Behavior Finance MCQ
Behavior Finance MCQ
Behavior Finance MCQ
Q-1. When making allocation decisions for their pensions, some people to ignore the fund
mix and instead simply allocate based on the number of funds offered. When it appears
that people are overly influenced by the menu of funds offered they may be making
decisions;
a) true
b) false
Q-3.The CBOE volatility index (VIX) is often referred to as the "investor fear gauge."
a) true
b) false
Q-4.If investors initially anchor on past earnings, they ___________ to earnings news.
Later, if they believe the observed high (or low) earnings will continue into the future,
they ____________.
a) overreact, underreact
b) underreact, overreact
c) underreact, underreact again
d) overreact, overreact again
Q-5.Which of the following is more likely to occur when a fair coin is tossed?
(i) HTHTHT
(ii) HHTHTH
Q-6.When Matt started at his current job, his company did not automatically enroll him
in a retirement savings plan and he still has not enrolled. When Suzanne started her, she
was enrolled in an automatic savings plan and has stayed in the plan. Matt and Suzanne's
behavior is probably driven by
a) hyperbolic discounting
b) limited self-control
c) status quo bias
d) loss aversion
Q-8.When mike started with his fir ten years ago he opened a retirement savings plan
and allocated 70% of the contributions to a stock fund and 30% to a bond fund. since
then, his allocations have not changed. What is the problem with this?
Q-9.Many people do not save enough for retirement. This could be due to
a) hyperbolic discounting
b) limited self-control
c) status quo bias
d) all of the above
Q-10.Questionnaires are often used to assess a client's risk tolerance. A problem with
these questionnaires is that they don't always measure what we want to measure. this is
a problem with
a) client irrationality
b) client inconsistency
c) questionnaire reliability
d) questionaire validity
Q-11.Positive serial correlation in returns is reported over the medium term. This is
called ________________.
a) representitiveness
b) anchoring
c) momentum
d) reversal
Q-12.which of the following is a benefit of a defined contribution plan?
a) true
b) false
Q-15.Significant changes in the pension environment in the U.S. followed the passage of
ERISA in 1974. We see pensions moving from defined ________________ to defined
_______________.
a) contribution, benefit
b) benefit, contribution
c) neither, things have pretty much stayed the same
Q-16.According to the _________________ people but assets are prices they know are too
high because they believe someone else will pay even more.
a) contribution
b) benefits
c) outcome
d) payment
Q-18.One market puzzle is the finding that stock returns are higher than they should be
given the level of risk in the market. This is called
a) excess volatility
b) momentum
c) an asset price bubble
d) the equity premium puzzle
Q-19. A behavioral explanation of the equity puzzle is called myopic loss aversion. with
myopic loss aversion investors
a) are risk seeking and do not realize the risks they are taking
b) are loss averse and use mental accounting
c) focus on the long-term because they are saving for retirement
d) are risk averse and never reevaluate their portfolio allocations
Q-20.It has been argues that an investor might by an over-valued asset because he thinks
he can sell it to another who will pay even more. this is called
a) arbitrage
b) myopic loss aversion
c) the greater fool theory
d) speculation
Q-21.The market reacts with a lag to news about earnings. true or false: this post
announcement drift could result because investors and analysts anchor on recent (past)
earnings.
a) true
b) false
Q-22.We look at price/earnings rations as an initial gauge of the appropriateness of
market valuations. true or false: these days market overvaluation is at an all-time high.
a) true
b) false
Q-23.In a defined _______________ retirement plan the employee and employer both
make contributions to an account with the growth of the account subject to investment
returns and no guarantee of what will be available at retirement.
a) benefit
b) outcome
c) payment
d) contribution
Q-24.An investor's risk tolerance has two aspects that important to a wealth manager
when giving advice. They are
Q-25.There are four primary reasons why investors mat favor glamour stocks over
growth stocks. which of the following is NOT an explanation we discussed regarding the
value advantage?
a)
representativeness
b)
familiarity
c)
fiduciary obligations
d)
expectational error hypothesis or extrapolating past growth rates too far into the
future
Q-26.Which of the following is false?
a) the evidence suggests that people use heuristics when allocating retirement
funds
b) when given more choice with an increase in the number of funds offered,
employees save more
c) people are influenced be the menu of retirement funds offered
d) evidence suggests that defined contribution plans underperform defined benefit
plans
Q-27.Nobel prize winner Robert Schiller showed that stock prices are not too volatile to
be explained by the present value of dividends.
