Valuation Principles
13 questions. Each answer is explained.
Question 1 of 10Practice · Series XV — Research Analyst
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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
- Fundamental analysis of commodities9
- Fundamentals of Risk and Return10
- 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 13 questions on Valuation Principles, with answers
Q1A listed company trades at ₹675 per share and reports trailing twelve-month earnings per share (EPS) of ₹45. Which combination is correct?
Option A. P/E = 12.0 times, earnings yield = 8.33%
Why it is wrong: A 12x P/E is not supported by the given price and EPS.
Option B. P/E = 15.0 times, earnings yield = 15.00%
Why it is wrong: The earnings yield is not equal to the P/E multiple expressed as a percentage.
Option C. P/E = 15.0 times, earnings yield = 6.67% — Correct answer
Option D. P/E = 6.67 times, earnings yield = 15.00%
Why it is wrong: This effectively reverses the relationship.
Answer: C. P/E = Market Price ÷ EPS = 675 ÷ 45 = 15.0 times. Earnings yield = EPS ÷ Market Price = 45 ÷ 675 = 6.67%. The two measures express the same price-earnings relationship in different forms. Remember: P/E is a multiple. Earnings yield is the reciprocal percentage expression of that relationship.
Hint, shown before you answer in practice mode: Common mistake: Confusing a valuation multiple with a percentage yield.
XV-001easynumerical
Q2During the year, Alpha Ltd. earned profit after tax attributable to ordinary shareholders of ₹96 crore. Its average ordinary shareholders' equity was ₹640 crore. What is its ROE?
Option A. 12%
Why it is wrong: This understates the return generated on the stated equity base.
Option B. 15% — Correct answer
Option C. 18%
Why it is wrong: The calculation does not produce 18%.
Option D. 20%
Why it is wrong: The calculation does not produce 20%.
Answer: B. ROE = Profit attributable to ordinary shareholders ÷ Average ordinary shareholders' equity × 100 = 96 ÷ 640 × 100 = 15%. Remember: Use profit attributable to equity holders with the corresponding equity base.
Hint, shown before you answer in practice mode: Common mistake: Using revenue, total assets, or closing equity without considering the stated denominator.
XV-002mediumnumerical
Q3Beta Industries has a market capitalisation of ₹2,500 crore, interest-bearing debt of ₹700 crore and cash and cash equivalents of ₹300 crore. Assume there is no preferred capital or non-controlling interest. What is its enterprise value?
Option A. ₹2,900 crore — Correct answer
Option B. ₹2,500 crore
Why it is wrong: This ignores the company's net debt.
Option C. ₹1,900 crore
Why it is wrong: This subtracts net debt from equity value instead of adding it.
Option D. ₹3,500 crore
Why it is wrong: This adds debt but fails to subtract cash.
Answer: A. Enterprise value = Market capitalisation + Debt − Cash = 2,500 + 700 − 300 = ₹2,900 crore. Remember: Enterprise value adjusts equity value for financing claims and surplus cash.
Hint, shown before you answer in practice mode: Common mistake: Adding cash instead of subtracting it.
XV-003mediumnumerical
Q4A mature company is expected to pay a dividend of ₹9 per share one year from now. Dividends are assumed to grow perpetually at 5% a year, and the required return on equity is 11%. Under the constant-growth dividend discount model, what is the estimated value per share?
Option A. ₹100
Why it is wrong: It does not follow from the Gordon growth formula using the stated inputs.
Option B. ₹140
Why it is wrong: It is below the value produced by the required-return minus growth spread.
Option C. ₹150 — Correct answer
Option D. ₹180
Why it is wrong: This would imply a smaller discount-rate spread than the one given.
Answer: C. Under the Gordon growth model, value = D1 ÷ (k − g) = 9 ÷ (0.11 − 0.05) = 9 ÷ 0.06 = ₹150. Remember: In a constant-growth DDM, use next year's dividend and ensure the required return exceeds the perpetual growth rate.
Hint, shown before you answer in practice mode: Common mistake: Using the current dividend instead of D1, or adding k and g instead of subtracting g from k.
XV-004hardnumerical
Q5An analyst wants a balance-sheet-based relative valuation measure. In which case is P/B generally the most directly interpretable, assuming accounting quality is satisfactory?
Option A. A regulated bank whose balance sheet is dominated by recognised financial assets and liabilities — Correct answer
Option B. An early-stage software platform whose value is mainly internally developed technology and network effects
Why it is wrong: Internally developed technology and network effects may be poorly represented in book equity.
