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Financial Forensics · End Term · Sep 2025 FN

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Questions and published explanations below are available without starting a test. Some questions may not have a published solution yet.

Question 2 MCQ · 1.0 marks

Which of the following is a characteristic of a stationary time series?
  1. It exhibits a clear trend over time
  2. It has a varying mean over time
  3. Its autocorrelation function (ACF) decreases slowly over time
  4. It has constant mean and variance over time

A published solution is not available for this question yet.

Question 3 NAT · 1.0 marks

A firm has net working capital of ₹ 580, net fixed assets of ₹ 2,326, sales of ₹ 6,900, and current liabilities of ₹ 890. How many rupees worth of sales is generated from every ₹ 1 in total assets?

    A published solution is not available for this question yet.

    Question 4 MCQ · 1.0 marks

    What is the relationship between the IRR and the cost of capital?
    1. The IRR must be lower than the cost of capital for the investment to be profitable.
    2. The IRR must be higher than the cost of capital for the investment to be profitable.
    3. The IRR and cost of capital are unrelated.
    4. The IRR and cost of capital have an inverse relationship.

    A published solution is not available for this question yet.

    Question 5 NAT · 1.0 marks

    What is the Roll Forward rate for 0-29 DPD after 18 MOB? [[IMAGE:f201d441e93a84b9_3_2]]
    Source diagram or notation

      A published solution is not available for this question yet.

      Question 6 MCQ · 1.0 marks

      What is the Capture Rate of applications having score greater than 384? [[IMAGE:f201d441e93a84b9_4_3]]
      Source diagram or notation
      1. 50.11%
      2. 39.81%
      3. 36.45%
      4. 57.72%
      5. Data Insufficient

      A published solution is not available for this question yet.

      Question 7 MCQ · 1.0 marks

      What is the Capture Rate of Bads at top 5%? [[IMAGE:f201d441e93a84b9_5_4]]
      Source diagram or notation
      1. 100%
      2. 54.49%
      3. 76.05%
      4. 63.77%
      5. Data Insufficient

      A published solution is not available for this question yet.

      Question 8 MCQ · 1.0 marks

      What is the Capture Rate of applications having score greater than 125? [[IMAGE:f201d441e93a84b9_6_5]]
      Source diagram or notation
      1. 100%
      2. 68.33%
      3. 0%
      4. 48.33%
      5. Data Insufficient

      A published solution is not available for this question yet.

      Question 9 NAT · 1.0 marks

      What is the Roll Back rate for 150+ DPD after 18 MOB? [[IMAGE:f201d441e93a84b9_7_6]]
      Source diagram or notation

        A published solution is not available for this question yet.

        Question 10 MCQ · 1.0 marks

        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?
        1. Jan’21 – Nov’25 data should be used for model training
        2. Jan’21 – Jul’25 data should be used for model training
        3. Jan’21 – Mar’21 data should be ignored from model training
        4. Sep’25 – Nov’25 data should be ignored from model training
        5. None of these

        A published solution is not available for this question yet.

        Question 11 MCQ · 1.0 marks

        Which of the following is not used on approved applications?
        1. Reject Inferencing
        2. Rollrate analysis
        3. Both Reject Inferencing and Rollrate analysis
        4. Vintage analysis
        5. None of these

        A published solution is not available for this question yet.

        Question 12 MCQ · 1.0 marks

        Which of the following is the last step in credit lifecycle?
        1. Underwriting
        2. Reject Inferencing
        3. Collections
        4. Propensity
        5. Fraud check

        A published solution is not available for this question yet.

        Question 13 MCQ · 1.0 marks

        Which of the following is the first step in credit lifecycle?
        1. Underwriting
        2. Reject Inferencing
        3. Collections
        4. Propensity
        5. Fraud check

        A published solution is not available for this question yet.

        Question 14 NAT · 1.0 marks

        What is the Roll Forward rate for 120-149 DPD after 18 MOB? [[IMAGE:f201d441e93a84b9_9_7]]
        Source diagram or notation

          A published solution is not available for this question yet.

          Question 15 MCQ · 1.0 marks

          The Bankruptcy Bank, 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 31, July 2025. Which of the following is true – as of July 31, 2025?
          1. Jan’21– Jul’25 is used for performance data
          2. Apr’24 – Jul’25 is used for observation data
          3. May’24 – Jun'25 is used for performance data
          4. Jan’21 – Jan’25 is used for observation data
          5. Jan’21 – Apr’25 is used for observation data

          A published solution is not available for this question yet.

          Question 16 MCQ · 1.0 marks

          Stemming is faster than Lemmatization
          1. True
          2. False

          A published solution is not available for this question yet.

