Behavioral Finance Question Bank
Course Introduction
Behavioral Finance explores how psychological influences and cognitive biases affect the financial behaviors of investors and markets. Moving beyond traditional finance models that assume rational decision-making, the course examines concepts such as overconfidence, loss aversion, herd behavior, and prospect theory. Students will analyze case studies and empirical research to understand how emotions and social factors can lead to market anomalies and impact investment strategies. This course equips learners with the tools to recognize common behavioral pitfalls and incorporate behavioral insights into financial decision-making in both personal and professional contexts.
Recommended Textbook
Investment Analysis and Portfolio Management 11th Edition by Frank K. Reilly
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22 Chapters
2045 Verified Questions
2045 Flashcards
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Page 2
Chapter 1: The Investment Setting
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72 Verified Questions
72 Flashcards
Source URL: https://quizplus.com/quiz/71209
Sample Questions
Q1) Refer to Exhibit 1.4. Compute the coefficient of variation for your portfolio.
A) 0.043
B) 0.12
C) 1.40
D) 0.69
E) 1.04
Answer: E
Q2) The holding period return (HPR) is equal to the holding period yield (HPY) stated as a percentage.
A)True
B)False
Answer: False
Q3) Refer to Exhibit 1.8. Compute the standard deviation of the annual rate of return for Stock Z.
A) 0.0070
B) 0.0088
C) 0.0837
D) 0.0935
E) 0.1145
Answer: D
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Chapter 1: The Investment Setting: Part A
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6 Verified Questions
6 Flashcards
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Sample Questions
Q1) Refer to Exhibit 1A.2. The expected return for project X is
A) 0.0 percent.
B) 0.5 percent.
C) 2.5 percent.
D) 5.0 percent.
E) 7.5 percent.
Answer: C
Q2) Refer to Exhibit 1A.2. The standard deviation for project X is
A) -1.581 percent.
B) 0.000 percent.
C) 1.581 percent.
D) 2.738 percent.
E) 5.000 percent.
Answer: B
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Chapter 2: Asset Allocation and Security Selection
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77 Verified Questions
77 Flashcards
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Sample Questions
Q1) Which of the following strategies seeks to increase the portfolio value by reinvesting current income in addition to capital gains?
A) capital appreciation
B) capital preservation
C) return preservation
D) current income
E) total return
Answer: D
Q2) Assume that you invest $1250 at the end of each of the next 15 years in a mutual fund. You currently have $10,000 in the mutual fund. The annual rate of interest that you expect to earn in this account is 4.35 percent. The amount in the account at the end of 15 years is
A) $58,940.30.
B) $28,750.00.
C) $37,009.35.
D) $44,630.81.
E) $25,690.50.
Answer: D
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Page 5
Chapter 2: Asset Allocation and Security Selection: Part A
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3 Verified Questions
3 Flashcards
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Sample Questions
Q1) Refer to Exhibit 2A.1. Calculate the coefficient of correlation.
A) -0.456
B) -0.354
C) 0.000
D) 0.456
E) 3.538
Q2) Refer to Exhibit 2A.1. Calculate the covariance.
A) -32.20
B) -23.32
C) 1.00
D) 23.32
E) 32.20
Q3) What is the correlation coefficient for two assets with a covariance of .0032, if asset 1 has a standard deviation of 12 percent and asset 2 has a standard deviation of 9 percent?
A) 0.2963
B) 0.3456
C) 0.8721
D) 1.5980
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Page 6
Chapter 3: Organization and Functioning of Securities Markets
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87 Verified Questions
87 Flashcards
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Sample Questions
Q1) Negotiation, competitive bids, and best efforts are three forms of underwriting arrangements.
A)True
B)False
Q2) The U.S. secondary market with the largest number of issues traded is the A) AMEX.
B) NASDAQ.
C) NYSE.
D) LSE.
E) TSX.
Q3) You purchased 75 shares of Basket Company for $42 a share. One share of the stock is currently trading between $52 and $53, and you placed a stop loss order at $47. If the stock price drops to $40 a share, what is your return on this investment?
A) 8.7 percent
B) 9.2 percent
C) 10.3 percent
D) 11.9 percent
E) 12.8 percent
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Chapter 4: Security Market Indexes and Index Funds
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89 Verified Questions
89 Flashcards
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Sample Questions
Q1) A price weighted series is disproportionately influenced by larger capitalization companies.
A)True
B)False
Q2) Of the following indices, which includes the most comprehensive list of stocks?
A) New York Exchange Index
B) Standard and Poor's Index
C) American Stock Exchange Index
D) NASDAQ Series Index
E) Wilshire Equity Index
Q3) Which of the following are factors that make it difficult to create and maintain a bond index?
A) The universe of bonds is broader than stocks.