a) true
b) false
a) bonds should earn higher returns because investors are loss averse
b) the level of the premium requires an extremely high degree of risk aversion
c) the level of the premium requires an extremely high degree of risk seeking
d) stocks should earn higher returns because they are riskier
Q-29.In an experimental bubbles market participants trade with fixed life. we commonly
see prices rise well above fundamental value but crash near the end of trading. which of
the following is true?
a) when there is more cash in the market, more bubbles result
b) trading experience does not moderate bubbles
c) bubbles are not affected by the ability to short sell shares
d) all of the above
Q-30.The CBOE volatility index (VIX) is often referred to as the "investor fear gauge."
a) true
b) false
31. When making allocation decisions for their pensions, some people to ignore the fund
mix and instead simply allocate based on the number of funds offered. When it
appears that people are overly influenced by the menu of funds offered they may be
making decisions
32. A goal of scheduled deferral increases at regular intervals. true or false: research
indicates that they can be successful in increasing savings rates.
a. true
b. false
33. The CBOE volatility index (VIX) is often referred to as the "investor fear gauge."
a. true
b. false
34. If investors initially anchor on past earnings, they ___________ to earnings news.
Later, if they believe the observed high (or low) earnings will continue into the future,
they ____________.
a. overreact, underreact
b. underreact, overreact
c. underreact, underreact again
d. overreact, overreact again
35. Which of the following is more likely to occur when a fair coin is tossed?
(i) HTHTHT
(ii) HHTHTH
36. When Matt started at his current job, his company did not automatically enroll him in
a retirement savings plan and he still has not enrolled. When Suzanne started her, she
was enrolled in an automatic savings plan and has stayed in the plan. Matt and
Suzanne's behavior is probably driven by
a. hyperbolic discounting
b. limited self-control
c. status quo bias
d. loss aversion
38. When mike started with his fir ten years ago he opened a retirement savings plan and
allocated 70% of the contributions to a stock fund and 30% to a bond fund. since then,
his allocations have not changed. What is the problem with this?
39. Many people do not save enough for retirement. This could be due to
a. hyperbolic discounting
b. limited self-control
c. status quo bias
d. all of the above
40. Questionnaires are often used to assess a client's risk tolerance. A problem with these
questio nares is that they don't always measure what we want to measure. this is a
problem with
a. client irrationality
b. client inconsistency
c. questionnaire reliability
d. questionaire validity
41. Positive serial correlation in returns is reported over the medium term. This is called
________________.
a. representitiveness
b. anchoring
c. momentum
d. reversal
42. which of the following is a benefit of a defined contribution plan?
a. avoidance of market risk
b. portability
c. avoidance of longevity risk
d. all of the above are benefits of a DC plan
43. In an experimental bubbles market participants trade assets with a fixed life. We
commonly see prices rise well above fundamental value but crash near the end of
trading. which of the following is true?
44. Robert Shiller of Yale University conducts surveys of institutional and individual
investors to gauge confidence in the market. true or false: these days market
confidence is at an all-time low.
a. true
b. false
45. Significant changes in the pension environment in the U.S. followed the passage of
ERISA in 1974. We see pensions moving from defined ________________ to defined
_______________.
a. contribution, benefit
b. benefit, contribution
c. neither, things have pretty much stayed the same
46. According to the _________________ people but assets are prices they know are too
high because they believe someone else will pay even more.
a. contribution
b. benefits
c. outcome
d. payment
48. One market puzzle is the finding that stock returns are higher than they should be
given the level of risk in the market. This is called
a. excess volatility
b. momentum
c. an asset price bubble
d. the equity premium puzzle
49. A behavioral explanation of the equity puzzle is called myopic loss aversion. with
myopic loss aversion investors
a. are risk seeking and do not realize the risks they are taking
b. are loss averse and use mental accounting
c. focus on the long-term because they are saving for retirement
d. are risk averse and never reevaluate their portfolio allocations
50. It has been argues that an investor might by an over-valued asset because he thinks he
can sell it to another who will pay even more. this is called
a. arbitrage
b. myopic loss aversion
c. the greater fool theory
d. speculation
51. The market reacts with a lag to news about earnings. true or false: this post
announcement drift could result because investors and analysts anchor on recent
(past) earnings.
