Investing in Fixed Income Securities
8 questions. Each answer is explained.
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Learn these topics
More units in NISM Series XXI-A
- Investments11
- Introduction to Securities Markets7
- Investing in Stocks15
- Derivatives7
- Collective Investment Vehicles8
- Role of Portfolio Managers15
- Operational Aspects of Portfolio Managers20
- Portfolio Management Process22
- Performance Measurement and Evaluation of Portfolio Managers15
- Taxation7
- Regulatory, Governance and Ethical Aspects of Portfolio Managers15
Exam format
| Questions | 100 · 1 mark each |
|---|---|
| Duration | 120 min · 2 hours |
| Pass mark | 60% · 60 of 100 marks |
| Negative marking | 10% · 0.1 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 XXI-A Portfolio Management Services (PMS) Distributors
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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 8 questions on Investing in Fixed Income Securities, with answers
Q1A bond with face value ₹1,000 pays an annual coupon of 8% and trades at ₹960. What is its current yield, rounded to two decimals?
Option A. 8.33% — Correct answer
Option B. 7.68%
Why it is wrong: This applies the coupon percentage to market price and then divides by face value.
Option C. 12.50%
Why it is wrong: This adds the ₹40 discount to one year’s coupon without considering the time to redemption.
Option D. 8.00%
Why it is wrong: This is the coupon rate on face value, not the current yield on the purchase price.
Answer: A. Current yield relates annual coupon income to current market price. It is not a full yield-to-maturity calculation. Annual coupon = 8% × ₹1,000 = ₹80. Current yield = ₹80 ÷ ₹960 × 100 = 8.3333%, or 8.33%. The possible gain or loss at redemption is not included in this measure. Remember: Use market price for current yield and face value for the coupon payment.
Hint, shown before you answer in practice mode: Common mistake: Confusing coupon rate, current yield and yield to maturity.
XXI-A-034mediumnumerical
Q2A zero-coupon bond will repay ₹1,210 in two years. At a required annual compound yield of 10%, what is its present value?
Option A. ₹1,000 — Correct answer
Option B. ₹1,464.10
Why it is wrong: This compounds the future payment forward instead of discounting it back.
Option C. ₹1,008.33
Why it is wrong: This uses two years of simple interest rather than compound discounting.
Option D. ₹1,100
Why it is wrong: This discounts for only one year.
Answer: A. A zero-coupon bond’s value is the present value of its single promised payment, subject to the chosen yield and credit assumptions. Use present value = maturity payment ÷ (1 + annual yield)^years. ₹1,210 ÷ 1.10² = ₹1,210 ÷ 1.21 = ₹1,000. There are no interim coupons to add. Remember: One future payment still requires the full compounding period in the discount factor.
Hint, shown before you answer in practice mode: Common mistake: Discounting a two-year cash flow for only one year.
XXI-A-035mediumnumerical
Q3For a conventional fixed-rate bond with unchanged promised cash flows, what is the usual effect of an increase in the required yield?
Option A. Its maturity payment necessarily becomes larger.
Why it is wrong: The question holds promised cash flows unchanged, including the maturity payment.
Option B. Its present value falls. — Correct answer
Option C. Its contractual coupon rate automatically rises.
Why it is wrong: The coupon on the specified fixed-rate bond does not reset merely because market yields change.
Option D. Its present value rises.
Why it is wrong: A higher discount rate reduces, rather than increases, the present value of positive future cash flows.
Answer: B. Bond valuation discounts future payments. Price and required yield move in opposite directions when those payments are held constant. Keep the coupon and redemption amounts fixed as instructed. A larger discount rate means each future payment has a lower present value, reducing the sum of those present values. Remember: Separate a change in market yield from a change in contractual cash flows.
Hint, shown before you answer in practice mode: Common mistake: Assuming that a fixed coupon adjusts to preserve the bond’s market price.
XXI-A-036easyconceptual
Q4A corporate bond is downgraded after the issuer’s debt-service capacity weakens. Market interest rates on comparable government bonds are unchanged. What is the most direct valuation concern?
Option A. The government reference yield must fall by the amount of the downgrade.
Why it is wrong: The question holds that reference yield constant. The relevant change is issuer credit risk.
Option B. The rating change itself guarantees that a default will occur.
Why it is wrong: A downgrade indicates a revised credit assessment, not certainty of future default.
Option C. The fixed coupon must immediately become equal to the new required yield.
Why it is wrong: A change in required yield does not automatically rewrite the fixed coupon contract.
Option D. Investors may require a larger credit spread, reducing the bond’s price. — Correct answer
Answer: D. A corporate bond’s required yield reflects a reference rate and compensation for issuer-specific risks, among other factors. The risk-free or government reference is unchanged, so it does not explain a new valuation discount here. Deteriorating credit quality can widen the required spread. Discounting the same promised payments at that higher yield tends to lower price. Remember: A credit rating is an assessment of risk, not a repayment guarantee or a certain default forecast.
