The IIT Madras BS Financial Forensics (Financial Forensics) End Term paper sat on 13 Apr 2025, in the January 2025 term, set 1: 32 questions for 31 marks in 180 minutes. Every question is below with its answer. Take it as a timed mock test to be marked, or read it through first.
Blink of an Eye Company is evaluating a 5-year project that will provide cash flows of ₹ 34,500, ₹ 55,950, ₹ 62,210, ₹ 59,930, and ₹ 42,910, respectively. The project has an initial cost of ₹149,920 and the required return is 8 percent. What is the project's NPV?
₹ 21,352.92
₹ 52,631.02
₹ 19,316.83
₹ 17,560.75
Correct answer
₹ 52,631.02
In the financial year 2022-2023 a company consumed raw materials worth 10,00,000 INR. The balance sheet as of 31st March 2023 had creditors (for raw materials) worth 5,00,000 INR and the same figure in the balance sheet as of 31st March 2022 was 2,00,000 INR. As a creditor, is it safe to lend raw materials for the company for a 120-day credit?
No
Yes
Correct answer
No
Which of the following statement(s) is correct about the Capital Asset Pricing Model:
I. If the beta of a stock is greater than 1, the expected return on the stock is higher than the market return, assuming all other factors remain constant. II. If the covariance between the return on a stock and the return on the market is zero, the stock's beta will also be zero. III. As per CAPM, the risk-free rate has no impact on the expected return of a stock. IV. A stock with a negative beta can have an expected return lower than the risk-free rate.
Option I, II and IV
Option II and III
Option II, III and IV
Option I and IV
Correct answer
Option I, II and IV
You have built a linear regression model for predicting the number of users who access your payment platform daily. The following table shows the model’s performance:
You have built a linear regression model for predicting the number of users who access your payment platform daily. The following table shows the model’s performance:
Consider the following statements and choose the right option below:
Statement 1: Linear Regression is a not very good fit for this use case.
Statement 2: Linear Regression is a very good fit for this use case.
Statement 3: The model’s errors are not normally distributed.
Statement 2 and 3 are correct.
Statement 1 is correct and statement 3 is not the right explanation forstatement 1.
Statement 1 is correct and statement 3 is the right explanation for statement1.
Statement 2 is correct and statement 3 is not the right explanation forstatement 1.
Correct answer
Statement 1 is correct and statement 3 is the right explanation for statement1.
A Fraud detection model a FinTech company is put to production which is used for flagging suspicious transactions from going through the company’s payment system. On a given day the 500 transaction attempts were made in the company’s payment system, and the ML model has declined all the transaction attempts on the grounds of Fraud, upon taking a manual review it was noticed that all the 500 transaction attempts were indeed genuine. Now which of the following statement is True about the model.
Precision = 100%
Recall = 100%
Recall is Undefined
Recall = 0%
Precision is Undefined
Correct answer
Recall is Undefined
A data scientist is building a time series model to forecast monthly sales for a retail store. The dataset consists of 5 years of historical sales data. Before fitting the model, they observe the following:
1. There is a clear upward trend in sales over the years. 2. Sales exhibit seasonality, with peaks during the holiday season each year. 3. The variance in sales increases as the trend rises.
Based on these observations, which of the following preprocessing or modeling steps should be considered?
Apply differencing to remove trend.
Use a Seasonal ARIMA (SARIMA) model to capture trend and seasonality.
Apply log transformation to stabilize variance.
Check the stationarity of the series before modeling.
All of these.
Correct answer
All of these.
A retail company is building a time series forecasting model to predict weekly sales. The dataset consists of 104 weeks of data. The analyst decides to split the data into a training set (80% of the data) and a test set (20% of the data). The analyst also observes that the sales data has a weekly seasonality.
Before fitting the model, the analyst applies the following preprocessing steps:
1. Seasonal differencing to remove the weekly seasonality. 2. First-order differencing to make the series stationary.
If the analyst uses a simple ARIMA (2, 1, 1) model (after preprocessing), how many total terms will the model include for AR, MA, and differencing?
