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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Securities Market Segments

Mrs. Sunita Iyer's adviser explains the circuit filter mechanism. A stock with a 10% price band closed yesterday at Rs 250. What is the maximum price at which trades can occur today in that stock, and what is the purpose of the band?

The maximum trading price is Rs 275, being Rs 250 plus 10%. Price bands or circuit filters exist to limit excessive single-day volatility, not to guarantee returns or set fair value. Rs 225 is the lower limit for the day.

  1. ARs 275; to limit excessive single-day volatilityCorrect
  2. BRs 260; to guarantee a minimum return
  3. CRs 275; to fix the stock's fair value
  4. DRs 225; to limit excessive single-day volatility

Explanation

Upper limit = 250 x 1.10 = Rs 275, and the lower limit would be Rs 225. Price bands curb excessive volatility in a single day; they neither guarantee returns nor fix fair value. Rs 225 is the lower limit, not the maximum.

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