Hint, shown before you answer in practice mode: Common mistake: Treating the rating symbol as a contractual cash-flow change.
XXI-A-037mediumapplication
Q5A callable bond may be redeemed by the issuer at the stated call price. If market rates fall substantially, which risk is particularly relevant to its holder?
Option A. The holder automatically receives every coupon through original maturity.
Why it is wrong: An exercised call can end future coupons according to the contract.
Option B. The issuer must increase the fixed coupon to match the price rise.
Why it is wrong: A fixed coupon does not automatically change when market yields fall.
Option C. The call becomes a right of the holder to demand a higher price.
Why it is wrong: An issuer call is not a holder put option.
Option D. Early redemption may force reinvestment at a lower available yield. — Correct answer
Answer: D. An embedded issuer call can limit the investor’s benefit from falling rates and introduce early-reinvestment risk. A lower refinancing cost can make exercise attractive to the issuer, subject to the contract. If called, the investor receives the contractual call amount and must assess the rates available for reinvestment. Exercise is not assumed to be certain. Remember: Identify whose option is embedded in a bond and how exercise changes cash flows.
Hint, shown before you answer in practice mode: Common mistake: Treating a callable bond as an option-free bond with identical cash-flow certainty.
XXI-A-038mediumapplication
Q6A bond has modified duration of 4.5. If its yield rises by 0.75 percentage points, what approximate percentage price change does duration alone indicate?
Option A. −0.034%
Why it is wrong: This fails to convert the decimal price change to a percentage correctly.
Option B. −3.38% — Correct answer
Option C. +3.38%
Why it is wrong: This reverses the price response to an increase in yield.
Option D. −337.50%
Why it is wrong: This substitutes 0.75 for 0.0075 in the decimal-yield formula.
Answer: B. Modified duration estimates the proportional price response to a small yield change, with an inverse sign relationship. Use ΔP/P approximately equal to −modified duration × Δyield, with the yield change in decimal form. −4.5 × 0.0075 = −0.03375 = −3.375%, which rounds to −3.38%. Convexity and other changes are excluded. Remember: Convert a percentage-point yield change into a decimal before multiplying by duration.
Hint, shown before you answer in practice mode: Common mistake: Using the right formula with the wrong yield units.
XXI-A-039hardnumerical
Q7A bond pays ₹10 after one year and ₹110 after two years. At a 10% annual yield, its price is ₹100. What is its Macaulay duration, to two decimals?
Option A. 1.50 years
Why it is wrong: This gives the two payment dates equal weight instead of present-value weight.
Option B. 1.74 years
Why it is wrong: This is approximately the modified duration obtained by dividing the Macaulay result by 1.10.
Option C. 2.00 years
Why it is wrong: This uses final maturity and ignores the first-year cash flow.
Option D. 1.91 years — Correct answer
Answer: D. Macaulay duration is the present-value-weighted average time to receive a bond’s cash flows. Present values are ₹10/1.10 = ₹9.0909 and ₹110/1.10² = ₹90.9091. They total ₹100. Weighted time = (1 × 9.0909 + 2 × 90.9091)/100 = 1.9091 years, or 1.91 years. Remember: Use present-value cash-flow weights rather than equal weights or maturity alone.
Hint, shown before you answer in practice mode: Common mistake: Confusing a weighted receipt time with a price-sensitivity measure.
XXI-A-040hardnumerical
Q8A bond’s Macaulay duration is 2.4 years. Its nominal annual yield is 8%, compounded semi-annually. Using modified duration = Macaulay duration ÷ (1 + yield per period), what is modified duration?
Option A. 2.50
Why it is wrong: This multiplies by 1.04 instead of dividing.
Option B. 4.62
Why it is wrong: This unnecessarily doubles the duration before the conversion.
Option C. 2.22
Why it is wrong: This divides by 1.08, treating the nominal annual yield as the per-period yield.
Option D. 2.31 — Correct answer
Answer: D. The conversion from Macaulay to modified duration must use the yield per compounding period consistent with the quoted yield. Semi-annual yield = 8%/2 = 4%. The duration is already stated in years. Modified duration = 2.4/(1 + 0.04) = 2.3077, or 2.31. Do not double the time measure. Remember: Keep annualised time and per-period yield conventions separate.
Hint, shown before you answer in practice mode: Common mistake: Ignoring the compounding frequency embedded in a nominal yield.
XXI-A-041hardnumerical
Investing in Fixed Income Securities: common questions
How many practice questions are there on Investing in Fixed Income Securities?
8 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 12 practice topics for NISM Series XXI-A, which has 150 questions in total.
Are these real NISM Series XXI-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 XXI-A?
Yes. NISM takes off 10% of a question's marks for a wrong answer. On a 1-mark question that is 0.1 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.
Derivatives
7 questions on Derivatives. Its quiz opens on that unit.
Open Derivatives