          Question 17 MCQ · 1.0 marks

          Which of the following is not a text preprocessing technique?
          1. Encoding
          2. Stopword removal
          3. Stemming
          4. Lowercase conversion
          5. None of these

          A published solution is not available for this question yet.

          Question 18 MCQ · 1.0 marks

          Given the sentence: "Customer sign-up rates have increased by 25% in the last quarter." Output: ['customer', 'sign', 'up', 'rates', 'increased', '25', 'last', 'quarter'] Which of the following text preprocessing techniques was NOT applied to the sentence?
          1. Lowercasing
          2. Removing punctuation
          3. Tokenization
          4. Lemmatization
          5. None of these

          A published solution is not available for this question yet.

          Question 19 MCQ · 1.0 marks

          Which of the following is used to decide target variable definition?
          1. Reject Inferencing
          2. Rollrate analysis
          3. Both Reject Inferencing and Rollrate analysis
          4. Vintage analysis
          5. None of these

          A published solution is not available for this question yet.

          Question 20 MCQ · 1.0 marks

          In a credit risk scenario, if a model has high recall but low precision, it implies that:
          1. The model correctly identifies a high percentage of non-risky customers but makes many mistakes in identifying risky customers.
          2. The model correctly identifies a high percentage of risky customers but also incorrectly labels many non-risky customers as risky.
          3. The model correctly identifies a high percentage of non-risky customers and makes few mistakes in identifying risky customers.
          4. The model correctly identifies a high percentage of risky customers and makes few mistakes in identifying non-risky customers.

          A published solution is not available for this question yet.

          Question 21 MCQ · 1.0 marks

          If a model predicts the negative class for all observations in a binary classification problem with both positive and negative cases present with class balance 1:99 (positive : negative), which of the following statements is true?
          1. Recall is 100%, but Precision is not necessarily 100%.
          2. Precision is 100%, but Recall is not necessarily 100%.
          3. Both Recall and Precision are 0%.
          4. Neither Recall nor Precision are 100%.
          5. None of these

          A published solution is not available for this question yet.

          Question 22 MCQ · 1.0 marks

          Which scenario is likely to occur if a credit risk model is optimized solely for high recall?
          1. Most non-risky customers will be correctly identified.
          2. Most risky customers will be correctly identified.
          3. Many non-risky customers will be incorrectly labeled as risky.
          4. Many risky customers will be incorrectly labeled as non-risky.

          A published solution is not available for this question yet.

          Question 23 MCQ · 1.0 marks

          Which of the following can be a consequence of not using reject inferencing in models dealing with credit applications?
          1. Increased model transparency
          2. Improved model accuracy
          3. Higher risk of rejecting potentially good applicants
          4. Simplified model validation

          A published solution is not available for this question yet.

          Question 24 MCQ · 1.0 marks

          Which of the following correctly describes the impact of collecting cash from customers for services to be provided in the future?
          1. Assets and stockholders' equity increase
          2. Assets and revenues increase
          3. Assets and income from operations increase

          A published solution is not available for this question yet.

          Question 25 MCQ · 1.0 marks

          On April 1, 2024, the premium on a one-year insurance policy was purchased for $2,700 cash with the insurance coverage beginning on that date. The books are adjusted only at year-end. Which of the following correctly describes the effect on the financial statements of the December 31, 2024 adjusting entry?
          1. Insurance expense will increase by $675.
          2. Prepaid insurance will decrease by $675.
          3. Prepaid insurance will increase by $2,025.
          4. Insurance expense will increase by $2,025.

          A published solution is not available for this question yet.

          Question 26 MCQ · 1.0 marks

          Income taxes incurred but not yet paid at the end of the accounting period are examples of accrued expenses.
          1. True
          2. False

          A published solution is not available for this question yet.

          Question 27 NAT · 1.0 marks

          The retained earnings of Tink Company increased $227,500 last year and its assets increased $307,500. Tink declared a $51,500 cash dividend during the year. What was last year's net income?

            A published solution is not available for this question yet.

            Question 28 MCQ · 1.0 marks

            Which of the following best explains the difference between local and global explainability in machine learning models?
            1. Local explainability is faster but less accurate, while global explainability is slower but more comprehensive
            2. Local explainability focuses on explaining individual predictions, while global explainability aims to understand the overall model behavior across all data
            3. Local explainability can only be applied to neural networks, while global explainability works for all model types
            4. Local explainability requires the entire dataset, while global explainability needs only a single instance

            A published solution is not available for this question yet.

            Question 29 MCQ · 1.0 marks

            In SHAP (SHapley Additive exPlanations) analysis, what is the base value?
            1. The highest prediction value that the model can produce
            2. The average model output across the entire training dataset (expected value)
            3. The prediction for a specific instance before feature contributions are added
            4. The weighted sum of all feature values in the training set

            A published solution is not available for this question yet.

