FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 22: Behavioral Finance: Implications for Financial Management

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 21

Multiple Choice

Review LaterAdd Note

Review Later

Phyllis is planning for her retirement in fifteen years. She knows that she can currently live reasonably well on $38,000 a year given that she is debt-free. Based on her family history she expects to die ten years after she retires. Thus, she computes her retirement need as $38,000 a year for 10 years. Which one of the following behaviors applies to Phyllis?

A) regret aversion
B) money illusion
C) self-attribution bias
D) endowment effect
E) myopic loss aversion

F) B) and D)
G) None of the above

Correct Answer

verified

Show Answer

Question 22

Multiple Choice

Review LaterAdd Note

Review Later

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:

A) overconfidence.
B) arbitrage theory.
C) the disposition effect.
D) the house money effect.
E) a confirmation bias.

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

Correct Answer

verified

Show Answer

Question 23

Multiple Choice

Review LaterAdd Note

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?

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?

Roger's Meat Market is a chain of retail stores that limits its sales to fresh-cut meats. The stores have been very profitable in northern cities. However, when two stores were opened in the south, both lost money and had to be closed. Roger, the owner, has now concluded that no southern-based store should be opened as it would not be profitable. Which one of the following applies to Roger?

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?

Assume you are an overconfident manager. You are most apt to do which one of the following more so than you would if you were not overconfident?

Anytime Ted analyzes a proposed project, he always assigns a much higher probability of success to the project than is warranted by the information he has gathered. Ted suffers from which one of the following?

Which one of the following best illustrates an error which you, as a manager, might make due to overconfidence?

AB Industries is an all-equity firm that has $8 per share in cash and a book value per share of $12. At which one of the following market prices would you know with absolute certainty that the stock was mispriced?

Ramon opened a combination laundry and dry cleaning establishment three years ago. Due to his excellent service and reasonable prices, his business has grown and is doing quite well financially. He has considered expanding this business by opening another location but keeps putting off that decision for fear that the second location will not be a success. Ramon is currently displaying which one of the following behavior characteristics?

Explain why a low-priced, low trading volume stock is more apt to present limits to arbitrage than is a high-priced, high trading volume stock.

You recently overheard your boss telling someone that if he'd actually crunched some numbers and done some analysis instead of just going with his instincts that he never would have opened the new store in Centre City. Which one of the following caused your boss to make a bad decision?

You started an online business three weeks ago. Thus far, you have averaged 10 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 10 sales a day and know that level of income would support you in a comfortable fashion. The belief that you will have 10 sales per day on average if this becomes your full-time occupation is based on which one of the following?

Which of the following have been offered as factors contributing to the market crash of 1987? I. requirement for only a 10 percent cash payment to purchase a stock II. program trading III. irrational investors IV. preceeding bear market

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:

Kaiser Marketing recently conducted a survey on behalf of Health Products. The primary purpose of the survey was to illustrate to Health Products that it was relying on results of previous studies that, according to Kaiser, were unreliable due to the wording of the survey questions. To prove this point, Kaiser conducted a two-prong survey. In the first prong, the survey questions were worded such that the answers tended to sound positive. In the second prong, the survey questions were re-worded such that the answers tended to convey a negative feeling. Both sets of survey questions should have resulted in similar results as the information solicited was essentially identical. However, the survey results varied significantly. This survey best illustrates which one of the following?

Over the past six months, you have watched as your parent's retirement savings have declined in value by 45 percent due to a severe financial market downturn. As a result, you have decided that you will never invest in stocks for your own retirement but will instead keep all of your money in an insured bank account. Which behavior characteristic have you developed as a result of the market downturn?

Which of the following create limits to arbitrage? I. risks related to an individual firm II. implementation costs III. rational traders IV. noise traders

Provide an example of a managerial decision that illustrates each one of the following behaviors: Behavior: Overconfidence Example: Behavior: Affect heuristic Example: Behavior: Loss aversion Example: