Portfolio Managers Cert. Free Demo Test 10

The primary function of secondary markets is to provide liquidity for securities that have already been issued in the primary market. In secondary markets, existing investors can buy or sell previously issued securities, such as stocks and bonds, to other investors. This liquidity allows investors to enter or exit positions and provides a mechanism for price discovery based on supply and demand. Options b and c are not typically functions of secondary markets; making public issues is associated with the primary market, and providing information about public companies is more related to disclosure requirements and reporting, rather than the direct function of secondary markets.

The compensation for postponement of consumption is represented by the Real Risk-Free Rate. This rate is essentially the return on an investment with no risk of financial loss, adjusted for inflation. It reflects the reward an investor expects for forgoing consumption today and investing the money instead. The real risk-free rate serves as a foundation for determining interest rates in financial markets. Investors often require additional compensation above the real risk-free rate to account for various risks, such as inflation and default risk.

The present value is calculated by discounting each cash flow at a rate known as the “Yield to Maturity” (YTM). YTM is the total return anticipated on a bond if it is held until it matures, taking into account the present value of all future interest payments and the principal repayment. It is essentially the discount rate that equates the present value of the bond’s future cash flows (coupon payments and principal repayment) to its current market price.

The residential status of a Hindu Undivided Family (HUF) is determined based on its place of control and management. If the control and management of the affairs of the HUF are situated wholly outside India, it is considered as a Non-Resident HUF. If it is situated partly in India, it is considered as a Resident HUF. The residential status of the manager of the HUF is not directly relevant in determining the residential status of the HUF itself.

Market risk in equity investment refers to the potential for losses due to the fluctuations in the overall market conditions, including factors such as changes in interest rates, economic indicators, and most importantly, the price dynamics influenced by various market participants such as investors, traders, and institutions. This risk arises from the inherent uncertainty and volatility in the financial markets, impacting the value of investments.