a. true
b. false
a. true
b. false
53. In a defined _______________ retirement plan the employee and employer both
make contributions to an account with the growth of the account subject to investment
returns and no guarantee of what will be available at retirement.
a. benefit
b. outcome
c. payment
d. contribution
54. An investor's risk tolerance has two aspects that important to a wealth manager when
giving advice. They are
55. There are four primary reasons why investors mat favor glamour stocks over growth
stocks. which of the following is NOT an explanation we discussed regarding the
value advantage?
a. representativeness
b. familiarity
c.fiduciary obligations
d. expectational error hypothesis or extrapolating past growth rates too far into the
future
57. Nobel prize winner Robert Schiller showed that stock prices are not too volatile to be
explained by the present value of dividends.
a. true
b. false
60. The CBOE volatility index (VIX) is often referred to as the "investor fear gauge."
a. true
b. false
61. Adam Smith in The Theory of Moral Sentiments from 1776 emphasizes that people’s
actions are not completely driven by selfishness, but by another important motive.
What is this motive?
(a) The Antisocial Personality Disorder.
(b) A desire for praiseworthiness.
(c) Social contagion.
(d) Cognitive dissonance.
62. Which of the following components are not part of Daniel Kahneman’s and Amos
Tversky’s Prospect Theory?
(a) A value function that evaluates the outcome of the different prospects.
(b) A value function that is concave in gains and convex in losses, with a kink at the
reference point that separates the gains- from the loss-region.
(c) An overconfidence-factor that is directly applied to the value function in the
loss-region.
(d) A probability weighting function that overvalues small probabilities and
undervalues probabilities close to one.
64. Sendhil Mullainathan and his co-authors conducted an experiment, in which they sent
actors to financial advisors. They found that the financial advisors did not challenge the
assumptions that supposedly made these ”clients” put all their money in one kind of
investment. Which psychological phenomenon has been cited to be responsible for this
behavior?
(a) The financial advisors did not want to stir up cognitive dissonance feelings in
their “clients”.
(b) The financial advisors were overconfident about their own ability as financial
advisors.
(c) The financial advisors were influenced by Kahneman’s and Tversky’s probability
weighting function, which lead them to overweight very small probabilities.
(d) The financial advisors suffered from Antisocial Personality Disorder.
66. Which of these activities does not exclusively come within the scope of corporate
financial decision-making
a) How much should be invested?
b) How much is to be allocated to the marketing budget?
c) Which type of finance should be chosen?
d) How much finance should be raised?
67. A great deal of financial theory is based on the concept of free markets and in
particular the theory of:
a) perfect competition.
b) monopolistic competition.
c) monopoly.
d) oligopoly.
69. Which of the following is a legitimate reason why firm value maximization is
preferred to profit maximization as the ideal goal for the firm?
a) The company is obliged to reveal all holding companies, strategic alliances, and
joint ventures to the government.
b) The company is obliged to reveal all investment plans to employees.
c) The company is obliged to reveal all information in a timely manner which
could have a significant effect on shareholder welfare.
d) The company is obliged to lodge audited accounts with Companies House.
71, Which of the following people or institutions is not the author of a corporate
governance code?
a) International Corporate Governance Network.
b) Cadbury.
c) OECD.
d) Harvard-Yale.
76. ______ is based on tips, rumours and hunches, unplanned and without knowledge
of the exact nature of risk.
77. A National Commodity and Derivatives Exchange Ltd (NCDEX) has been set up in
India in
78. Buying low and selling high, making a large capital gain is associated with
79. Horse racing, game of cards, lottery are the typical examples of
80. Investment in which principal amount and the terminal value are known with
certainty is
.
a) Cash b) Equity shares c) Pension Fund d) Antiques
82. Investment in which the terminal value are not known with certainty is
84. Rising of prices and falling of standard of living is arises at the time of
a) Inflation b) Boom period c) Normal period d) Deflation
85. risks cover the risk of market, interest rate risk and purchasing power risk.
86. Risk due to internal environment of a firm or those affecting particular industry are
referred to as
88. risk is associated with the security market, as well as the economic,
sociological, political and legal consideration of the prices of all securities in the
economy.
