Time Value of Money
14 questions. Each answer is explained.
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Learn these topics
More units in NISM Series X-A
- Introduction to Personal Financial Planning4
- 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
- Investing in Fixed Income Securities25
- 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 14 questions on Time Value of Money, with answers
Q1A fixed positive amount will be received on a specified future date. Keeping that amount and date unchanged, what happens to its present value when the positive discount rate increases?
Option A. Present value increases.
Why it is wrong: An increase reverses the relationship: the larger discounting denominator lowers PV.
Option B. Present value decreases. — Correct answer
Option C. Present value remains unchanged.
Why it is wrong: PV would not stay unchanged when the discount rate changes and the payment is strictly in the future.
Option D. Present value necessarily becomes negative.
Why it is wrong: A positive future receipt divided by a positive denominator does not become negative.
Answer: B. PV decreases because less money today is needed to reach the same future amount at the higher assumed rate. For annual compounding, PV = FV ÷ (1 + r)^n, where r is the annual rate in decimal form and n is the number of years. The future receipt and payment date are fixed. Increasing r makes the positive denominator larger, so PV becomes smaller. For example, ₹110 due in one year is worth ₹100 at 10%, but about ₹91.67 at 20%: ₹110 ÷ 1.20. Both present values remain positive. Remember: Higher discount rate, lower present value—when the future cash amount and timing remain unchanged.
Hint, shown before you answer in practice mode: Common mistake: Confusing the effect of a higher return on future value with its opposite effect on the present value of a fixed future receipt.
X-A-005easyconceptual
Q2₹1,25,000 is invested for two years at an assumed return of 8% per year, compounded annually. No money is added or withdrawn. What is the value after two years?
Option A. ₹1,45,800 — Correct answer
Option B. ₹1,45,000
Why it is wrong: ₹1,45,000 uses simple interest: ₹1,25,000 + 2 × ₹10,000, missing interest on interest.
Option C. ₹1,35,000
Why it is wrong: ₹1,35,000 is the balance after only one year.
Option D. ₹1,46,000
Why it is wrong: ₹1,46,000 does not follow from the stated calculation. Rounding to that figure is not requested.
Answer: A. ₹1,45,800 correctly includes two complete years of annual compounding. Year 1: ₹1,25,000 × 1.08 = ₹1,35,000. The return is ₹10,000. Year 2: ₹1,35,000 × 1.08 = ₹1,45,800. The second-year return is ₹10,800. Equivalently, future value = ₹1,25,000 × (1.08)^2 = ₹1,45,800. The extra ₹800 is return on the first year’s ₹10,000. Remember: Apply the compound factor once for each complete period, or trace the accumulated balance period by period.
Hint, shown before you answer in practice mode: Common mistake: Calculating every year’s return on the original principal when the question specifies compounding.
X-A-006easynumerical
Q3A payment of ₹1,33,100 is due exactly three years from today. At a discount rate of 10% per year, compounded annually, what amount today is equivalent to that payment?
Option A. ₹1,21,000
Why it is wrong: ₹1,21,000 discounts only one of the three years.
Option B. ₹1,10,000
Why it is wrong: ₹1,10,000 discounts only two years and is still a year away from today’s equivalent.
Option C. ₹93,170
Why it is wrong: ₹93,170 subtracts 30% directly from the future amount: ₹1,33,100 × 0.70. That is not compound discounting.
Option D. ₹1,00,000 — Correct answer
Answer: D. ₹1,00,000 compounds to the stated payment after exactly three years. Use PV = FV ÷ (1 + r)^n with FV = ₹1,33,100, r = 0.10 and n = 3. The three-year factor is 1.10^3 = 1.331. Therefore PV = ₹1,33,100 ÷ 1.331 = ₹1,00,000. Check forwards: ₹1,00,000 becomes ₹1,10,000, then ₹1,21,000, then ₹1,33,100 after successive years. Remember: Check a present-value answer by compounding it back to the payment date.
Hint, shown before you answer in practice mode: Common mistake: Subtracting n times the interest rate from future value instead of dividing by the compound growth factor.
X-A-007easynumerical
Q4An investment grows from ₹2,50,000 to ₹3,02,500 in exactly two years, with no intermediate cash flows. What is its compound annual growth rate?
Option A. 21%
Why it is wrong: 21% is the return over the entire two-year holding period, not the annual compound rate.
Option B. 10.5%
Why it is wrong: 10.5% divides the 21% total gain by two, treating growth as simple rather than compounded.
