exactly two years to maturity. It redeems at par. The required yield is 10% nominal per year compounded semi-annually. Valuation is immediately after a coupon payment. What is the price, rounded to two decimals?
Option A. ₹964.54 — Correct answer
Option B. ₹1,000.00
Why it is wrong: ₹1,000 assumes coupon and required yield match, whereas 8% and 10% differ.
Option C. ₹965.29
Why it is wrong: ₹965.29 treats the cash flows as two ₹80 annual coupons, changing the timing in the question.
Option D. ₹809.81
Why it is wrong: ₹809.81 results from using 10% per half-year rather than the stated nominal annual yield.
Answer: A. ₹964.54 uses ₹40 coupons, a 5% half-year yield and four periods. Each coupon is ₹1,000 × 8% ÷ 2 = ₹40. The half-year yield is 10% ÷ 2 = 5%. There are four half-years. Price = ₹40/1.05 + ₹40/1.05² + ₹40/1.05³ + ₹1,040/1.05⁴ = ₹964.5405. Round only the final total to ₹964.54. Treating the 10% as a rate for every half-year would greatly over-discount the payments. Remember: Convert both the coupon and yield consistently before valuing more-than-annual payments.
Hint, shown before you answer in practice mode: Common mistake: Halving the coupon while leaving the annual discount rate unchanged.
X-A-080mediumnumerical
Q6A bond with face value ₹1,000 pays ₹90 of coupons a year and trades at ₹900. What is its current yield?
Option A. 9.00%
Why it is wrong: 9.00% is the coupon rate based on face value, not current yield based on price.
Option B. 11.11%
Why it is wrong: 11.11% uses the ₹100 price discount divided by ₹900. That is not the annual coupon income.
Option C. 10.00% — Correct answer
Option D. 19.00%
Why it is wrong: 19.00% combines percentages without accounting for the time or base of the redemption difference.
Answer: C. 10.00% correctly measures ₹90 annual coupon income on a ₹900 purchase price. Use the annual coupon ₹90 as the numerator and the market price ₹900 as the denominator. Current yield = ₹90 ÷ ₹900 × 100 = 10%. The coupon rate, in contrast, is ₹90 ÷ ₹1,000 = 9%. The discount to face value cannot simply be added to 9% or 10% as a yearly return because the remaining maturity and redemption timing also matter. Remember: Use current price for current yield and face value for the coupon rate.
Hint, shown before you answer in practice mode: Common mistake: Treating current yield as the investor’s complete annualised return to maturity.
X-A-081easynumerical
Q7A bond costs ₹960 today and will make its only remaining payment of ₹1,060 exactly one year later. That payment consists of ₹60 coupon and ₹1,000 redemption. Assuming payment in full, what is its annual yield to maturity, rounded to two decimals?
Option A. 6.00%
Why it is wrong: 6.00% divides coupon by face value and omits the price discount.
Option B. 6.25%
Why it is wrong: 6.25% is current yield, ₹60/₹960, and excludes the ₹40 redemption gain.
Option C. 4.17%
Why it is wrong: 4.17% includes only the ₹40 price-to-redemption gain and omits the coupon.
Option D. 10.42% — Correct answer
Answer: D. 10.42% includes both components relative to the actual initial cost. The cash gain is ₹1,060 − ₹960 = ₹100. It includes ₹60 coupon plus ₹40 recovery of the discount to redemption. Annual yield = ₹100 ÷ ₹960 × 100 = 10.4167%, rounded to 10.42%. Equivalently, ₹960 × (1 + y) = ₹1,060. There are no intermediate coupons to reinvest in this one-period example. The result still depends on receiving the stated payment in full. Remember: For a one-year final payment, include coupon and redemption before comparing with purchase price.
Hint, shown before you answer in practice mode: Common mistake: Mistaking the coupon rate or current yield for yield to maturity.
X-A-082mediumnumerical
Q8A bond with face value ₹1,000 is quoted at a clean price of ₹98.50 per ₹100 face value. Accrued interest is ₹12 per bond. For this transaction, settlement cash equals clean value plus accrued interest. Ignoring other charges, what cash is paid for one bond?
Option A. ₹985
Why it is wrong: ₹985 is the clean value before paying accrued interest.
Option B. ₹997 — Correct answer
Option C. ₹973
Why it is wrong: ₹973 subtracts accrued interest even though the question explicitly requires adding it.