89. Labour strike, consumer preferences and management policies are making to arises
out of uncertainty is known as
91. risk can be identified through rise and decline of total revenues as indicated in the
firm’s earnings before interest and taxes.
a) Return on Investment
b) Return on Interest
c) Return on Income
d) Risk on Investment
93. Variance calculation and measuring the Standard deviation is one way of measuring
the
97. The indicators are identified with consumer price index, capital expenses and
commercial paper rates are known as
98. _________is the mathematical and statistical application to forecast the future trend
of the economy.
99. ________ results are approximate because it is based on beliefs, intentions and
future budgeting of the government.
100. ________ analysis is a study of the variables that influence the future of a firm both
qualitatively and quantitatively for
102. ___________is a method which combines the different indicators into one total
measure and it gives weaknesses and strengths of a particular time series of data.
104. __________analysis refers the study of the variables that influence the future of a
firm both qualitatively and quantitatively.
110. According to technical analysts the support area denotes the signal
114. A chart that has open, high, low and close data sets in a vertical line is known as
a) Bar or OHLC chart b) Line chart c) Candle stick chart d) Point and figure chart
115. A combination of various investment products like bonds, shares, securities, mutual
funds and so on is called as
116. The process by which one choose the securities, derivatives and other assets include
in a portfolio is known as
117. The process of addition of more assets in an existing portfolio or changing the ratio
of funds invested is called as -
.
a) Horizontal diversification b) Vertical diversification
120. Which type of market efficiency declares that current security prices totally reflect all
information, equally public and private
123. Asset allocation is procedure of scattering your assets between numerous different
kinds of investments to
124. __________describes the relationship between systematic risk and expected return
for assets, particularly stocks
125. For a profitable firm, total sources of funds will always total uses of
funds.
a. be equal to
b. be greater than
c. be less than
127. Which asset-liability combination would most likely result in the firm's
having the greatest risk of technical insolvency?
a. Increasing current assets while lowering current liabilities.
128. Which of the following illustrates the use of a hedging (or matching)
approach to financing?
a. Short-term assets financed with long-term liabilities.
129. In deciding the appropriate level of current assets for the firm, management
is confronted with
a. a trade-off between profitability and risk.
b. Risk.
c. Blue.
d. False.
b. accounts payable.
c. short-term loans.
d. a line of credit.
d. current assets.
135. Marketable securities are primarily
a. short-term debt instruments.
b. Deposit float
c. Collection float
d. Availability float
c. Repurchase agreement
d. T-bills
b. EDI
c. SWIFT
d. CHIPS
142. That portion of a firm's total marketable securities portfolio held to take care
of probable deficiencies in the firm's cash account.
a. Free cash segment
b. Yield
c. Marketability
d. New York.
c. ACH transfer
d. Repo
145. According to the Bond Equivalent Yield (BEY) method, the yield on a
$1,000, 13-week US Treasury bill purchased for $960 would be closest
to .
a. 16.0 percent
b. 16.7 percent
c. 17.0 percent
d. 17.8 percent
146. US Treasury bills are now sold in minimum amounts of and multiples
of above the minimum.
a. $10,000; $10,000
b. $10,000; $1,000
c. $1,000; $1,000
d. $1,000; $100
e. $100; $100
b. a "substitute check"
b. the book value of the firm's assets less the book value of its liabilities.
ANSWER KEY
31 D 36 C 41 C 46 D 51 A 56 B 61 B 66 B 71 D
32 A 37 A 42 B 47 B 52 B 57 B 62 C 67 A 72 B
33 A 38 D 43 D 48 D 53 D 58 B 63 A 68 D 73 D
34 B 39 D 44 B 49 B 54 C 59 A 64 A 69 B 74 B
35 C 40 D 45 B 50 C 55 B 60 A 65 A 70 C
ANSWER KEY
75 A 85 A 95 A 105 C 115 A
76 C 86 A 96 A 106 B 116 A
77 B 87 B 97 C 107 A 117 B
78 B 88 B 98 A 108 A 118 C
79 C 89 B 99 A 109 A 119 A
80 A 90 A 100 110 A 120 C
81 C 91 A 101 A 111 A 121 B
82 B 92 A 102 C 112 D 122 A
83 A 93 A 103 A 113 A 123 C
84 A 94 A 104 A 114 A 124 A
ANSWER KEY