Investing in Fixed Income Securities and Bond Valuation
6 questions. Each answer is explained.
Question 1 of 6Practice · Series XXI-B — Portfolio Managers
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Learn these topics
More units in NISM Series XXI-B
- Investment Landscape and Required Return4
- Introduction to Securities Markets and Participants3
- Investing in Stocks and Equity Research7
- Derivatives in Portfolio Management6
- Mutual Fund6
- Role of Portfolio Managers in India8
- Operational Aspects of Portfolio Managers (Onboarding and Fees)8
- Portfolio Management Process and Asset Allocation8
- Taxation6
- Regulatory, Governance and Ethical Aspects of Portfolio Managers8
- Introduction to Indices6
- Concept of Informational Efficiency6
- Behavioral Finance6
- Introduction to Modern Portfolio Theory6
- Introduction to Capital Market Theory6
- Risk8
- Equity Portfolio Management Strategies14
- Fixed Income Portfolio Management Strategies14
- Performance measurement and evaluation of Portfolio Managers8
- Portfolio Rebalancing6
Exam format
| Questions | 120 · 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 XXI-B Portfolio Managers
Exam rules read on NISM's site on 30 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 30 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 6 questions on Investing in Fixed Income Securities and Bond Valuation, with answers
Q1What stays fixed for a plain fixed-coupon bond when market yields change?
Option A. Its contractual coupon payment — Correct answer
Option B. Its return from a sale before maturity
Why it is wrong: A sale return depends partly on the price achieved.
Option C. Its market price between coupon dates
Why it is wrong: Market price can change as investors’ required yields change.
Option D. Its current yield based on market price
Why it is wrong: Current yield changes when the market price changes.
Answer: A. The contractual coupon stays fixed for a plain fixed-coupon bond even when required market yields change. Its trading price can move instead. Remember: A fixed coupon does not mean a fixed market price.
Hint, shown before you answer in practice mode: Separate the contract’s cash flows from market valuation. Common mistake: Assuming all measures of bond return remain fixed with the coupon.
XXI-B-015easyconceptual
Q2A bond pays an annual coupon of ₹80 and trades at ₹800. What is its current yield?
Option A. 12.50%
Why it is wrong: This does not divide the stated annual coupon by the stated market price.
Option B. 20.00%
Why it is wrong: This is not the annual coupon income relative to the purchase price.
Option C. 8.00%
Why it is wrong: This could be a coupon rate on ₹1,000 face value, not the yield on the stated price.
Option D. 10.00% — Correct answer
Answer: D. Current yield is 10.00% because the ₹80 annual coupon is 10% of the ₹800 market price. Working: ₹80 ÷ ₹800 × 100 = 10%. Remember: Current yield uses market price and excludes the gain or loss at redemption.
Hint, shown before you answer in practice mode: Current yield looks at annual income relative to today’s price. Common mistake: Using face value instead of the trading price.
XXI-B-016mediumnumerical
Q3A zero-coupon bond pays ₹1,000 in two years. At a 10% annually compounded required yield, what is its price?
Option A. ₹909.09
Why it is wrong: This discounts the payment for only one year.
Option B. ₹826.45 — Correct answer
Option C. ₹800.00
Why it is wrong: Subtracting two years of simple interest from face value is not present-value discounting.
Option D. ₹833.33
Why it is wrong: This uses simple interest instead of the stated annual compounding.
Answer: B. The price is approximately ₹826.45 because the only payment is discounted for two years. Price = ₹1,000 ÷ 1.10² = ₹1,000 ÷ 1.21 = ₹826.45. Remember: A zero-coupon bond is valued by discounting its maturity payment.
Hint, shown before you answer in practice mode: Bring the single maturity payment back through both years. Common mistake: Discounting a multi-year payment for only one period.
XXI-B-017mediumnumerical
Q4A two-year ₹100 bond pays 10% annual coupons and yields 10% annually. What is its Macaulay duration, approximately?
Option A. 1.00 year
Why it is wrong: This gives all weight to the first coupon rather than all cash flows.
Option B. 1.74 years
Why it is wrong: This is approximately modified duration after dividing Macaulay duration by 1.10.
Option C. 1.91 years — Correct answer
Option D. 2.00 years
Why it is wrong: This uses final maturity without giving weight to the earlier coupon.
Answer: C. Macaulay duration is about 1.91 years because part of the bond’s value is paid after one year. Present values are ₹10 ÷ 1.10 = ₹9.09 and ₹110 ÷ 1.10² = ₹90.91. Price = ₹100. Duration = (1 × ₹9.09 + 2 × ₹90.91) ÷ ₹100 = 1.9091 years. Remember: Macaulay duration is a present-value-weighted average payment time.
Hint, shown before you answer in practice mode: Weight each payment date by that payment’s present value. Common mistake: Using maturity or modified duration when Macaulay duration is requested.
XXI-B-018hardnumerical
Q5Who normally decides whether to exercise the embedded call in a callable bond?
Option A. The stock exchange
Why it is wrong: The exchange does not own the contractual call right.
Option B. The bond investor
Why it is wrong: An investor exercises an embedded put, not the issuer’s call.
Option C. The bond issuer — Correct answer
Option D. The credit rating agency
Why it is wrong: A rating agency assesses credit risk but does not exercise the issuer’s option.
Answer: C. The issuer holds the call right and may redeem the bond under its contractual terms. The investor therefore faces uncertainty over how long coupon payments continue. Remember: Callable and puttable bonds give exercise rights to different parties.
Hint, shown before you answer in practice mode: Recall which party benefits from refinancing outstanding debt. Common mistake: Assuming the person holding the bond also holds every embedded option.
XXI-B-019easyconceptual
Q6A bond’s quoted clean price is ₹978 and accrued interest is ₹12. What settlement price applies, ignoring other charges?
Option A. ₹966
Why it is wrong: This subtracts accrued interest instead of adding it to the clean price.
Option B. ₹1,000
Why it is wrong: Face value need not equal the bond’s settlement price.
Option C. ₹978
Why it is wrong: This omits accrued interest payable in the stated settlement calculation.
Option D. ₹990 — Correct answer
Answer: D. The settlement price is ₹990 because the dirty price includes accrued interest. Working: clean price ₹978 + accrued interest ₹12 = ₹990. Remember: Distinguish quoted clean price from the amount including accrued interest.
Hint, shown before you answer in practice mode: Account for coupon interest already earned since the last payment. Common mistake: Treating the quoted clean price as the complete settlement payment.
XXI-B-020mediumnumerical
Investing in Fixed Income Securities and Bond Valuation: common questions
How many practice questions are there on Investing in Fixed Income Securities and Bond Valuation?
6 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 21 practice topics for NISM Series XXI-B, which has 150 questions in total.
Are these real NISM Series XXI-B questions on Investing in Fixed Income Securities and Bond Valuation?
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-B?
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.
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