Option D. ₹110.50
Why it is wrong: ₹110.50 adds accrued interest to one quoted ₹100 block without scaling the clean value.
Answer: B. ₹997 correctly scales the quotation and then adds the stated per-bond accrued interest. ₹1,000 face value contains ten blocks of ₹100. Clean value = 10 × ₹98.50 = ₹985. Add the ₹12 accrued interest specified per whole bond: settlement cash = ₹985 + ₹12 = ₹997. Accrued interest is not multiplied by ten here because it is already given for one bond. Nor is the coupon or principal separately added at settlement. Remember: Read both the quotation unit and the accrued-interest unit before adding them.
Hint, shown before you answer in practice mode: Common mistake: Combining a per-₹100 quote with a per-bond amount without unit conversion.
X-A-083mediumnumerical
Q9A fixed-cash-flow corporate bond’s required yield equals a same-maturity benchmark yield plus a credit spread. The benchmark stays at 6%. The spread rises from 1.5 to 2.5 percentage points, while promised cash flows remain unchanged. What happens to required yield and present value?
Option A. Yield falls to 7.5%. Value rises.
Why it is wrong: The spread widens rather than narrows, so the required yield does not fall.
Option B. Yield stays at 7.5%. Value is unchanged.
Why it is wrong: An unchanged benchmark does not keep total yield unchanged when the spread increases.
Option C. Yield rises to 8.5%. Value falls. — Correct answer
Option D. Yield rises to 8.5%. Value rises.
Why it is wrong: The yield calculation is right, but the direction of the price change is reversed.
Answer: C. 8.5% is the new benchmark-plus-spread yield, and higher discounting lowers present value. Initial required yield is 6% + 1.5% = 7.5%. The new yield is 6% + 2.5% = 8.5%, a one-percentage-point increase. Every unchanged payment is divided by a larger compound discount factor. Adding those smaller present values therefore produces a lower price. This result holds under the stated fixed-cash-flow model. It does not assume that the benchmark itself moved or that the issuer has already defaulted. Remember: Separate benchmark-rate movements from spread movements when explaining bond-price changes.
Hint, shown before you answer in practice mode: Common mistake: Looking only at the benchmark and overlooking changes in the additional yield demanded.
X-A-084mediumconceptual
Q10A bond investor receives every promised coupon on time. The first coupon can now be reinvested only at a lower rate than the rate assumed in the investor’s original accumulation plan. Which risk most directly explains the resulting shortfall in terminal wealth?
Option A. Reinvestment risk — Correct answer
Option B. Default risk
Why it is wrong: Default risk concerns failure or delay in promised payment, which this scenario excludes.
Option C. Liquidity risk
Why it is wrong: Liquidity risk concerns selling an asset or obtaining cash. No forced sale or sale difficulty is described.
Option D. Exchange-rate risk
Why it is wrong: Exchange-rate risk requires a currency-value change. The scenario supplies no foreign-currency exposure.
Answer: A. Reinvestment risk directly matches a reduction in the return available on interim cash receipts. The question explicitly states that coupons arrive on time, so the cash-flow shortfall is not caused by a missed contractual payment. The lower rate affects how much the received coupon grows between receipt and the final horizon. The coupon itself can be unchanged while terminal wealth falls short. For example, a ₹100 coupon reinvested for one year at 4% becomes ₹104, rather than ₹108 at an assumed 8%. This illustrates the mechanism, not a current interest-rate forecast. Remember: Timely coupon receipt does not fix the return obtainable by reinvesting that coupon.
Hint, shown before you answer in practice mode: Common mistake: Assuming that receiving every payment automatically guarantees the planned compound return.
X-A-085mediumconceptual
Q11A bond gives its issuer the contractual right to redeem it early at a specified call price. Other terms are unchanged. Market yields fall substantially, allowing the issuer to refinance more cheaply. Which consequence should the bondholder specifically consider?
Option A. The holder automatically acquires a right to demand early repayment.
Why it is wrong: An issuer call is not a holder put. The stated right belongs to the issuer.
Option B. The coupon automatically resets upwards with the market.
Why it is wrong: No floating-coupon reset is stated, and falling yields do not automatically increase a fixed coupon.
Option C. The issuer must leave the bond outstanding until its original maturity.
Why it is wrong: The early-redemption clause permits a departure from the original maturity schedule when its terms are met.
