Fundamentals of Risk and Return
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Learn these topics
More units in NISM Series XV
- Introduction to Research Analyst Profession2
- Introduction to Securities Market3
- Terminology in Equity and Debt Markets3
- Fundamentals of Research7
- Economic Analysis7
- Industry Analysis12
- Company Analysis – Business and Governance9
- Company Analysis – Financial Analysis16
- Corporate Actions7
- Valuation Principles13
- Fundamental analysis of commodities9
- Qualities of a Good Research Report7
- Legal and Regulatory Environment15
- Technical Analysis22
- Case Study - Valuation8
Exam format
| Questions | 100 · 1 mark each |
|---|---|
| Duration | 120 min · 2 hours |
| Pass mark | 60% · 60 of 100 marks |
| Negative marking | 25% · 0.25 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 XV Research Analyst
Exam rules read on NISM's site on 3 October 2026. Exam pattern revised on 20 January 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 10 questions on Fundamentals of Risk and Return, with answers
Q1A stock has a beta of 1.3 relative to a broad market index. What does beta primarily measure?
Option A. The stock's total standalone volatility, including company-specific risk
Why it is wrong: Total standalone volatility is more closely associated with variance or standard deviation.
Option B. The stock's dividend yield relative to the market average
Why it is wrong: Dividend yield is dividends per share relative to price.
Option C. The probability that the company will default on its loans or bonds
Why it is wrong: Default probability is a credit-risk concept.
Option D. The sensitivity of the stock's returns to movements in the market — Correct answer
Answer: D. Beta measures systematic market sensitivity: how a security's returns tend to move relative to the market return used as the benchmark. Remember: Beta is a measure of systematic market risk, not total risk.
Hint, shown before you answer in practice mode: Common mistake: Equating beta with standard deviation.
XV-021mediumconceptual
Q2A portfolio earned 14% during a period in which the risk-free rate was 6%. The portfolio's standard deviation of returns was 10%. What was its Sharpe ratio?
Option A. 0.50
Why it is wrong: It understates the excess return relative to volatility.
Option B. 2.00
Why it is wrong: It is not supported by the inputs.
Option C. 1.40
Why it is wrong: This resembles return divided by volatility without subtracting the risk-free rate.
Option D. 0.80 — Correct answer
Answer: D. Sharpe ratio = (Portfolio return − Risk-free rate) ÷ Standard deviation = (14% − 6%) ÷ 10% = 0.80. Remember: Sharpe ratio uses excess return over the risk-free rate divided by total volatility.
Hint, shown before you answer in practice mode: Common mistake: Using the portfolio return directly without subtracting the risk-free rate.
XV-022hardnumerical
Q3An investor adds more stocks whose company-specific return drivers are not perfectly correlated with the existing portfolio. As the portfolio becomes well diversified, which risk is most directly reduced?
Option A. Unsystematic company-specific risk — Correct answer
Option B. Systematic market risk
Why it is wrong: Systematic market risk remains in a diversified equity portfolio.
Option C. Risk-free rate risk
Why it is wrong: The risk-free rate is a benchmark, not a diversifiable company-specific risk.
Option D. All investment risk to zero
Why it is wrong: Diversification does not eliminate all risk.
Answer: A. Diversification reduces company-specific or unsystematic risk when exposures are not perfectly correlated. Broad market or systematic risk cannot generally be diversified away simply by holding more stocks. Remember: Diversification reduces idiosyncratic risk, not the market-wide component of risk.
Hint, shown before you answer in practice mode: Common mistake: Believing that enough securities make a portfolio risk-free.
XV-041mediumconceptual
Q4The risk-free rate is 5%, the expected market return is 12%, and a stock's beta is 1.3. Under CAPM, the stock's expected return is:
Option A. 9.1%
Why it is wrong: 9.1% is the beta-adjusted market risk premium before adding the risk-free rate.
Option B. 14.1% — Correct answer
Option C. 12.0%
Why it is wrong: This simply uses the market return.
Option D. 15.6%
Why it is wrong: It is not produced by the stated formula.
Answer: B. CAPM expected return = Rf + β(Rm − Rf) = 5% + 1.3(12% − 5%) = 5% + 9.1% = 14.1%. Remember: CAPM combines the risk-free rate with beta times the market risk premium.
Hint, shown before you answer in practice mode: Common mistake: Forgetting to add the risk-free rate after calculating beta × market risk premium.
XV-042mediumnumerical
Q5Two risky assets have a return correlation of exactly +1. An investor combines them with positive portfolio weights. Which statement is most accurate?
Option A. The portfolio obtains the maximum possible correlation-based diversification benefit from combining these two assets
Why it is wrong: Diversification benefit increases as correlation falls, all else equal.
Option B. The portfolio's standard deviation must be zero, because the two assets' movements cancel each other out
Why it is wrong: Perfect positive correlation does not make volatility zero.
Option C. There is no correlation-based diversification benefit, as the assets move perfectly together in standardized terms — Correct answer
Option D. The portfolio return must equal the risk-free rate, because all of the risk in the portfolio has been removed
Why it is wrong: Correlation does not determine the portfolio's expected return to equal the risk-free rate.