Option C. A consumer brand whose internally generated brand value is largely absent from book equity
Why it is wrong: Internally generated brand value may not be captured adequately in book value.
Option D. A loss-making digital marketplace with very little tangible capital
Why it is wrong: Very low tangible capital makes P/B harder to interpret.
Answer: A. P/B is generally more informative where book equity is economically meaningful and assets and liabilities are substantially recognised on the balance sheet. That is often more true for a regulated bank than for businesses whose value is dominated by internally generated intangible assets. Remember: A valuation multiple is useful only when its denominator is economically meaningful for the business being valued.
Hint, shown before you answer in practice mode: Common mistake: Treating a low P/B ratio as automatically cheap without examining business model and accounting quality.
XV-005mediumconceptual
Q6Which statement best captures the distinction between market price and intrinsic value?
Option A. Intrinsic value is always equal to the last price at which the stock traded
Why it is wrong: Price and estimated value can diverge.
Option B. Market price is fixed each year by the company’s auditor during the audit
Why it is wrong: Auditors do not set market prices.
Option C. Market price is observed in trades, while intrinsic value is an estimate — Correct answer
Option D. Intrinsic value cannot change, even when the assumptions behind it change
Why it is wrong: A valuation changes when material assumptions change.
Answer: C. Market price is observable in transactions. Intrinsic value is an estimate derived from expected cash flows, assets, growth, risk and other assumptions. Different analysts can reasonably estimate different values because their assumptions may differ. Remember: Price is observed. Value is estimated and assumption-dependent.
Hint, shown before you answer in practice mode: Common mistake: Treating valuation as an objective single number that must equal the market price.
XV-085mediumconceptual
Q7A company trades at a P/E of 24 times and its sustainable earnings growth rate is assumed to be 12% per year. Using the conventional PEG calculation with growth entered as 12 rather than 0.12, the PEG ratio is:
Option A. 0.5
Why it is wrong: 0.5 would result from reversing the relationship.
Option B. 1.0
Why it is wrong: A PEG of 1 would require P/E and the percentage growth number to be equal.
Option C. 12.0
Why it is wrong: This is not the result of the stated formula.
Option D. 2.0 — Correct answer
Answer: D. PEG = P/E ÷ Earnings growth rate = 24 ÷ 12 = 2.0 under the stated convention. The PEG ratio is a shorthand comparative metric and does not remove the need to assess growth quality, risk and sustainability. Remember: PEG scales P/E by an assumed earnings-growth rate. The growth assumption is often the weakest input.
Hint, shown before you answer in practice mode: Common mistake: Mixing decimal and whole-percentage conventions in the growth denominator.
XV-086mediumnumerical
Q8A listed group owns a mature consumer business, a regulated utility and a fast-growing digital subsidiary with very different economics. Which valuation approach may be especially useful?
Option A. Use sum-of-the-parts, valuing each business by a method that suits it — Correct answer
Option B. Apply the same P/E multiple to the whole group's consolidated revenue figure
Why it is wrong: One multiple may be inappropriate across businesses with very different economics.
Option C. Value only the largest segment and ignore the other two businesses entirely
Why it is wrong: Ignoring material segments can materially misstate value.
Option D. Use the face value of the group's shares as its intrinsic value per share
Why it is wrong: Face value is an accounting/legal denomination, not intrinsic value.
Answer: A. Sum-of-the-parts valuation separately values materially different businesses using methods or multiples suitable to each segment, then combines them and adjusts for relevant corporate assets, liabilities and other group-level items. Remember: SOTP is useful when consolidated figures hide businesses that deserve different valuation frameworks.
Hint, shown before you answer in practice mode: Common mistake: Adding segment values without accounting for corporate debt, cash or other group-level adjustments.
XV-087hardconceptual
Q9A company has enterprise value of ₹2,400 crore and annual revenue of ₹1,200 crore. Its EV/Sales multiple is:
Option A. 0.5 times
Why it is wrong: It reverses the relationship.
Option B. 1.0 times
Why it is wrong: Enterprise value is twice revenue, not equal to it.
Option C. 1.5 times
Why it is wrong: The calculation produces 2.0x.
Option D. 2.0 times — Correct answer
Answer: D. EV/Sales = Enterprise value ÷ Revenue = 2,400 ÷ 1,200 = 2.0 times. Remember: Match an enterprise-value numerator with the corresponding operating metric in the denominator.
Hint, shown before you answer in practice mode: Common mistake: Using market capitalisation instead of enterprise value without noticing the multiple definition.
