Introduction to Interest Rate, Interest Rate Instruments and Fixed Income Markets
6 questions. Each answer is explained.
Question 1 of 6Practice · Series V-D — Mutual Fund - Specialized Investment Fund Distributors
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Learn these topics
More units in NISM Series V-D
- The Investment Landscape5
- Concept & Role of a Mutual Fund4
- Legal Structure of Mutual Funds in India3
- Legal and Regulatory Framework7
- Scheme Related Information7
- Fund Distribution and Channel Management Practices4
- Net Asset Value, Total Expense Ratio and Pricing of Units5
- Taxation3
- Investor Services10
- Risk, Return and Performance of Funds5
- Mutual Fund Scheme Performance5
- Mutual Fund Scheme Selection10
- Basics of Derivatives10
- Understanding Index5
- Introduction to Forwards and Futures15
- Introduction to Options13
- Strategies Using Equity Futures and Equity Options9
- Interest Rate Derivatives2
- Exchange Traded Interest Rate Futures10
- Exchange Traded Interest Rate Options6
- Strategies Using Interest Rate Derivatives6
Exam format
| Questions | 150 · 1 mark each |
|---|---|
| Duration | 180 min · 3 hours |
| Pass mark | 60% · 90 of 150 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 | 6 of 150 marks (4%) |
Source: July 2026 Annexure I, Chapter 18: Introduction to Interest Rate, Interest Rate Instruments and Fixed Income Markets
NISM Series V-D Mutual Fund - Specialized Investment Fund Distributors
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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 Introduction to Interest Rate, Interest Rate Instruments and Fixed Income Markets, with answers
Q1For this question, assume a government bond has no default risk. An investor may still need to sell this fixed-rate bond before maturity. Which risk remains directly relevant to the price received on that sale? Assumptions: Default risk is excluded only for this educational example.
Option A. The absence of default risk guarantees a sale at face value on any date.
Why it is wrong: A default-free promise at maturity does not fix the earlier market price.
Option B. Market interest rates may change the bond’s selling price. — Correct answer
Option C. The holder becomes a residual owner of the government.
Why it is wrong: Holding a bond creates a debt claim, not an equity ownership interest.
Option D. The fixed coupon automatically becomes a floating coupon.
Why it is wrong: A change in market yields does not rewrite the fixed contractual coupon.
Answer: B. Even when default is excluded, a fixed-rate bond’s market price can change as required yields change. A sale before maturity exposes the investor to that price movement. Remember: A bond can have negligible assumed default risk and still have interest-rate price risk.
Hint, shown before you answer in practice mode: Distinguish a promised maturity payment from the market price before maturity.
V-D-121easyconceptual
Q2An illustrative deposit of ₹5,00,000 earns simple interest at 8% per year for 90 actual days. Its agreed day-count basis is Actual/360. Ignoring tax and fees, what interest amount accrues? Assumptions: The rate and Actual/360 convention are supplied contract assumptions.
Option A. ₹40,000
Why it is wrong: This charges a full year of interest rather than 90 days.
Option B. ₹10,000 — Correct answer
Option C. ₹1,00,000
Why it is wrong: This overstates the correct interest by a factor of ten.
Option D. About ₹9,863.01
Why it is wrong: This uses a 365-day denominator instead of the specified 360-day basis.
Answer: B. Interest = ₹5,00,000 × 0.08 × 90/360 = ₹10,000. The agreed day-count convention controls the time fraction. It is not automatically 90/365. Remember: An annual interest rate must be paired with its specified day-count basis.
Hint, shown before you answer in practice mode: Multiply principal by the annual rate and by 90/360.
V-D-122mediumnumerical
Q3A bond has face value ₹10,00,000 and a 6% annual coupon paid semiannually. Its clean price is ₹98.40 per ₹100 of face value. Exactly 90 days of a stipulated 180-day coupon period have elapsed. Assuming no ex-coupon adjustment or charges, what full (dirty) amount does the buyer pay? Assumptions: The coupon-period fraction is exactly 90/180 as supplied.
Option A. ₹9,69,000
Why it is wrong: This subtracts accrued interest when it should be added.
Option B. ₹9,84,000
Why it is wrong: This is the clean-price amount and omits accrued interest.
Option C. ₹10,14,000
Why it is wrong: This adds the entire ₹30,000 semiannual coupon instead of half of it.
