1/10/2021 Multiple Choice Quiz

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Multiple Choice Quiz Out of 10 questions, you answered 2 correctly with a final grade of 20%
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The correct answer for each question is indicated by a .

1 Conventional theories presume that investors ____________, and behavioral finance presumes that they ____________.
INCORRECT
A) are irrational; are irrational

B) are rational; may not be rational

C) are rational; are rational

D) may not be rational; may not be rational

E) may not be rational; are rational

Feedback: Conventional theories presume that investors are rational, and behavioral finance presumes that they may not be rational.
2 Some economists believe that the anomalies literature is consistent with investors' ____________, and ____________.
INCORRECT
A) ability to always process information correctly and therefore they infer correct probability distributions about future rates of return; given a probability
distribution of returns, they always make consistent and optimal decisions
B) inability to always process information correctly and therefore they infer incorrect probability distributions about future rates of return; given a probability
distribution of returns, they always make consistent and optimal decisions
C) ability to always process information correctly and therefore they infer correct probability distributions about future rates of return; given a probability
distribution of returns, they often make inconsistent or suboptimal decisions
D) inability to always process information correctly and therefore they infer incorrect probability distributions about future rates of return; given a probability
distribution of returns, they often make inconsistent or suboptimal decisions
E) none of the above
Feedback: Some economists believe that the anomalies literature is consistent with investors inability to always process information correctly and
therefore they infer incorrect probability distributions about future rates of return and given a probability distribution of returns, they often make
inconsistent or suboptimal decisions.
3 ____________ may be responsible for the prevalence of active versus passive investments management.
INCORRECT
A) Forecasting errors

B) Overconfidence

C) Mental accounting

D) Conservatism

E) Regret avoidance
Feedback: Overconfidence may be responsible for the prevalence of active versus passive investments management.
4 If a person gives too much weight to recent information compared to prior beliefs, they would make ________ errors.
INCORRECT
A) framing

B) selection bias

C) overconfidence

D) conservatism

E) forecasting
Feedback: If a person gives too much weight to recent information compared to prior beliefs, they would make forecasting errors.
5 Statman argues that ________ is consistent with some investors' irrational preference for stocks with high cash dividends and with a tendency to hold losing
INCORRECT positions too long.
A) mental accounting

B) regret avoidance

C) overconfidence

D) conservatism

E) none of the above

Feedback: Statman argues that mental accounting is consistent with some investors' irrational preference for stocks with high cash dividends and with a
tendency to hold losing positions too long.
6 CORRECT Arbitrageurs may be unable to exploit behavioral biases due to ____________.

I. fundamental risk
II. implementation costs
III. model risk
IV. conservatism
V. regret avoidance

A) I and II only

B) I, II, and III

C) I, II, III, and V

D) II, III, and IV

E) IV and V
Feedback: Arbitrageurs may be unable to exploit behavioral biases due to fundamental risk, implementation costs, and model risk.
7 CORRECT __________ was the grandfather of technical analysis.

A) Harry Markowitz

B) William Sharpe

C) Charles Dow

D) Benjamin Graham

E) none of the above

Feedback: Charles Dow was the grandfather of technical analysis.
8 A long-term movement of prices, lasting from several months to years is called _________.
INCORRECT

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1/10/2021 Multiple Choice Quiz
A) a minor trend
B) a primary trend

C) an intermediate trend

D) trend analysis

E) B and D
Feedback: A long-term movement of prices, lasting from several months to years is called a primary trend.
9 The Dow theory posits that the three forces that simultaneously affect stock prices are ____________.
INCORRECT
I. primary trend
II. intermediate trend
III. momentum trend
IV. minor trend
V. contrarian trend

A) I, II, and III

B) II, III, and IV

C) III, IV and V

D) I, II, and IV

E) I, III, and V
Feedback: The Dow theory posits that the three forces that simultaneously affect stock prices are the primary trend, intermediate trend, and minor
trend.
10 The put/call ratio is computed as ____________, and higher values are considered ____________ signals.
INCORRECT
A) the number of outstanding put options divided by outstanding call options; bullish or bearish

B) the number of outstanding put options divided by outstanding call options; bullish

C) the number of outstanding put options divided by outstanding call options; bearish

D) the number of outstanding call options divided by outstanding put options; bullish

E) the number of outstanding call options divided by outstanding put options; bullish or bearish
Feedback: The put/call ratio is computed as the number of outstanding put options divided by outstanding call options and higher values are considered
bullish or bearish signals.

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