Option D. The issuer may exercise its call, ending the higher-coupon investment early. — Correct answer
Answer: D. Early termination of the higher-coupon investment is the call risk described here. Falling yields can make replacing existing higher-coupon borrowing attractive to the issuer. The contractual call provides a possible way to do so. If the issuer calls the bond, the holder receives the specified redemption amount but loses the remaining scheduled investment in that bond. Replacement investments may offer lower yields. Calling is a possibility, not an assertion that the issuer must exercise. Call dates, prices and conditions remain those of the hypothetical contract. Remember: Identify who owns an embedded option before evaluating the bondholder’s risk.
Hint, shown before you answer in practice mode: Common mistake: Confusing the issuer’s call right with a holder’s put right.
X-A-086mediumconceptual
Q12A zero-coupon bond has a single payment exactly four years from today. What is its Macaulay duration?
Option A. Less than four years because its price is discounted
Why it is wrong: A lower present value does not move the cash receipt to an earlier date.
Option B. Exactly four years — Correct answer
Option C. More than four years because interest compounds
Why it is wrong: Compounding affects value, not the stated time to the sole payment.
Option D. Zero because no coupons are paid
Why it is wrong: Having no coupons leaves a redemption payment. It does not make the cash-flow horizon zero.
Answer: B. Four years is the weighted average when the only weight is attached to year four. All of the bond’s present value comes from the sole payment in year four. There are no earlier receipts with positive weight. Duration = (4 years × present value of the only payment) ÷ the same present value = 4 years. Discounting changes the payment’s value today, but not the date on which it arrives. This question asks for Macaulay duration, not modified duration or a price-change estimate. Remember: For a single-payment bond, Macaulay duration equals time to that payment.
Hint, shown before you answer in practice mode: Common mistake: Interchanging Macaulay duration, modified duration and remaining principal.
X-A-087easyconceptual
Q13A bond is valued at ₹2,000 and has a modified duration of 6. If its yield rises by 0.50 percentage point, what is its approximate new price, ignoring convexity?
Option A. ₹2,060
Why it is wrong: ₹2,060 reverses the sign and increases the price despite the yield rise.
Option B. ₹1,400
Why it is wrong: ₹1,400 uses a 5-percentage-point move, ten times the one specified.
Option C. ₹1,940 — Correct answer
Option D. ₹1,990
Why it is wrong: ₹1,990 applies only the yield change itself to price and omits the duration multiplier.
Answer: C. ₹1,940 correctly applies the estimated 3% price decline to ₹2,000. A rise of 0.50 percentage point is Δy = +0.005, not 0.50 or 0.05. Estimated proportional price change = −6 × 0.005 = −0.03, or −3%. The rupee change is −3% × ₹2,000 = −₹60. Approximate new price = ₹2,000 − ₹60 = ₹1,940. This is a first-order estimate. It is not a full repricing or an exact promise for larger yield moves. Remember: Convert yield changes carefully and label duration-based prices as approximations.
Hint, shown before you answer in practice mode: Common mistake: Confusing a percentage-point yield change with a proportional change in price.
X-A-088mediumnumerical
Q14At one observation time, otherwise comparable bonds show yields of 7.0% at one year, 6.5% at three years and 6.0% at ten years. Based only on these observations, how is the yield curve best described?
Option A. Inverted, because the observed yields fall as maturity increases — Correct answer
Option B. Upward-sloping, because the ten-year maturity is the longest
Why it is wrong: Longer maturity is the horizontal-axis progression. Upward slope would require higher, not lower, yields.
Option C. Flat, because all three yields are positive
Why it is wrong: Positive yields can form upward, downward or flat curves. Positivity does not identify the slope.
Option D. Humped, because the three-year yield exceeds both other yields
Why it is wrong: 6.5% is below 7.0%, so the middle observation is not above both endpoints.
Answer: A. The declining yields across increasing maturities establish the inverted shape. Order the observations by maturity: one year, three years, ten years. The yields decline from 7.0% to 6.5% to 6.0%. That downward sequence is an inverted curve over the stated observations. A flat curve would have equal yields, while a hump would have a middle yield above both ends. These three numbers describe a shape. They do not establish that a particular economic outcome must follow or provide a complete forecast of future interest rates. Remember: Describe the observed curve separately from any explanation or forecast about its cause.
Hint, shown before you answer in practice mode: Common mistake: Treating a yield-curve shape as a guaranteed prediction.