B) The universe of bonds is constantly changing due to new issues, bond maturities, calls, and bond sinking funds.
C) It is difficult to derive valuable, up-to-date prices.
D) Bond price volatility is affected by duration, which is constantly changing.
E) All of these are correct.
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8
Chapter 5: Efficient Capital Markets, Behavioral Finance, and Technical Analysis
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162 Verified Questions
162 Flashcards
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Sample Questions
Q1) The weak form of the efficient market hypothesis contends that stock prices fully reflect all public and private information.
A)True
B)False
Q2) Fundamentalists contend that past price movements will indicate future price movements.
A)True
B)False
Q3) Refer to Exhibit 5.4. What is the abnormal rate of return for Stock A when you consider its systematic risk measure (beta)?
A) 2.30 percent
B) 2.10 percent
C) 3.10 percent
D) 12.40 percent
E) 17.25 percent
Q4) A high put/call ratio indicates a pervasive bearish attitude by sophisticated investors, so it is a bearish indicator.
A)True
B)False
Page 9
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Chapter 6: An Introduction to Portfolio Management
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114 Verified Questions
114 Flashcards
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Sample Questions
Q1) A completely diversified portfolio would have a correlation with the market portfolio that is
A) equal to zero because it has only unsystematic risk.
B) equal to one because it has only systematic risk.
C) less than zero because it has only systematic risk.
D) less than one because it has only unsystematic risk.
E) less than one because it has only systematic risk.
Q2) All portfolios on the capital market line are
A) perfectly positively correlated.
B) perfectly negatively correlated.
C) unique from each other.
D) weakly correlated.
E) unrelated except that they contain the risk-free asset.
Q3) Refer to Exhibit 6.16. What is the standard deviation for Top Choice Corporation?
A) 0.1 percent
B) 6.3 percent
C) 7.9 percent
D) 9.4 percent
E) 12.1 percent
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Page 10
Chapter 6: An Introduction to Portfolio Management: Part A
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2 Verified Questions
2 Flashcards
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Sample Questions
Q1) Refer to Exhibit 6A.1. What weight of security 1 gives the minimum portfolio variance when r<sub>1.2</sub> = .60, E( \(\sigma\)1) = .10 and E( \(\sigma\)2) = .16?
A) .0244
B) .3679
C) .5697
D) .6309
E) .9756
Q2) Refer to Exhibit 6A.1. Show the minimum portfolio variance for a two-stock portfolio when r<sub>1.2</sub> = 1.
A) E( \(\sigma\)2) \(\div\) [E( \(\sigma\)1) -E( \(\sigma\)2)]
B) E( \(\sigma\)2) \(\div\) [E( \(\sigma\)1) + E( \(\sigma\)2)]
C) E( \(\sigma\)1) \(\div\) [E( \(\sigma\)1) - E( \(\sigma\)2)]
D) E( \(\sigma\)1) \(\div\) [E( \(\sigma\)1) + E( \(\sigma\)2)]
E) None of these are correct.
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11
Chapter 6: An Introduction to Portfolio Management: Part B
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2 Verified Questions
2 Flashcards
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Sample Questions
Q1) Refer to Exhibit 6B.1. What is the value of W<sub>1</sub> when r<sub>1.2</sub> = -1 and E( \(\sigma\)1) = .10 and E( \(\sigma\)2) = .12?
A) 45.46 percent
B) 50.00 percent
C) 59.45 percent
D) 54.55 percent
E) 74.55 percent
Q2) Refer to Exhibit 6B.1. Show the minimum portfolio variance for a portfolio of two risky assets when r<sub>1.2</sub> = -1.
A) E( \(\sigma\)1) \(\div\) [E( \(\sigma\)1) + E( \(\sigma\)2)]
B) E( \(\sigma\)1) \(\div\) [E( \(\sigma\)1) - E( \(\sigma\)2)]
C) E( \(\sigma\)2) \(\div\) [E( \(\sigma\)1) + E( \(\sigma\)2)]
D) E( \(\sigma\)2) \(\div\) [E( \(\sigma\)1) - E( \(\sigma\)2)]
E) None of these are correct.
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12
Chapter 7: Asset Pricing Models
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152 Verified Questions
152 Flashcards
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Sample Questions
Q1) The CAPM can also be illustrated as the security market line (SML).
A)True
B)False
Q2) Assume that you are embarking on a test of the small-firm effect using APT. You form 10 size-based portfolios. Which of the following finding would suggest that there is evidence supporting APT?
A) The top five size-based portfolios should have excess returns that exceed the bottom five size based portfolios.
B) The bottom five size-based portfolios should have excess returns that exceed the top five size-based portfolios.
C) The ten portfolios must have excess returns not significantly different from zero.