Option C. 10% — Correct answer
Option D. 9.5%
Why it is wrong: 9.5% would give ₹2,99,756.25 after two years, below the stated value.
Answer: C. 10% per year produces the exact stated ending value. The total growth factor is ₹3,02,500 ÷ ₹2,50,000 = 1.21. There are two years, so find the annual factor by taking the square root: 1.21^(1/2) = 1.10. Subtract 1 to obtain the rate: 1.10 − 1 = 0.10 = 10%. Check: ₹2,50,000 × 1.10 × 1.10 = ₹3,02,500. Remember: Annualising a multi-year return requires a root: CAGR = (ending value ÷ beginning value)^(1/years) − 1.
Hint, shown before you answer in practice mode: Common mistake: Dividing a multi-year percentage gain by the number of years and labelling it CAGR.
X-A-008mediumnumerical
Q5An account credits interest monthly at 1% of the opening balance for that month. Interest remains in the account. What is the effective annual interest rate, rounded to two decimal places?
Option A. 12.00%
Why it is wrong: 12.00% is the simple annual multiple, 1% × 12, and excludes compounding within the year.
Option B. 12.68% — Correct answer
Option C. 13.00%
Why it is wrong: 13.00% is not the result of twelve 1% compounding periods.
Option D. 11.39%
Why it is wrong: 11.39% is below the simple annual multiple and does not fit retained monthly interest at a positive rate.
Answer: B. 12.68% is the effective annual growth rounded to two decimal places. A monthly rate of 1% means a monthly growth factor of 1.01. Twelve months require multiplying that factor twelve times. Starting with ₹100, the balance is ₹101 after month one and ₹102.01 after month two, because the second 1% applies to ₹101. After twelve months, ₹100 × 1.01^12 ≈ ₹112.6825. Effective annual rate = (1.01^12 − 1) × 100 ≈ 12.68%. Remember: Use the periodic rate and the actual number of compounding periods, then convert the final growth factor to a percentage.
Hint, shown before you answer in practice mode: Common mistake: Treating a quoted monthly rate, its simple annual multiple and the effective annual rate as interchangeable.
X-A-009mediumnumerical
Q6A course currently costs ₹6,00,000. For this question only, assume its cost rises by 6% at the end of each year for three years. What is its expected cost at the end of year three, rounded to the nearest rupee?
Option A. ₹7,08,000
Why it is wrong: ₹7,08,000 uses a simple 18% increase on today’s cost and misses compounding.
Option B. ₹6,36,000
Why it is wrong: ₹6,36,000 stops after the first annual increase.
Option C. ₹6,74,160
Why it is wrong: ₹6,74,160 stops after the second annual increase.
Option D. ₹7,14,610 — Correct answer
Answer: D. ₹7,14,610 includes all three increases and the specified rounding. End of year 1: ₹6,00,000 × 1.06 = ₹6,36,000. End of year 2: ₹6,36,000 × 1.06 = ₹6,74,160. End of year 3: ₹6,74,160 × 1.06 = ₹7,14,609.60, which rounds to ₹7,14,610. Remember: Project the cost to the date on which the money will be needed before calculating how to fund it.
Hint, shown before you answer in practice mode: Common mistake: Using today’s cost as the future funding target or adding percentage increases without compounding. The 6% here is hypothetical, not current inflation data.
X-A-010mediumnumerical
Q7An investor deposits ₹10,000 at the end of each of years one, two and three. The account earns 10% per year, compounded annually. What is its value immediately after the third deposit?
Option A. ₹33,100 — Correct answer
Option B. ₹36,410
Why it is wrong: ₹36,410 gives each deposit one extra year of growth, as though deposits were made at the beginning of each year.
Option C. ₹30,000
Why it is wrong: ₹30,000 is only the sum of contributions and omits earned returns.
Option D. ₹33,000
Why it is wrong: ₹33,000 incorrectly gives all three deposits one year’s return.
Answer: A. ₹33,100 uses two, one and zero growth periods, matching the deposit dates. The deposit at the end of year 1 grows for two years: ₹10,000 × 1.10^2 = ₹12,100. The deposit at the end of year 2 grows for one year: ₹10,000 × 1.10 = ₹11,000. The deposit at the end of year 3 is valued immediately, so it contributes ₹10,000 with no growth. Add: ₹12,100 + ₹11,000 + ₹10,000 = ₹33,100. Remember: Draw the payment dates before applying an annuity formula. The final end-of-period deposit has no time to grow at that instant.
