Behavioral Finance And The Psychology Of Investing

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Question 1
Free
Multiple Choice

What is the area of finance called that addresses issues such as how reasoning errors affect investment decisions?

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A

logical

B

individual

C

behavioral

D

rational

E

personal

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Question 2
Free
Multiple Choice

Which one of the following is the basis for prospect theory?

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A

Investors react differently to prospective gains and losses.

B

Investors make cognitive errors.

C

Some investors are irrational.

D

Investors react differently depending on the day of the week.

E

Investors suffer from money illusion.

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Question 3
Free
Multiple Choice

Which one of the following defines frame dependence?

Choose correct answer/s
A

Investors react differently to prospective gains and losses.

B

Investors tend to make more cognitive errors when they view investing as gambling.

C

Investors tend to be more irrational in bear markets than in bull markets.

D

Investors react differently depending on how an opportunity is presented.

E

Investors suffer from money illusion in bull markets but not in bear markets.

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Question 4
Free
Multiple Choice

Mental accounting is the process of associating a stock with its:

Choose correct answer/s
A

prior day's market value.

B

expected value.

C

desired value.

D

purchase price.

E

lowest value.

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Question 5
Free
Multiple Choice

Loss aversion is defined as:

Choose correct answer/s
A

the inability to mentally acknowledge a loss on a security.

B

selling any security for less than the price paid to acquire it.

C

selling a security as soon as it has increased significantly in value.

D

the reluctance to sell a security after it has decreased in value.

E

the tendency to quickly sell any investment that has decreased in value.

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Question 6
Multiple Choice

Representativeness heuristic is best explained as:

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A
the process of assuming events are random even when they are not.
B
the creation of patterns in planned events.
C
concluding that casual factors cause random events when in fact they do not.
D
believing that random events that occur in clusters are truly random.
E
overconfidence in one's own skills as an investor.
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Question 7
Multiple Choice

The belief that information you hold is superior to information held by other investors best describes:

Choose correct answer/s
A
over-confidence
B
the snakebite effect
C
the illusion of knowledge
D
the clustering illusion
E
loss aversion
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Question 8
Multiple Choice

An unwillingness to take a risk after a loss describes:

Choose correct answer/s
A
over-confidence
B
the snakebite effect
C
the illusion of knowledge
D
the clustering illusion
E
loss aversion
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Question 9
Multiple Choice

Which one of the following is the tendency to believe that random events that occur in clusters are not really random?

Choose correct answer/s
A
clustering illusion
B
sequential clustering
C
random grouping
D
representativeness heuristic
E
gambler's fallacy
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Question 10
Multiple Choice

Which one of the following best describes heuristics?

Choose correct answer/s
A
clustering
B
rules of thumb
C
grouping
D
representativeness
E
herding
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Question 11
Multiple Choice

The concept that well-capitalized,rational traders may be unable to correct a mispricing defines which one of the following terms?

Choose correct answer/s
A
noise trading bounds
B
market bounds
C
limits to arbitrage
D
implementation limits
E
sentiment borders
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Question 12
Multiple Choice

Which one of the following is a trader whose trades are not based on meaningful financial analysis or information?

Choose correct answer/s
A
specialist
B
arbitrageur
C
noise trader
D
sentiment trader
E
market maker
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Question 13
Multiple Choice

Which one of the following risks is related to irrational beliefs?

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A
systematic
B
firm-specific
C
industry-specific
D
sentiment-based
E
market
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Question 14
Multiple Choice

Technical analysis is the study of which one of the following as the basis for trading?

Choose correct answer/s
A
systematic risk
B
historical prices
C
dividend growth
D
financial statements
E
investor's required return
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Question 15
Multiple Choice

Dow theory is a method of predicting future market movements based on which of the following Dow Jones averages?
I)industrial
II)transportation
III)utilities
IV)commodities

Choose correct answer/s
A
I and II only
B
II and III only
C
III and IV only
D
I and IV only
E
I, II, and III only
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Question 16
Multiple Choice

According to Elliott wave theory,market predictions should be based on which one of the following?

Choose correct answer/s
A
eight-week repetitive trading patterns
B
the tidal waves created by the gravitational pull of the moon
C
series of historical market price swings
D
an industry's historical rate of growth
E
market fads and trends
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Question 17
Multiple Choice

The minimum price at which a security is expected to trade is called the:

Choose correct answer/s
A
stop value.
B
par value.
C
Elliott wave price.
D
resistance level.
E
support level.
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Question 18
Multiple Choice

The maximum price at which a security is expected to trade is called the:

Choose correct answer/s
A
fourth wave.
B
stop limit.
C
relative point.
D
resistance level.
E
support level.
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Question 19
Multiple Choice

The measure of performance of one investment compared to another investment is called the:

Choose correct answer/s
A
wave height.
B
relative arm.
C
relative strength.
D
bar height.
E
support factor.
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Question 20
Multiple Choice

Prospect theory is based on the concept that investors are:

Choose correct answer/s
A
always risk takers.
B
risk-adverse regarding losses.
C
risk-taking regarding losses.
D
always risk-averse.
E
neutral regarding risk.
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