Option D. ₹9,99,000 — Correct answer
Answer: D. The clean amount is ₹10,00,000 × 98.40/100 = ₹9,84,000. One semiannual coupon is ₹30,000, so accrued interest is ₹30,000 × 90/180 = ₹15,000 and the full amount is ₹9,99,000. Remember: The full settlement price includes accrued interest in addition to the clean quote.
Hint, shown before you answer in practice mode: Add the elapsed share of one semiannual coupon to the clean-price amount.
V-D-123mediumnumerical
Q4Immediately after a coupon payment, a two-year bond has face value ₹1,000 and pays an 8% coupon once a year. It repays face value with the second coupon. If the required yield is 10% with annual compounding and default is ignored, what is its value today, rounded to two decimals? Assumptions: Annual coupon and compounding conventions are supplied. Valuation is immediately after a coupon.
Option A. ₹1,000.00
Why it is wrong: A par price would be consistent with an 8% yield under these cash flows, not 10%.
Option B. ₹965.29 — Correct answer
Option C. ₹892.56
Why it is wrong: This discounts only the final ₹1,080 and omits the first coupon.
Option D. ₹1,054.55
Why it is wrong: This discounts the total ₹1,160 cash receipts for only one year.
Answer: B. Value = ₹80/1.10 + ₹1,080/(1.10²) = ₹965.2893, rounded to ₹965.29. Because the coupon rate is below the required yield, the bond is valued below face value. Remember: Each bond cash flow must be discounted from its own payment date.
Hint, shown before you answer in practice mode: Discount the first ₹80 for one year and the final ₹1,080 for two years.
V-D-124hardnumerical
Q5Annual spot yields for comparable default-free instruments are 7.0% at one year, 6.2% at five years and 5.8% at ten years. Which description best fits these observations? Assumptions: The yields are illustrative observations for comparable instruments.
Option A. A downward-sloping or inverted yield curve. — Correct answer
Option B. A curve that proves every bond will deliver a negative return.
Why it is wrong: Yield-curve shape does not establish that every holding-period return will be negative.
Option C. A flat yield curve.
Why it is wrong: The stated yields are not equal across maturities.
Option D. An upward-sloping yield curve.
Why it is wrong: Longer-maturity yields are lower, not higher, in the supplied observations.
Answer: A. The observed yields fall from 7.0% to 5.8% as maturity increases. This is a downward-sloping or inverted pattern. Its shape alone does not guarantee a particular future price outcome. Remember: Describe the observed term structure before drawing qualified economic interpretations.
Hint, shown before you answer in practice mode: Compare yield levels as maturity increases.
V-D-125easyconceptual
Q6A bond portfolio is worth ₹20,00,000 and has modified duration 4.0. Estimate its loss if yields rise in parallel by 0.40 percentage points. Use percentage price change ≈ −modified duration × yield change in decimal form, and ignore convexity. Assumptions: This is a first-order estimate for a parallel yield shift.
Option A. ₹32,000 — Correct answer
Option B. A gain of ₹32,000
Why it is wrong: The duration approximation gives a price decline when yields rise.
Option C. ₹3,200
Why it is wrong: This treats the yield increase as 0.04 percentage points rather than 0.40.
Option D. ₹3,20,000
Why it is wrong: This overstates the stated yield change by a factor of ten.
Answer: A. The approximate price change is −4 × 0.004 = −1.6%. Applying that loss to ₹20,00,000 gives ₹32,000. Convexity and non-parallel shifts are excluded. Remember: A basis-point or percentage-point move must be converted correctly before applying duration.
Hint, shown before you answer in practice mode: Convert 0.40 percentage points into the decimal 0.004.
V-D-126mediumnumerical
Introduction to Interest Rate, Interest Rate Instruments and Fixed Income Markets: common questions
How many practice questions are there on Introduction to Interest Rate, Interest Rate Instruments and Fixed Income Markets?
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 22 practice topics for NISM Series V-D, which has 150 questions in total.
Are these real NISM Series V-D questions on Introduction to Interest Rate, Interest Rate Instruments and Fixed Income Markets?
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.
How much of the NISM Series V-D exam is Introduction to Interest Rate, Interest Rate Instruments and Fixed Income Markets?
NISM's published syllabus outline gives it 6 of the paper's 150 marks, or 4% of the exam. It is quoted from the outline, not estimated. The published unit it comes from: July 2026 Annexure I, Chapter 18: Introduction to Interest Rate, Interest Rate Instruments and Fixed Income Markets
Does negative marking apply to NISM Series V-D?
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.
Interest Rate Derivatives
2 questions on Interest Rate Derivatives. Its quiz opens on that unit.
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