Hint, shown before you answer in practice mode: Common mistake: Giving all deposits the same number of growth periods merely because they belong to the same plan.
X-A-011mediumnumerical
Q8An investor deposits ₹10,000 immediately and makes two further ₹10,000 deposits exactly one and two years from today. At 10% per year, compounded annually, what is the account value exactly three years from today?
Option A. ₹33,100
Why it is wrong: ₹33,100 is the value for deposits at the ends of years 1, 2 and 3, not the specified dates.
Option B. ₹30,000
Why it is wrong: ₹30,000 counts contributions alone and ignores three different accumulation periods.
Option C. ₹36,410 — Correct answer
Option D. ₹39,930
Why it is wrong: ₹39,930 compounds all ₹30,000 for three years as though every deposit were made today.
Answer: C. ₹36,410 correctly uses growth periods of three, two and one years. The deposit today, at time 0, grows for three years: ₹10,000 × 1.10^3 = ₹13,310. The deposit at time 1 grows for two years to ₹12,100. The deposit at time 2 grows for one year to ₹11,000. At time 3 the total is ₹13,310 + ₹12,100 + ₹11,000 = ₹36,410. Alternatively, multiply the equivalent ordinary-annuity value ₹33,100 by 1.10. Remember: Timing matters even when the total contribution and annual return are unchanged.
Hint, shown before you answer in practice mode: Common mistake: Substituting the correct annuity formula for the wrong payment timing.
X-A-012mediumnumerical
Q9A hypothetical investment pays ₹15,000 at the end of every year forever, starting one year from today. Payments do not grow. At a constant annual discount rate of 6%, what is its present value?
Option A. ₹2,65,000
Why it is wrong: ₹2,65,000 adds a payment at time zero to the perpetuity value. The question gives no immediate payment.
Option B. ₹2,50,000 — Correct answer
Option C. ₹90,000
Why it is wrong: ₹90,000 is neither the perpetuity value nor a sum over the infinite stated horizon.
Option D. ₹15,000
Why it is wrong: ₹15,000 is one payment, not the value of all discounted payments.
Answer: B. ₹2,50,000 is the correctly timed level-perpetuity value. The annual payment C is ₹15,000, the annual discount rate r is 0.06 and the first receipt is one year away. PV = C ÷ r = ₹15,000 ÷ 0.06 = ₹2,50,000. The discounted infinite payment series has a finite value at this positive rate. An intuition under the model is that 6% of ₹2,50,000 is ₹15,000 per year, allowing the capital amount to remain intact while generating the stated payment. Remember: Check whether the first payment is today or one period ahead before using a perpetuity formula.
Hint, shown before you answer in practice mode: Common mistake: Adding an immediate payment when none is promised, or treating an infinite undiscounted total as the present value.
X-A-013mediumnumerical
Q10A client will receive ₹10,000 at the end of each of the next three years. At a discount rate of 10% per year, what is the present value of these receipts, rounded to the nearest rupee?
Option A. ₹30,000
Why it is wrong: ₹30,000 adds the cash receipts without allowing for their timing.
Option B. ₹27,000
Why it is wrong: ₹27,000 applies a flat 10% reduction to ₹30,000 rather than discounting each receipt for its actual horizon.
Option C. ₹33,100
Why it is wrong: ₹33,100 compounds the deposits forwards and answers a future-value question instead.
Option D. ₹24,869 — Correct answer
Answer: D. ₹24,869 is the sum of the correctly discounted receipts after final rounding. Year-1 receipt: ₹10,000 ÷ 1.10 = ₹9,090.91 approximately. Year-2 receipt: ₹10,000 ÷ 1.10^2 = ₹8,264.46 approximately. Year-3 receipt: ₹10,000 ÷ 1.10^3 = ₹7,513.15 approximately. Using unrounded values, the total is ₹24,868.52, or ₹24,869 to the nearest rupee. Later receipts are worth less today at the same positive rate. Remember: For multiple cash flows, align dates first, calculate second and round at the end.
Hint, shown before you answer in practice mode: Common mistake: Discounting the entire total for one year or compounding when the question asks for present value.
X-A-014mediumnumerical
Q11A client needs ₹1,57,625 immediately after making the third of three equal annual deposits. Deposits are made at the ends of years one, two and three. Assuming 5% annual compounding and no initial investment, how large must each deposit be?
