FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 26: Behavioural Finance: Implications for Financial Management

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 31

Multiple Choice

Review LaterAdd Note

Review Later

You have saved a total of $200,000 over the past several years. Jane, a trusted business associate, recently approached you with an offer. She has offered you a partnership in a new firm that she expects to be exceedingly profitable. Your initial investment in the partnership would be $125,000. However, Jane cannot give you any odds on that success occurring. You have decided to keep your $125,000 and forego this opportunity simply because you don't know the probability of success. Which one of the following behavior characteristics do you have?

A) Aversion to ambiguity.
B) Recency bias.
C) Sentiment-based risk aversion.
D) Clustering illusion.
E) Money illusion.

F) C) and D)
G) D) and E)

Correct Answer

verified

Show Answer

Question 32

Multiple Choice

Review LaterAdd Note

Review Later

Overconfidence is best defined as:

A) The area of finance dealing with the implications of reasoning errors on financial decisions.
B) The belief that your abilities are better than they really are.
C) Taking an overly optimistic view of potential outcomes
D) Searching for (and giving more weight to) information and opinion that confirms what you believe rather than information and opinion to the contrary.
E) The tendency of individuals to make different (and potentially inconsistent) decisions depending on how a question or problem is framed.

F) A) and E)
G) B) and C)

Correct Answer

verified

Show Answer

Question 33

Essay

Review LaterAdd Note

Explain the difference between a bubble and a crash.

Most investors would tend to agree that technology stocks were highly overvalued in the late 1990's. This time period is best described as a technology:

Over-optimism is best defined as:

The tendency for a decision maker to search for confirmation that a recent decision he or she made was a good decision represents which one of the following characteristics?

You don't particularly like to shop so only go to the mall once a month. To help make the trek more enjoyable, you always have lunch at the restaurant located inside the mall. Since you are such a creature of habit, you always order the same meal. You've noticed that the price of that meal has increased every time you have been there over the past six months. Thus, you expect the meal to increase in price next month. This is an example of which one of the following?

Historical returns support which one of the following statements?

Provide an explanation of anchoring and adjustment:

Provide an explanation of the law of small numbers.

General rules used as the basis for decision making are referred to as:

Amy has been investing in stocks so she can accumulate sufficient money to purchase her own home. These savings are currently valued at $82,500. As recently as last month, her savings were worth in excess of $110,000. Today, Amy found the perfect house. She knows she can withdraw her savings to pay on this house and borrow the remaining balance from her father at zero percent interest. However, Amy is refusing now to buy any house until her savings increase in value back to their $110,000 previous valuation. Amy is displaying which one of the following behaviors?

Which one of the following statements is true?

Which one of the following is an investment risk that investors face in addition to firm-based risk and market-based risk?

Mike is a stock broker and financial planner. Phil is one of Mike's clients. Phil prefers to meet with Mike just once a year to review his investment portfolio. At their most recent meeting, Phil stated he believes the stock market is going to decline in value over the next six months. Thus, Phil instructed Mike to sell every stock he owns that is currently worth more than what he paid to purchase it. Phil also instructed Mike to retain any stock that would create a capital loss if sold. Phil is displaying the behavior known as:

You are employed as a commission-based sales clerk for a cosmetics retail store. You know that on average; exactly 50 percent of the customers that enter your store will make at least one purchase. Thus far this morning, you have waited on eight customers without making a single sale. You are convinced that the next customer you wait on will buy something. This belief is known as:

Provide a definition of representativeness heuristic.

Professional fund managers that have tenures in excess of ten years, tend to consistently outperform the market on a long-term basis.

Steve purchased a stock last year for $34 a share. The stock increased in value to $36 a share before declining to its current value of $30. Steve has decided to sell the stock, but only if he can receive $34 a share or better. Steve is suffering most from which one of the following behavioral conditions?

Stewart is a fellow finance student at your school who is addicted to day trading and thus buys and sells stocks between classes and over his lunch break. He never has time to really analyze a security so just trades the stock symbols that other investors appear to be trading. Stewart is which one of the following?