IOP3708 Assessment 1 SEMESTER 1 2025 Question 1 Not answered Marked out of 1.00 Flag question Question text Why do people tend to sell stocks that have performed well too soon while holding on to poorly performing stocks too long? Because_. a. of Loss-

IOP3708 Assessment 1 SEMESTER 1 2025 Question 1 Not answered Marked out of 1.00 Flag question Question text Why do people tend to sell stocks that have performed well too soon while holding on to poorly performing stocks too long? Because_. a. of Loss-aversion that result from fear of regret b. emotions may not provide a better explanation. c. investors are risk-neutral for losers. d. of a decrease in capital gains to be paid. Question 2 Not answered Marked out of 1.00 Flag question Question text Markers of a lack of sophistication in stock trading are best illustrated by a. experience seeking b. under diversification c. boredom susceptibility d. thrill and adventure seeking Question 3 Not answered Marked out of 1.00 Flag question Question text Which of the following is not a true reflection of the market behavior and stock pricing? a. A speculative bubble is present in a market when high prices seem to be generated more by economic fundamentals than by traders’ enthusiasm. b. According to the greater fool theory, a person buys an asset because he believes another will pay even more to acquire it. c. Stock prices are too volatile to be explained by future dividends. d. According to the present value model of stock prices, a stock’s price equals the present value of expected future dividends. Question 4 Not answered Marked out of 1.00 Flag question Question text Which of the following best relates to momentum? a. The Fama-French three factor model can account for momentum. b. Some research relates momentum to the business cycle and state of the market, arguing that (non-diversifiable) macroeconomic instruments cannot account for a large portion of momentum profit. c. A simple time varying CAPM with beta uncertainty can contribute to an explanation of momentum. d. Momentum exists when returns are negatively correlated with past returns. Question 5 Not answered Marked out of 1.00 Flag question Question text When large numbers of investors simultaneously and erroneously value some or all securities in the same way, what is the one most common and leading aspect that drives prices? a. Traders b. Arbitrage c. Sentiment d. Noise Question 6 Not answered Marked out of 1.00 Flag question Question text Which of the following is the best example that describes an element of risk? a. It is clear how positive and negative emotional states translate into changes in risk attitude and, in turn, market pricing. b. If risk aversion changes in response to changes in mood, how much a person is willing to pay for a stock will not change. c. Risk attitude is important because it affects how a person values an asset. d. According to the capital asset pricing model, investors will be compensated for taking on diversifiable risk. Question 7 Not answered Marked out of 1.00 Flag question Question text Which one of the following statements best describes the expected utility theory? a. defines irrational behaviour when people face uncertainty b. defines rational behaviour when people face uncertainty c. uncertainty is measurable using probability d. decision making is set up to deal with uncertainty Question 8 Not answered Marked out of 1.00 Flag question Question text Which of the following statements is incorrect? a. Most people are overconfident most of the time, in the sense that their confidence intervals are too broad. b. People when observing others, tend to over-attribute behavior to dispositional (as opposed to situational) factors. c. People are reluctant to expose themselves to fair gambles because they are loss averse. d. The Frame impacts the decision a person makes. Question 9 Not answered Marked out of 1.00 Flag question Question text Which of the following is NOT associated with disposition? a. Prior belief b. Boredom susceptibility c. Regret d. Overconfidence Question 10 Not answered Marked out of 1.00 Flag question Question text Which of the following is not a best description of the behaviour of an overconfident trader? a. Self-attribution bias b. holding on winners and taking on excessive risk. c. overly wedded to prior beliefs d. may discount negative public information Question 11 Not answered Marked out of 1.00 Flag question Question text Which one of the following is not a good illustration of market behaviour? a. Price changes accompanied by high volume are more likely to be reversed than are price changes accompanied by low volume. b. Trading volume increases when price-takers, insiders, or market-makers lack in confidence. c. A higher volatility means that a security's value can potentially be spread out over a larger range of values. d. A variable in option pricing formulae shows the extent the return on an underlying asset will fluctuate between now and the option's expiration. Question 12 Not answered Marked out of 1.00 Flag question Question text The expected utility function is useful in defining risk preference. Which of the following best defines risk preference? a. A risk-averse person is willing to sacrifice for certainty. b. A risk-neutral person does not derive the same utility from a gamble and its expected value. c. A risk-averse individual prefers the prospect