2
3
4
5
Correct answer
4
If a model predicts the positive class for all observations in a binary classification problem with both positive and negative cases present with class balance 50:50 (positive : negative), which of the following statements is true?
Both Recall and Precision are 100%.
Recall is 100%, but Precision is not necessarily 100%.
Precision is 100%, but Recall is not necessarily 100%.
Neither Recall nor Precision are 100%.
None of these
Correct answer
Recall is 100%, but Precision is not necessarily 100%.
What is the Capture Rate of applications having score greater than 150?
What is the Capture Rate of applications having score greater than 150?
100%
99.70%
99.10%
54.49%
Data Insufficient
Correct answer
100%
What is the Capture Rate of Bads at top 30%?
What is the Capture Rate of Bads at top 30%?
97.61%
63.77%
76.05%
84.13%
Data Insufficient
Correct answer
84.13%
What is the KS from the below table?
What is the KS from the below table?
100%
63.43%
50.08%
48.33%
66.77%
Correct answer
66.77%
Secure Credit Union, one of the major lending banks, has hired you to build a credit underwriting model to help their automated lending decisions. Their definition of default is 60-89 DPD. There is historical loans data since January 1, 2021 till November 30, 2024. Which of the following is true?
Jan’21 – Nov’24 data should be used for model training
Jan’21 – Sep’24 data should be used for model training
Jan’21 – Mar’21 data should be ignored from model training
Sep’24 – Nov’24 data should be ignored from model training
None of these
Correct answer
Sep’24 – Nov’24 data should be ignored from model training
Which of the following is not used on approved applications?
Reject Inferencing
Rollrate analysis
Both reject Inferencing and rollrate analysis
Vintage analysis
None of these
Correct answer
Reject Inferencing
Which of the following is the last step in credit lifecycle?
Underwriting
Reject Inferencing
Collections
Propensity
Fraud check
Correct answer
Collections
Which of the following is the first step in credit lifecycle?
Underwriting
Reject Inferencing
Collections
Propensity
Fraud check
Correct answer
Propensity
What type of explainability approach focuses on understanding a specific prediction rather than the entire model?
Global explainability
Local explainability
Intrinsic explainability
Model transparency
Correct answer
Local explainability
What is the base value in SHAP analysis typically equal to?
Zero
The highest prediction
The average model output over the training dataset
The median prediction
Correct answer
The average model output over the training dataset
In the following waterfall plot , identify the model predicted value.
In the following waterfall plot , identify the model predicted value.
+ 1.124
+ 2.059
- 117.63
- 0.48
Correct answer
+ 1.124
A business is planning for a financial goal to accumulate ₹50,000 over the next four years. To achieve this, they decide to invest a fixed amount at the start of each year in a savings account offering a 6% annual interest rate. How much should the business contribute annually to meet its goal?
Correct answer: 10750 (accepted within ±50)
A real estate developer offers an investment plan where buyers pay ₹15,00,000 upfront to own a property. The developer promises to pay ₹1,20,000 annually to the buyer for 20 years as rental income. However, some buyers propose an alternative: instead of a fixed rent, the annual rent should increase by 5% every year indefinitely. If the developer's cost of capital is 8%, what should be the rent in the first year of the new scheme so that it is financially equivalent to the original fixed-income plan?
Correct answer: 35345 (accepted within ±5)
XYZ Corporation has consistently delivered a return on equity (ROE) of 20%, with a profit margin of 10% and a total asset turnover of 1.5. If the company’s total equity is ₹5,600, what is the profit generated by the company for its shareholders during the year?
Correct answer: 1120
A stock has a beta of 1.5. The risk-free rate is 3.5%, and the expected return on the market is 12%. However, due to market uncertainty, the expected return on the market might decrease by 2 percentage points. If the market return decreases as expected, what will be the revised expected return of the stock as per the CAPM formula? Express your answer as a percentage e.g. 6.25% should be written as 6.25
Correct answer: 13.25
ABC Corporation operates in a volatile industry and has an equity beta (levered beta) of 2.2. Currently, the company is financed with 70% equity and 30% debt. The management is considering increasing its leverage by shifting to a 50% equity and 50% debt structure to fund a new project. The corporate tax rate is 25%. What is the company’s unlevered beta?