X-A-089easyconceptual
Q15A corporate issuer cannot make a scheduled bond coupon payment because it lacks the funds. The holder has not attempted to sell the bond, and there is no foreign-currency exposure. Which risk is most directly realised?
Option A. Reinvestment risk
Why it is wrong: Reinvestment risk concerns the rate on cash already received. The coupon has not been paid here.
Option B. Liquidity risk in selling the bond
Why it is wrong: A lack of buyers for a sale would be market liquidity risk, not the missed issuer payment described.
Option C. Exchange-rate risk
Why it is wrong: The question explicitly removes foreign-currency exposure.
Option D. Default risk within credit risk — Correct answer
Answer: D. Failure to make the scheduled payment directly illustrates default risk, a form of credit risk. The event is a failure of the issuer to make the due coupon. It therefore directly affects the contractual cash flow the lender was expecting. No secondary-market sale is attempted, so the question is not describing a difficulty finding buyers. No currency change is involved either. The cause is the stated inability to pay. This classification does not determine the later recovery amount or claim that every market-price decline indicates default. Remember: Distinguish failure of promised payment from fluctuations in price or reinvestment opportunities.
Hint, shown before you answer in practice mode: Common mistake: Labelling every bond-related loss as interest-rate risk.
X-A-090easyconceptual
Q16Over one year a fixed-income investment earns an 8% nominal total return, while the relevant cost-of-living index rises by 10%. Using exact purchasing-power adjustment, what is the real return, rounded to two decimals?
Option A. −2.00%
Why it is wrong: −2.00% is the subtraction approximation, not the exact ratio of growth factors.
Option B. −1.82% — Correct answer
Option C. +1.82%
Why it is wrong: +1.82% reverses the sign even though prices rose faster than the investment.
Option D. +18.00%
Why it is wrong: +18.00% adds inflation to nominal return. It does not adjust for more expensive consumption.
Answer: B. −1.82% correctly measures the decline in purchasing power. Nominal money grows by a factor of 1.08, while the assumed price index grows by 1.10. Real return = (1.08 ÷ 1.10 − 1) × 100 = −1.8182%, or −1.82%. A ₹100 starting amount becomes ₹108 but purchases only ₹98.18 of the original-price basket. Subtracting inflation from nominal return gives −2%, a useful approximation in some settings but not the exact adjustment expressly requested here. Remember: Positive nominal returns can coexist with negative real returns.
Hint, shown before you answer in practice mode: Common mistake: Adding inflation to investment return or treating the subtraction approximation as exact.
X-A-091mediumnumerical
Q17A hypothetical floating-rate bond pays annual interest on ₹10,000 face value. At the start of each annual period its coupon resets to the observed benchmark plus 1.30 percentage points, with no cap or floor. The benchmark at the new reset is 6.20%. What coupon is payable for that full year?
Option A. ₹620
Why it is wrong: ₹620 applies the benchmark alone and omits the contractual spread.
Option B. ₹130
Why it is wrong: ₹130 uses only the spread and omits the benchmark component.
Option C. ₹750 — Correct answer
Option D. ₹650
Why it is wrong: ₹650 corresponds to 6.50%, not the sum of the stated 6.20% benchmark and 1.30-point spread.
Answer: C. ₹750 uses both rate components and the full annual face-value amount. At this reset the annual coupon rate becomes 6.20% + 1.30% = 7.50%. For the complete annual period, interest = ₹10,000 × 7.50% = ₹750. No partial-period adjustment is needed. The formula uses the benchmark observed at the start of the period. A later benchmark change does not alter this period’s already-reset coupon under the terms stated here. Remember: Apply the contract’s reset date, benchmark and spread before computing floating interest.
Hint, shown before you answer in practice mode: Common mistake: Treating a percentage-point spread as a percentage of the benchmark.
X-A-092mediumnumerical
Q18A bond is purchased for ₹1,020 immediately after a coupon date. Assume it is called exactly one year later for ₹1,010 and also pays an ₹80 coupon on that date. No other payments occur. What is the annual yield to that assumed call, rounded to two decimals?
Option A. 7.84%
Why it is wrong: 7.84% divides the coupon by purchase price and leaves out the ₹10 loss on early redemption.
Option B. 7.92%
Why it is wrong: 7.92% divides the coupon by the call price, which is not the initial investment.
Option C. 8.00%
Why it is wrong: 8.00% treats the coupon as an 8% return on ₹1,000, rather than using the stated cost and call proceeds.
