Exam 22: Behavioral Finance: Implications for Financial Management

Explain 1)the concept of house money,2)why the house money concept is such a common behavior for so many individuals and 3)why house money is an irrational behavior.

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

Which of the following statements are correct? I.Many professional fund managers are paid well but fail to outperform as expected. II.Professional fund managers that have tenures in excess of ten years,tend to consistently outperform the market on a long-term basis. III.If a market is truly efficient,then all investments in that market are zero net present value opportunities. IV.Actively managing a fund appears to be the key to outperforming the market.

Which one of the following statements related to market crashes is correct?

You are the manager of a retail store.You believe the economy is in a recession and that sales for the month will be unusually slow.Since you have complete discretion over the pricing at your location,you decide to have a store-wide sale and offer 10 percent off all merchandise for a 3-day period.You don't expect your superiors to criticize this decision as you believe they,along with the majority of the other store managers,feel the same way about the economy as you do.Which one of the following applies to you?