Correct answer: 1.65 (accepted within ±0.05)
What is the Roll Back rate for 90-119 DPD after 18 MOB (in %)?
What is the Roll Back rate for 90-119 DPD after 18 MOB (in %)?
Correct answer: 45.97 (accepted within ±0.5)
What is the Roll Forward rate for 120-149 DPD after 18 MOB (in %)?
What is the Roll Forward rate for 120-149 DPD after 18 MOB (in %)?
Correct answer: 49.75 (accepted within ±0.5)
D. Carson and F. Leggatt formed a partnership on June 1 to operate a shoe store. Carson contributed $50,000 cash and Leggatt contributed $50,000 worth of shoe inventory.
During the month of June, the following transactions took place:
1. Additional shoe inventory was purchased at a cost of $24,000 cash. 2. Total cash sales for the month were $31,000. The inventory that was sold had a cost of $15,500. 3. Carson withdrew $6,200 of cash drawings. Leggatt withdrew only $3,700 of cash drawings. 4. The partnership borrowed $50,000 from the Third National Bank. 5. Land and a building were purchased at a cash cost of $25,000 and $50,000.
Based on the above information answer the given subquestions:
Cash inflow is ___?
Correct answer: 81000
D. Carson and F. Leggatt formed a partnership on June 1 to operate a shoe store. Carson contributed $50,000 cash and Leggatt contributed $50,000 worth of shoe inventory.
During the month of June, the following transactions took place:
1. Additional shoe inventory was purchased at a cost of $24,000 cash. 2. Total cash sales for the month were $31,000. The inventory that was sold had a cost of $15,500. 3. Carson withdrew $6,200 of cash drawings. Leggatt withdrew only $3,700 of cash drawings. 4. The partnership borrowed $50,000 from the Third National Bank. 5. Land and a building were purchased at a cash cost of $25,000 and $50,000.
Based on the above information answer the given subquestions:
Cash outflow is ___?
Correct answer: 108900
D. Carson and F. Leggatt formed a partnership on June 1 to operate a shoe store. Carson contributed $50,000 cash and Leggatt contributed $50,000 worth of shoe inventory.
During the month of June, the following transactions took place:
1. Additional shoe inventory was purchased at a cost of $24,000 cash. 2. Total cash sales for the month were $31,000. The inventory that was sold had a cost of $15,500. 3. Carson withdrew $6,200 of cash drawings. Leggatt withdrew only $3,700 of cash drawings. 4. The partnership borrowed $50,000 from the Third National Bank. 5. Land and a building were purchased at a cash cost of $25,000 and $50,000.
Based on the above information answer the given subquestions:
How much is the total profit/loss?
Correct answer: 15500
Story: The Shadow War – Cracking the Enigma
In the heart of World War II, deep inside Bletchley Park, a team of elite cryptanalysts—Captain Edward Sinclair, Dr. Margaret Holloway, Lieutenant James Carter, and Specialist Anna Whitmore—worked tirelessly to decode intercepted German transmissions encrypted by the Enigma machine.
One evening, they received four coded messages, each suspected to contain crucial intelligence about an upcoming U-boat assault. However, intelligence reports suggested that one of the messages was deliberately altered to mislead the Allies. The team had to determine which three messages were most aligned and which one was a decoy planted by the enemy.
Based on the above data, answer the given subquestions. Using early computing techniques and mathematical models, they converted each message into numerical vectors:
● Message X: [7, 12, 9, 5, 8]
● Message Y: [6, 11, 8, 4, 9]
● Message Z: [5, 10, 7, 6, 7]
● Message W: [8, 13, 10, 3, 9]
With time running out before the Royal Navy launched its counter-offensive, the team must quickly calculate the cosine similarity between message pairs to determine which three should be used to uncover the real enemy plans. One mistake could cost thousands of lives at sea.