Option A. ₹50,000 — Correct answer
Option B. ₹52,542
Why it is wrong: About ₹52,542 is the target divided by three, ignoring returns between deposits.
Option C. ₹47,619
Why it is wrong: About ₹47,619 corresponds to giving each deposit one extra year of growth, inconsistent with the specified year-end deposits.
Option D. ₹55,000
Why it is wrong: ₹55,000 would produce ₹1,73,387.50 and overshoot the target.
Answer: A. ₹50,000 per deposit exactly reaches the target under the stated timing. Let each year-end deposit be P. The first earns two years of return, the second one year and the third none. The accumulated value is P × (1.05^2 + 1.05 + 1) = P × 3.1525. Set 3.1525P = ₹1,57,625. Then P = ₹50,000. Check: ₹55,125 + ₹52,500 + ₹50,000 = ₹1,57,625. Remember: The required payment equals the goal amount divided by the relevant accumulation factor, not simply by the number of deposits.
Hint, shown before you answer in practice mode: Common mistake: Using beginning-of-period timing for deposits that occur at year end.
X-A-015mediumnumerical
Q12At 10% per year compounded annually, how many complete years are required for ₹2,00,000 to become ₹2,66,200, assuming no additional cash flows?
Option A. One year
Why it is wrong: One year produces ₹2,20,000, short of the target.
Option B. Two years
Why it is wrong: Two years produce ₹2,42,000, still short.
Option C. Three years — Correct answer
Option D. Four years
Why it is wrong: Four years produce ₹2,92,820, beyond the specified ending value.
Answer: C. Three years produce exactly ₹2,66,200. After one year: ₹2,00,000 × 1.10 = ₹2,20,000. After two: ₹2,42,000. After three: ₹2,66,200. The target is reached exactly after three complete years. For less convenient numbers, use n = log(FV ÷ PV) ÷ log(1 + r). Here log(1.331) ÷ log(1.10) = 3. The same logarithm base must be used in both places. Remember: Use repeated accumulation for a simple check and logarithms when the required horizon is not obvious.
Hint, shown before you answer in practice mode: Common mistake: Dividing the total percentage gain by the annual rate, which ignores compounding.
X-A-016easyconceptual
Q13CASE: A course costs ₹6,00,000 today and is payable in three years. Its cost rises 5% a year, compounded. What will it cost in three years?
Option A. ₹6,90,000
Why it is wrong: This adds 5% a year without compounding.
Option B. ₹6,61,500
Why it is wrong: This compounds for only two years.
Option C. ₹6,94,575 — Correct answer
Option D. ₹7,55,827
Why it is wrong: This uses 8% instead of the 5% cost increase.
Answer: C. ₹6,00,000 × 1.05³ = ₹6,00,000 × 1.157625 = ₹6,94,575. Remember: Expense inflation and investment return belong to different cash-flow projections.
Hint, shown before you answer in practice mode: Common mistake: Using the portfolio’s growth rate to inflate the spending goal because both rates appear in the same case.
X-A-024mediumapplication
Q14CASE: A course costing ₹6,00,000 today is payable in three years, and its cost rises 5% a year, compounded. A household earmarks ₹5,00,000 today in mutual funds assumed to earn 8% a year, compounded. What shortfall or excess is projected when payment is due?
Option A. An excess of ₹29,856
Why it is wrong: This compares the fund with today's ₹6,00,000 cost, not the future cost.
Option B. A shortfall of ₹64,719 — Correct answer
Option C. A shortfall of ₹94,575
Why it is wrong: This compares the future cost with ₹6,00,000 instead of the grown fund.
Option D. An excess of ₹1,29,856
Why it is wrong: This compares the grown fund with only ₹5,00,000.
Answer: B. Fund value = ₹5,00,000 × 1.08³ = ₹6,29,856. Goal cost = ₹6,00,000 × 1.05³ = ₹6,94,575. Shortfall = ₹64,719. Remember: Compare projected assets and projected liabilities on one date. The relevant result is a rupee gap, not simply the difference between two rates.
Hint, shown before you answer in practice mode: Common mistake: Subtracting 5% from 8% and assuming the 3-percentage-point spread means the goal is fully funded.
X-A-025hardapplication
Time Value of Money: common questions
How many practice questions are there on Time Value of Money?
14 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 Time Value of Money?
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.
Evaluating the Financial Position of Clients
5 questions on Evaluating the Financial Position of Clients. Its quiz opens on that unit.
Open Evaluating the Financial Position of Clients