Question 1

Which one of the following statements is correct?

Accepted Answer

A)  In a totally efficient market every investment has a zero net present value. 
B)  Portfolio managers with tenures greater than 10 years, consistently outperform the market. 
C)  The performance of professional money managers improves the longer the investment period. 
D)  Mutual funds that are actively managed outperform index funds over the long term. 
E)  The number of mutual funds outperforming the Vanguard 500 Index Fund over a 10-year period is steadily rising. 
A)  In a totally efficient market every investment has a zero net present value. 
B)  Portfolio managers with tenures greater than 10 years, consistently outperform the market. 
C)  The performance of professional money managers improves the longer the investment period. 
D)  Mutual funds that are actively managed outperform index funds over the long term. 
E)  The number of mutual funds outperforming the Vanguard 500 Index Fund over a 10-year period is steadily rising.

Question 2

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 primarily suffering from which one of the following behavioral conditions?

Accepted Answer

A)  Representativeness heuristic 
B)  House money 
C)  Loss aversion 
D)  Randomness 
E)  Myopic loss aversion 
A)  Representativeness heuristic 
B)  House money 
C)  Loss aversion 
D)  Randomness 
E)  Myopic loss aversion

Question 3

A tendency to be overly conservative when faced with new information is referred to as:

Accepted Answer

A)  anchoring and adjustment. 
B)  heuristics. 
C)  self-attribution. 
D)  loss aversion. 
E)  regret aversion. 
A)  anchoring and adjustment. 
B)  heuristics. 
C)  self-attribution. 
D)  loss aversion. 
E)  regret aversion.

Question 4

Which term refers to the reliance on stereotypes or limited samples to form opinions about an entire class?

Accepted Answer

A)  Clustering illusion 
B)  Law of small numbers 
C)  Representativeness heuristic 
D)  False consensus 
E)  Recency bias 
A)  Clustering illusion 
B)  Law of small numbers 
C)  Representativeness heuristic 
D)  False consensus 
E)  Recency bias

Question 5

Which word best describes the stock market during the month of October 1987?

Accepted Answer

A)  Crash 
B)  Circle 
C)  Bubble 
D)  Limit 
E)  Flat 
A)  Crash 
B)  Circle 
C)  Bubble 
D)  Limit 
E)  Flat

Question 6

You started an online business two weeks ago. Thus far, you have averaged ten sales a day, which is one sale for every five hits. You are now considering giving up your day job and becoming a full-time online retailer. You have calculated the amount of income you can earn based on ten sales a day and know that level of income would support you in a comfortable fashion. The belief that you will have ten sales per day if this becomes your full-time occupation is based on which one of the following?

Accepted Answer

A)  Mental accounting 
B)  Anchoring and adjustment 
C)  Law of small numbers 
D)  Bubble and crash theory 
E)  Confirmation bias 
A)  Mental accounting 
B)  Anchoring and adjustment 
C)  Law of small numbers 
D)  Bubble and crash theory 
E)  Confirmation bias

Question 7

Kate is attempting to sell her house for $260,000. Fred lives across the street in an identical house. Fred recently stated to his wife that Kate's house is probably worth only $250,000 but that once she sells her house, he would like to put their house on the market at $285,000 and then move into a condominium. Which one of the following behaviors applies to Fred?

Accepted Answer

A)  Myopic loss aversion 
B)  House money effect 
C)  Money illusion 
D)  Self-attribution bias 
E)  Endowment effect 
A)  Myopic loss aversion 
B)  House money effect 
C)  Money illusion 
D)  Self-attribution bias 
E)  Endowment effect

Question 8

It is believed by some individuals that, in an efficient market, the actions of traders who constantly buy and sell on any perceived market mispricing will in effect cause market prices to correctly reflect asset values. A person who believes that the actions of these traders will not result in correctly valued prices are most apt to believe in which one of the following?

Accepted Answer

A)  Gambler's fallacy 
B)  Limits to arbitrage 
C)  Availability bias 
D)  False consensus 
E)  Clustering illusion 
A)  Gambler's fallacy 
B)  Limits to arbitrage 
C)  Availability bias 
D)  False consensus 
E)  Clustering illusion

Which one of the following statements is correct?

A tendency to be overly conservative when faced with new information is referred to as:

Which term refers to the reliance on stereotypes or limited samples to form opinions about an entire class?

Which word best describes the stock market during the month of October 1987?

Introduction to Corporate Finance

Financial Statements, Taxes, and Cash Flow

Working with Financial Statements

Long-Term Financial Planning and Growth

Introduction to Valuation: The Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Some Lessons from Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Short Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Mergers and Acquisitions

Leasing

Filters

Exam 22: Behavioral Finance: Implications for Financial Management

Which one of the following statements is correct?

A tendency to be overly conservative when faced with new information is referred to as:

Which term refers to the reliance on stereotypes or limited samples to form opinions about an entire class?

Which word best describes the stock market during the month of October 1987?

Introduction to Corporate Finance

Financial Statements, Taxes, and Cash Flow

Working with Financial Statements

Long-Term Financial Planning and Growth

Introduction to Valuation: The Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Some Lessons from Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Short Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Mergers and Acquisitions

Leasing

Filters