Answer: C. With correlation of +1, the assets move perfectly together in standardized terms, so combining them does not create the risk reduction that comes from less-than-perfect correlation. With positive weights, portfolio volatility is the weighted combination implied by perfect positive correlation. Remember: The diversification benefit comes from imperfect co-movement, not merely from holding multiple assets.
Hint, shown before you answer in practice mode: Common mistake: Assuming any two-asset portfolio is automatically diversified.
XV-043hardconceptual
Q6An investment gains 10% in Year 1 and loses 10% in Year 2. What is the total compounded return over the two years?
Option A. 0%
Why it is wrong: +10% and −10% do not cancel multiplicatively.
Option B. +1%
Why it is wrong: The ending value is below, not above, the starting value.
Option C. −1% — Correct answer
Option D. +20%
Why it is wrong: Returns are compounded, not added as absolute positive amounts.
Answer: C. If the starting value is 100, after a 10% gain it becomes 110. A 10% loss then reduces 110 to 99. The total compounded return is therefore −1%. Equal percentage gains and losses do not cancel because the second percentage applies to a different base. Remember: Investment returns compound multiplicatively across periods.
Hint, shown before you answer in practice mode: Common mistake: Adding percentage returns arithmetically when calculating multi-period wealth change.
XV-089mediumnumerical
Q7An analyst values a company under different assumptions for revenue growth, operating margin and discount rate. What is the main purpose of this sensitivity analysis?
Option A. To prove that one valuation figure is certainly the correct one
Why it is wrong: Sensitivity analysis highlights uncertainty rather than proving certainty.
Option B. To eliminate all business risk from the company's future results
Why it is wrong: Analysis cannot eliminate underlying business risk.
Option C. To replace the need for any assumptions in the valuation model
Why it is wrong: Sensitivity analysis works by changing assumptions, not by removing them.
Option D. To show how the value changes when key assumptions change — Correct answer
Answer: D. Sensitivity analysis tests how an output such as valuation responds to changes in key inputs. It helps identify which assumptions matter most and the range of plausible outcomes, but it does not eliminate uncertainty. Remember: Sensitivity analysis makes model dependence on assumptions visible.
Hint, shown before you answer in practice mode: Common mistake: Presenting a single-point valuation without testing the assumptions that drive it.
XV-090mediumconceptual
Q8An investment earns a simple holding-period return of 6% over six months. Using simple annualisation and assuming a 12-month year, the annualised return is:
Option A. 6%
Why it is wrong: This is only the six-month holding-period return.
Option B. 8%
Why it is wrong: It is not produced by simple annualisation.
Option C. 10%
Why it is wrong: It does not follow from the stated convention.
Option D. 12% — Correct answer
Answer: D. Simple annualised return = 6% × (12 ÷ 6) = 12%. This is simple annualisation, not compounded annual growth. Remember: Know whether a question asks for simple annualisation or compounded annualisation.
Hint, shown before you answer in practice mode: Common mistake: Applying a compounding formula when the question explicitly specifies simple annualisation.
XV-127mediumnumerical
Q9A portfolio returns 15%, the risk-free rate is 5%, and the portfolio beta is 1.25. What is its Treynor ratio?
Option A. 8.0% — Correct answer
Option B. 10.0%
Why it is wrong: This is the excess return before adjusting for beta.
Option C. 12.0%
Why it is wrong: It is not supported by the calculation.
Option D. 16.0%
Why it is wrong: It overstates risk-adjusted performance.
Answer: A. Treynor ratio = (Portfolio return − Risk-free rate) ÷ Beta = (15% − 5%) ÷ 1.25 = 8.0%. Remember: Treynor uses systematic risk measured by beta, unlike Sharpe which uses total volatility.
Hint, shown before you answer in practice mode: Common mistake: Using standard deviation in the Treynor denominator.
XV-128hardnumerical
Q10An analyst values a stock at ₹420 after new information materially weakens its outlook, but keeps insisting it is worth at least ₹600 mainly because ₹600 was its IPO price. Which bias is most directly illustrated?
Option A. Herd mentality
Why it is wrong: Herd mentality involves following the crowd.
Option B. Gambler's fallacy
Why it is wrong: Gambler's fallacy concerns mistaken beliefs about random sequences.
Option C. Anchoring — Correct answer
Option D. Winner's curse
Why it is wrong: Winner's curse concerns overpaying in competitive bidding situations.
Answer: C. Anchoring occurs when a decision-maker relies too heavily on an initial reference point even after new information should cause a meaningful update. Remember: Reference prices can become psychologically sticky even when fundamentals change.
Hint, shown before you answer in practice mode: Common mistake: Treating a historical market price as evidence of current intrinsic value.
XV-129mediumconceptual
Fundamentals of Risk and Return: common questions
How many practice questions are there on Fundamentals of Risk and Return?
10 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 16 practice topics for NISM Series XV, which has 150 questions in total.
Are these real NISM Series XV questions on Fundamentals of Risk and Return?
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 XV?
Yes. NISM takes off 25% of a question's marks for a wrong answer. On a 1-mark question that is 0.25 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.
Qualities of a Good Research Report
7 questions on Qualities of a Good Research Report. Its quiz opens on that unit.
Open Qualities of a Good Research Report