XV-119mediumnumerical
Q10When comparing transaction multiples with ordinary trading multiples, which consideration is most important?
Option A. Transaction multiples always exclude the target company's debt
Why it is wrong: Enterprise transaction multiples commonly incorporate debt-related enterprise value concepts.
Option B. Trading multiples always include a control premium in the share price
Why it is wrong: Ordinary trading multiples do not automatically contain a control premium.
Option C. Transaction multiples may include a control premium and synergies — Correct answer
Option D. The two types of multiples are necessarily identical for the same industry
Why it is wrong: The contexts can produce materially different multiples.
Answer: C. Acquisition prices can include a premium for control and expectations of synergies or strategic value. Therefore transaction multiples may not be directly comparable with unaffected public-market trading multiples. Remember: Always understand what economic rights and deal effects are embedded in a valuation multiple.
Hint, shown before you answer in practice mode: Common mistake: Using transaction and trading multiples interchangeably without adjusting for control and deal context.
XV-120hardconceptual
Q11For which business is a net asset value (NAV) approach likely to be especially relevant?
Option A. An investment holding company whose value largely comes from identifiable investments and assets — Correct answer
Option B. A pre-revenue software startup whose main value is an unrecorded network effect among its early users
Why it is wrong: Intangible network effects may not be captured well in book or asset values.
Option C. A consulting firm whose main asset is the knowledge and expertise of its senior employees
Why it is wrong: Human capital is not generally recognised as an owned balance-sheet asset.
Option D. A social-media platform whose value is primarily the daily engagement of its large user base
Why it is wrong: User engagement is an operating/intangible driver rather than a straightforward asset-value base.
Answer: A. NAV is especially relevant when underlying assets can be identified and valued with reasonable reliability, such as in an investment holding company, property company or certain asset-heavy businesses. Remember: Choose a valuation approach that fits the economic source of value in the business.
Hint, shown before you answer in practice mode: Common mistake: Applying asset-based valuation mechanically to businesses dominated by internally generated intangibles.
XV-121mediumconceptual
Q12In a constant-growth terminal-value calculation, the discount rate is held at 11% and the perpetual growth assumption is increased from 4% to 5%, with all other inputs unchanged. What is the direct effect on terminal value?
Option A. It must fall, because a higher growth rate makes the business riskier
Why it is wrong: With the discount rate held at 11%, a smaller r−g spread raises, rather than lowers, terminal value.
Option B. It rises, because the gap between discount and growth rates narrows — Correct answer
Option C. It remains unchanged, because the discount rate is still held at 11%
Why it is wrong: Terminal value is sensitive to the perpetual growth assumption.
Option D. It becomes zero, because the growth rate moves closer to the discount rate
Why it is wrong: A narrower gap between r and g makes terminal value larger, not zero.
Answer: B. In a Gordon-style terminal value, TV = FCF₁ ÷ (r − g). Raising g while holding r constant reduces the denominator and therefore increases terminal value, provided r remains greater than g. Remember: DCF terminal values can be highly sensitive to small changes in discount and perpetual-growth assumptions.
Hint, shown before you answer in practice mode: Common mistake: Changing a terminal assumption without checking how it affects the denominator r−g.
XV-122hardconceptual
Q13A digital platform reports rapid growth in gross merchandise value (GMV) but still loses money on each incremental transaction before corporate overhead. Which additional metric is most important before treating GMV growth as evidence of value creation?
Option A. The face value of each equity share
Why it is wrong: Face value does not measure platform economics.
Option B. Number of board meetings held in the year
Why it is wrong: Governance matters, but board-meeting count does not answer the unit-economics question.
Option C. Historical dividend payout ratio only
Why it is wrong: Many growth platforms may not pay dividends, and payout history does not reveal transaction economics.
Option D. Contribution margin per transaction — Correct answer
Answer: D. High activity growth does not automatically create value. Analysts should examine whether incremental transactions contribute positively after variable costs and how acquisition, retention and monetisation economics evolve. Remember: For new-age businesses, operating activity metrics must be connected to sustainable unit economics and cash generation.
Hint, shown before you answer in practice mode: Common mistake: Equating user, volume or GMV growth with value creation without testing economics.
XV-123mediumconceptual
Valuation Principles: common questions
How many practice questions are there on Valuation Principles?
13 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 Valuation Principles?
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.
Fundamental analysis of commodities
9 questions on Fundamental analysis of commodities. Its quiz opens on that unit.
Open Fundamental analysis of commodities