Which three messages are most aligned, revealing the true intelligence?
X, Y, W
X, Z, Y
X, Z, W
Y, Z, W
Correct answer
X, Y, W
Story: The Shadow War – Cracking the Enigma
In the heart of World War II, deep inside Bletchley Park, a team of elite cryptanalysts—Captain Edward Sinclair, Dr. Margaret Holloway, Lieutenant James Carter, and Specialist Anna Whitmore—worked tirelessly to decode intercepted German transmissions encrypted by the Enigma machine.
One evening, they received four coded messages, each suspected to contain crucial intelligence about an upcoming U-boat assault. However, intelligence reports suggested that one of the messages was deliberately altered to mislead the Allies. The team had to determine which three messages were most aligned and which one was a decoy planted by the enemy.
Based on the above data, answer the given subquestions. Using early computing techniques and mathematical models, they converted each message into numerical vectors:
● Message X: [7, 12, 9, 5, 8]
● Message Y: [6, 11, 8, 4, 9]
● Message Z: [5, 10, 7, 6, 7]
● Message W: [8, 13, 10, 3, 9]
With time running out before the Royal Navy launched its counter-offensive, the team must quickly calculate the cosine similarity between message pairs to determine which three should be used to uncover the real enemy plans. One mistake could cost thousands of lives at sea.
Which pair of messages has the least similarity, suggesting one is the decoy?
X, Y
Y, W
Z, W
X, Z
Correct answer
Z, W
Story: The Shadow War – Cracking the Enigma
In the heart of World War II, deep inside Bletchley Park, a team of elite cryptanalysts—Captain Edward Sinclair, Dr. Margaret Holloway, Lieutenant James Carter, and Specialist Anna Whitmore—worked tirelessly to decode intercepted German transmissions encrypted by the Enigma machine.
One evening, they received four coded messages, each suspected to contain crucial intelligence about an upcoming U-boat assault. However, intelligence reports suggested that one of the messages was deliberately altered to mislead the Allies. The team had to determine which three messages were most aligned and which one was a decoy planted by the enemy.
Based on the above data, answer the given subquestions. Using early computing techniques and mathematical models, they converted each message into numerical vectors:
● Message X: [7, 12, 9, 5, 8]
● Message Y: [6, 11, 8, 4, 9]
● Message Z: [5, 10, 7, 6, 7]
● Message W: [8, 13, 10, 3, 9]
With time running out before the Royal Navy launched its counter-offensive, the team must quickly calculate the cosine similarity between message pairs to determine which three should be used to uncover the real enemy plans. One mistake could cost thousands of lives at sea.
The highest cosine similarity among the message pairs is:
0
0.9812
0.9671
0.9948
Correct answer
0.9948
Story: The Shadow War – Cracking the Enigma
In the heart of World War II, deep inside Bletchley Park, a team of elite cryptanalysts—Captain Edward Sinclair, Dr. Margaret Holloway, Lieutenant James Carter, and Specialist Anna Whitmore—worked tirelessly to decode intercepted German transmissions encrypted by the Enigma machine.
One evening, they received four coded messages, each suspected to contain crucial intelligence about an upcoming U-boat assault. However, intelligence reports suggested that one of the messages was deliberately altered to mislead the Allies. The team had to determine which three messages were most aligned and which one was a decoy planted by the enemy.
Based on the above data, answer the given subquestions. Using early computing techniques and mathematical models, they converted each message into numerical vectors:
● Message X: [7, 12, 9, 5, 8]
● Message Y: [6, 11, 8, 4, 9]
● Message Z: [5, 10, 7, 6, 7]
● Message W: [8, 13, 10, 3, 9]
With time running out before the Royal Navy launched its counter-offensive, the team must quickly calculate the cosine similarity between message pairs to determine which three should be used to uncover the real enemy plans. One mistake could cost thousands of lives at sea.
The cosine similarity between Y and W is:
0
0.9925
0.9843
0.9654
Correct answer
0.9925