itself to the expected value of a prospect. d. A risk seeker would rather have the expected value of the prospect than the prospect with certainty. Question 13 Not answered Marked out of 1.00 Flag question Question text Which of the following is not true about the element of risk? a. Adding more and more risky assets to a portfolio diversifies away firm- specific risk. b. Investors will not be compensated for taking on diversifiable risk unrelated to market movements. c. The variance or standard deviation of returns for an asset is the appropriate gauge of risk because it measures total risk, including both diversifiable, firm-specific risk, and systematic, market risk. d. Because the returns for the risk-free asset are uncorrelated with the returns of the other assets, the return and risk for a portfolio including the risk-free asset with any other risky asset will be linear function of the returns and risks. Question 14 Not answered Marked out of 1.00 Flag question Question text Arbitrage is limited by the following potential problem_. a. Risk that cannot be eliminated DEEP SEEK b. The risk that can be diversified c. Fundamental risk (preferred) d. Risk free asset Question 15 Not answered Marked out of 1.00 Flag question Question text Psychologists believe that emotions can develop completely independently from cognition. Which of the statements is incorrect? a. An expert trader often has a gut feeling about a particular situation but remains in control by taking careful, deliberate action. b. Explicit learning enables traders to make better and more efficient decisions. c. Successful trader feels the market but does not become lost in those feelings. d. Practice and repetition are common ingredients across successful experts. Question 16 Not answered Marked out of 1.00 Flag question Question text The brain may evaluate a choice in a risky situation differently from a choice when facing uncertainty because_. a. Behind ambiguity aversion is the fact that risk and uncertainty are experienced the same b. Uncertainty is measurable using probability. c. Risk leads to a cognitive reaction. d. Certainty appears to be strongly associated with emotional response. Question 17 Not answered Marked out of 1.00 Flag question Question text Which of the following is the best example of rational motivation for investing locally? a. Hedging demand b. Significance c. Popularity d. Size and cost Question 18 Not answered Marked out of 1.00 Flag question Question text An attempt to describe behaviour that incorporates observed aspects of human psychology is best illustrated by which one of the following? a. Agency theory b. Prospect theory c. Utility theory d. Standard theory Question 19 Not answered Marked out of 1.00 Flag question Question text Disinhibition is a dimension of a. under diversification b. sensitivity to price trends c. sensation seeking d. home bias Question 20 Not answered Marked out of 1.00 Flag question Question text Which of the following statements is incorrect? a. Emotions have an important influence on reasoning. b. Thought process and emotion should be viewed as separate, opposing influences. c. A person’s success is dependent on his emotional intelligence, in addition to his intelligent quotient. d. Patients with frontal lobe damage are severely restricted in their ability to plan the future. Question 21 Not answered Marked out of 1.00 Flag question Question text Which of the following is one of the Key aspects of observed behaviour? a. Gains and losses are difficult to measure DEEP SEEK b. Risk aversion in gains and risk seeking in looses c. Risk aversion in losses and risk seeking in gains d. Gains and losses are defined relatively easy Question 22 Not answered Marked out of 1.00 Flag question Question text Which of the following statements is incorrect? a. A person with a prior loss may take a risky gamble in order to try to increase gains. b. The responsibility for an outcome is a prerequisite for the disposition effect, which highlights the importance of emotions in understanding the choices of investors. c. An investor with a positive tax rate should put off realizing gains on winners because of the tax liability generated but should recognize losses sooner in order to reduce current tax liability. d. The fear of triggering regret leads an investor to postpone losses, whereas on the other side, the desire for pride leads to the realization of gains. Question 23 Not answered Marked out of 1.00 Flag question Question text Irrational behaviour in financial decision-making arises from_. a. A decision frame b. Mental stock c. Career concerns d. Biographical characteristics Question 24 Not answered Marked out of 1.00 Flag question Question text Which of the following best illustrates factors influencing investor preference for growth stock_? a. Historical value b. Representativeness – investors may assume that good companies are good investments c. Momentum d. Committing judgement errors in extrapolating past growth rates too far into the past Question 25 Not answered Marked out of 1.00 Flag question Question text Market efficiency theoretically rests on one of the following supports a. Markets are efficient if investors are rational. b. Markets are efficient if investors add more assets to the portfolio. c. Markets are efficient if arbitrage is limited. d. Markets are efficient if investors errors are not random.