Option D. 6.86% — Correct answer
Answer: D. 6.86% includes the coupon and actual assumed redemption relative to purchase cost. The sole receipt in one year is ₹1,010 call proceeds + ₹80 coupon = ₹1,090. The gain over the ₹1,020 purchase cost is ₹70. One-year yield = ₹70 ÷ ₹1,020 × 100 = 6.8627%, or 6.86%. The price loss of ₹10 between purchase and call offsets part of the coupon. Ignoring it overstates the return. The computation does not predict that an actual issuer will call. Remember: Use the call price and call horizon when computing yield to an assumed call.
Hint, shown before you answer in practice mode: Common mistake: Substituting current yield for the full return to early redemption.
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Q19A short-term zero-coupon instrument costs ₹98,000 and redeems for ₹1,00,000 in 180 days. What is its simple annualised yield on the price paid, using a 365-day year?
Option A. 4.14% — Correct answer
Option B. 4.06%
Why it is wrong: 4.06% uses redemption value as the denominator, producing a different discount-basis measure.
Option C. 2.04%
Why it is wrong: 2.04% is the unannualised 180-day return on purchase price.
Option D. 2.00%
Why it is wrong: 2.00% is the unannualised discount as a fraction of redemption value.
Answer: A. 4.14% uses purchase price in the denominator and the specified annualisation factor. The 180-day gain is ₹1,00,000 − ₹98,000 = ₹2,000. Relative to money invested, its period return is ₹2,000 ÷ ₹98,000 = 2.0408%. Multiply that period return by 365 ÷ 180 under the stated simple annualisation convention: 4.1383%, rounded to 4.14%. This is not a compounded effective annual return or a claim about the quotation convention of any actual Indian instrument. The 365-day basis is supplied for this exercise only. Remember: Identify the denominator, day-count basis and simple-versus-compound convention in yield calculations.
Hint, shown before you answer in practice mode: Common mistake: Mixing a discount quote with an investment-yield calculation.
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Q20A bond is bought for ₹1,000 and pays ₹100 at the end of year one, then ₹1,100 at the end of year two, including redemption. The first coupon is reinvested for one year at 4%. Assuming all payments occur, what total wealth is available at the end of year two?
Option A. ₹1,200
Why it is wrong: ₹1,200 adds the two bond receipts but omits the ₹4 reinvestment interest.
Option B. ₹1,204 — Correct answer
Option C. ₹1,210
Why it is wrong: ₹1,210 assumes the first coupon is reinvested at 10%, contrary to the stated 4%.
Option D. ₹1,140
Why it is wrong: ₹1,140 applies 4% to the original ₹1,000 and fails to account correctly for both coupon receipts.
Answer: B. ₹1,204 correctly combines the accumulated first coupon with the final payment. The year-one ₹100 coupon earns one year of 4% interest and becomes ₹104 by the end of year two. The year-two bond payment is ₹1,100. Adding it to ₹104 gives terminal wealth of ₹1,204. The original bond cash flows priced at ₹1,000 imply a 10% annual yield, but reinvesting the first coupon at only 4% produces less terminal wealth than reinvestment at 10%. Remember: Reinvest only the cash that has actually been received, for its remaining time to the horizon.
Hint, shown before you answer in practice mode: Common mistake: Assuming the bond’s purchase yield automatically determines the coupon reinvestment rate.
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Q21CASE: A two-year bond with face value ₹1,000 pays a ₹100 coupon at the end of each year and repays its face value at the end of year two. What does the issuer pay at the end of year two?
Option A. ₹1,000
Why it is wrong: This counts the face value but leaves out the final coupon.
Option B. ₹1,200
Why it is wrong: This adds both coupons, but the first was paid a year earlier.
Option C. ₹1,100 — Correct answer
Option D. ₹1,208
Why it is wrong: ₹1,208 adds interest earned on the first coupon. The issuer does not pay that.
Answer: C. At the end of year two the issuer pays the last ₹100 coupon plus the ₹1,000 face value, which is ₹1,100. Remember: Keep contractual issuer cash flows separate from the later earnings on reinvested receipts.
Hint, shown before you answer in practice mode: Common mistake: Adding an earlier coupon a second time at redemption.
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Q22CASE: A bond will pay ₹1,100 exactly two years from today. At a 10% annual yield, what is the present value of that payment alone?