            Question 30 MCQ · 1.0 marks

            According to Shapley value theory, which of the following is a desirable property that SHAP explanations satisfy?
            1. SHAP values are always positive and represent feature importance rankings
            2. SHAP values satisfy the efficiency property: the sum of all feature contributions equals the difference between the prediction and the base value
            3. SHAP values require the same computational time as LIME for any model
            4. SHAP values can only be calculated for linear models

            A published solution is not available for this question yet.

            Question 31 MCQ · 1.0 marks

            From the waterfall plot shown below, identify the model's base value and final prediction: [[IMAGE:f201d441e93a84b9_15_8]] Figure 1: SHAP Waterfall Plot
            Source diagram or notation
            1. Base: +2.23, Prediction: +1.445
            2. Base: +1.445, Prediction: +2.23
            3. Base: -2.36, Prediction: -0.24
            4. Base: -0.24, Prediction: -2.36

            A published solution is not available for this question yet.

            Question 32 MCQ · 1.0 marks

            Which of the following scenarios is best suited for using global explainability rather than local explainability?
            1. Understanding why a specific loan application was rejected
            2. Explaining a single medical diagnosis prediction
            3. Analyzing which features drive model decisions across all customers in a business context
            4. Debugging a model prediction that seems incorrect for one particular instance

            A published solution is not available for this question yet.

            Question 33 NAT · 1.0 marks

            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?

              A published solution is not available for this question yet.

              Question 34 NAT · 1.0 marks

              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?

                A published solution is not available for this question yet.

                Question 35 MCQ · 1.0 marks

                Two mutually exclusive projects have 3-year lives and a required rate of return of 10.5 percent. Project A costs ₹75,000 and has cash flows of ₹18,500, ₹42,900, and ₹28,600 for Years 1 to 3, respectively. Project B costs ₹72,000 and has cash flows of ₹22,000, ₹38,000, and ₹26,500 for Years 1 to 3, respectively. Using the NPV, which project, or projects, if either, should be accepted?
                1. Reject both projects
                2. Accept both projects
                3. Accept Project A and reject Project B.
                4. Accept Project B and reject Project A.

                A published solution is not available for this question yet.

                Question 36 NAT · 1.0 marks

                Foremost Inc. has a net income of ₹ 29,600, a total asset turnover of 1.4, total assets of ₹ 3,18,600, and a debt-equity ratio of 0.35. What is the return on equity (expressed in percentage – just enter the numerical value)?

                  A published solution is not available for this question yet.

                  Question 37 MCQ · 1.0 marks

                  XYZ bank is interested in lending loans to companies and earn interest income from it. But at the same time they also want to ensure that their loan is repaid on a timely basis. What of the following number is most relevant for the bank to look at before approving the loan?
                  1. Quick ratio
                  2. Dividend Yield
                  3. Share Price of the company
                  4. Cash flow to debt ratio

                  A published solution is not available for this question yet.

                  Question 38 NAT · 1.0 marks

                  Stock A has an expected return of 12 percent and a variance of 0.0203. The market has an expected return of 11 percent and a variance of 0.0093. What is the beta of Stock A if the covariance of Stock A with the market is 0.0137?

                    A published solution is not available for this question yet.

                    Question 39 MCQ · 1.0 marks

                    [[IMAGE:f201d441e93a84b9_19_9]] The return on equity ratio is closest to:
                    Source diagram or notation
                    1. 34%
                    2. 14.2%
                    3. 22%
                    4. 9.2%

                    A published solution is not available for this question yet.

                    Question 40 MSQ · 1.0 marks

                    Which of the following statements are True about Isolation Forest
                    1. Data points that are hard to separate from the population are most likely the anomalies
                    2. Data points that are easy to separate from the population are most likely the anomalies
                    3. More decisions are need to separate data points that are anomalous
                    4. Fewer decisions are need to separate data points that are anomalous

                    A published solution is not available for this question yet.

                    Question 41 MCQ · 1.0 marks

                    A fintech company has a ML system that identifies transaction frauds that occur in its system. The model currently has a recall of 80%. The fraud rate, as reported by the company in its system is 15 BPS. On a regular day there are close to above 1 million transactions that happens via the company’s payment system and for each fraudulent transaction the company losses INR 10 on an average. The annual savings (INR) brought in by the ML system is:
                    1. [[IMAGE:f201d441e93a84b9_20_10]]
                      Source diagram or notation
                    2. [[IMAGE:f201d441e93a84b9_20_11]]
                      Source diagram or notation
                    3. [[IMAGE:f201d441e93a84b9_20_12]]
                      Source diagram or notation
                    4. [[IMAGE:f201d441e93a84b9_20_13]]
                      Source diagram or notation

                    A published solution is not available for this question yet.