Option A. ₹909.09 — Correct answer
Option B. ₹1,000.00
Why it is wrong: ₹1,000 is the price of the whole bond, including the first coupon.
Option C. ₹1,100.00
Why it is wrong: ₹1,100 is not discounted.
Option D. ₹90.91
Why it is wrong: ₹90.91 discounts a ₹100 coupon instead.
Answer: A. ₹1,100 ÷ 1.10² = ₹1,100 ÷ 1.21 = ₹909.09. Remember: Identify whether the required valuation covers one receipt or the complete cash-flow stream.
Hint, shown before you answer in practice mode: Common mistake: Using a correct whole-bond price to answer a question about just one component.
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Q23CASE: Right after its first coupon, a bond has one payment left, ₹1,100 due in one year. The market yield is now 8%. What is the bond's price?
Option A. ₹1,100.00
Why it is wrong: ₹1,100 is not discounted for the year's wait.
Option B. ₹1,000.00
Why it is wrong: ₹1,000 keeps the old 10% yield.
Option C. ₹1,118.52
Why it is wrong: ₹1,118.52 adds back the coupon just paid.
Option D. ₹1,018.52 — Correct answer
Answer: D. ₹1,100 ÷ 1.08 = ₹1,018.52. Remember: Update the cash-flow horizon and remove paid coupons when moving the valuation date.
Hint, shown before you answer in practice mode: Common mistake: Counting a coupon both as cash received and as part of the ex-coupon price.
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Q24CASE: An investor buys a bond for ₹1,000. After one year the investor receives a ₹100 coupon and sells the bond for ₹1,018.52. What is the one-year holding-period return?
Option A. 10.00%
Why it is wrong: 10% counts the coupon but not the price gain.
Option B. 11.85% — Correct answer
Option C. 1.85%
Why it is wrong: 1.85% counts the price gain but not the coupon.
Option D. 8.00%
Why it is wrong: 8% is the yield used to price the bond, not the return earned.
Answer: B. Return = (₹100 + ₹1,018.52 − ₹1,000) ÷ ₹1,000 = 11.85%. Remember: Distinguish the new buyer’s required yield from the seller’s realised holding-period return.
Hint, shown before you answer in practice mode: Common mistake: Substituting a market yield directly for the investor’s cash-flow-based return.
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Q25CASE: An investor buys a two-year bond for ₹1,000. The ₹100 first-year coupon is reinvested at 8% for one year, and the bond pays ₹1,100 at the end of year two. What is the annual compound return over the two years?
Option A. 10.00%
Why it is wrong: 10% needs the coupon to grow at 10%, giving ₹1,210.
Option B. 10.40%
Why it is wrong: 10.40% halves the 20.8% total without compounding.
Option C. 9.91% — Correct answer
Option D. 20.80%
Why it is wrong: 20.80% is the two-year total, not a yearly rate.
Answer: C. Final wealth = ₹100 × 1.08 + ₹1,100 = ₹1,208. Annual return = √1.208 − 1 = 9.91%. Remember: Accumulate all receipts to one date, then annualise the total growth factor.
Hint, shown before you answer in practice mode: Common mistake: Equating promised yield to a realised compound outcome regardless of reinvestment.
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Investing in Fixed Income Securities: common questions
How many practice questions are there on Investing in Fixed Income Securities?
25 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 20 practice topics for NISM Series X-A, which has 285 questions in total.
Are these real NISM Series X-A questions on Investing in Fixed Income Securities?
No. LearnNifty wrote every question from NISM's public syllabus. NISM does not publish its question bank, so nobody can offer you the real paper. Use these questions to check that an idea has gone in. Use the official NISM workbook to see what is examined.
Does negative marking apply to NISM Series X-A?
Yes. NISM takes off 25% of a question's marks for a wrong answer. On a 1 or 2-mark question that is 0.25 or 0.5 marks off. A blank question earns nothing and loses nothing, so a wrong guess costs marks on this paper. Timed practice here uses the same rule.
Are these practice questions kept up to date?
Each question is written against the rules printed on this page, last checked on 5 September 2026. A Budget or a SEBI circular can change a rate, a lot size or an expiry day. If one of those rules changes before your exam, treat the questions that use it as out of date. Then check NISM's current workbook.
Understanding Derivatives
25 questions on Understanding Derivatives. Its quiz opens on that unit.
Open Understanding Derivatives