D) The ten portfolios must have excess returns significantly different from zero.
E) None of these are correct.
Q3) Because the market portfolio is reasonable in theory, it is easy to implement when testing or using the CAPM.
A)True
B)False
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13
Chapter 8: Equity Valuation
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83 Flashcards
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Sample Questions
Q1) Quality financial statements are a good reflection of reality; accounting tricks and one-time changes are not used to make the firm appear stronger than it really is.
A)True
B)False
Q2) The dividend growth models are only meaningful for companies that have a required rate of return that exceeds their dividend growth rate.
A)True
B)False
Q3) Using the constant growth model, an increase in the required rate of return from 17 to 20 percent combined with an increase in the growth rate from 8 to 11 percent would cause the price to
A) rise more than 3%.
B) rise less than 3%.
C) remain constant.
D) fall more than 3%.
E) fall less than 3%.
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Page 14
Chapter 9: The Top-Down Approach to Market, Industry, and Company Analysis
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216 Verified Questions
216 Flashcards
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Sample Questions
Q1) A major advantage of the cyclical indicator approach is that it spans all important major economic sectors, including the service sector and import-exports.
A)True
B)False
Q2) Defensive companies are firms in which
A) sales, earnings, and cash flows are extremely uncertain and not necessarily related to the economy.
B) sales, earnings, and cash flows are likely to withstand changes caused by the economic environment.
C) sales, earnings, and cash flows are heavily influenced by aggregate business activity.
D) sales, earnings, and cash flows are growing exponentially.
E) None of these are correct.
Q3) With a differentiation strategy, a firm seeks to identify itself as unique in its industry in an area that is important to buyers.
A)True
B)False
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Chapter 10: The Practice of Fundamental Investing
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60 Verified Questions
60 Flashcards
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Sample Questions
Q1) Compensation for the top executives at public companies is set by a compensation committee, which is a subset of the board of directors.
A)True
B)False
Q2) The overallotment option gives the investment bank the right to buy _____ more shares within the next _____.
A) 5 percent; 10 days
B) 30 percent; 10 days
C) 10 percent; 30 days
D) 30 percent; 15 days
E) 15 percent; 30 days
Q3) Sell-side analysts provide information and recommendations to their firm's portfolio manager(s).
A)True
B)False
Q4) Corporate governance refers to the rules, policies, and procedures that are used to direct and control a company.
A)True
B)False
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Chapter 11: Equity Portfolio Management Strategies
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65 Verified Questions
65 Flashcards
Source URL: https://quizplus.com/quiz/71222
Sample Questions
Q1) Tracking error is defined as the degree to which the portfolio's returns deviate from those of the actual index.
A)True B)False
Q2) Passive portfolio managers attempt to "beat the market" by forming portfolios capable of producing actual returns that exceed risk-adjusted expected returns.
A)True B)False
Q3) Which of the following is considered a strategy for timing the market and adding value to actively managed portfolios?
A) timing the markets by shifting between different types of securities based on market forecasts and estimated risk premiums.
B) shifting funds between the various equity sectors, industries, investment styles, etc., in order to take advantage of the "hot" concept before the remainder of the market does.
C) individual stock picking in order to buy low and sell high.
D) using tactical asset allocation strategies.
E) All of these are correct.
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Chapter 12: Bond Fundamentals and Valuation
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138 Verified Questions
138 Flashcards
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Sample Questions
Q1) Calculate the yield to maturity of a zero-coupon bond with a face value of $1000, maturing in 15 years and selling for a price of $525.75.
A) 5.62 percent
B) 4.38 percent
C) 8.74 percent
D) 15.26 percent
E) 16.27 percent
Q2) What is the value of a zero-coupon bond with a yield to maturity of 9 percent, a par value of $1,000, and 10 years to maturity? (Assume semi-annual compounding)
A) $208.29
B) $414.64
C) $422.41
D) $643.93
E) $910.00
Q3) The term structure of interest rates is a dynamic function that relates the term to maturity to the yield to maturity of bonds.
A)True
B)False
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Chapter 13: Bond Analysis and Portfolio Management Strategies
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125 Verified Questions
125 Flashcards
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Sample Questions
Q1) In a ladder strategy,
A) one-half of funds are invested in short duration bonds, and the rest are invested in long duration bonds.
B) 75 percent of funds are invested in short duration bonds, and the rest are invested in long duration bonds.
C) 25 percent of funds are invested in short duration bonds, and the rest are invested in long duration bonds.
D) an equal amount of funds is invested in a wide range of maturities.
E) all the funds are invested in long duration bonds.
Q2) Refer to Exhibit 13.14. Calculate the price of Bond B.
A) $974.69
B) $990.64
C) $995.22
D) $1,013.88
E) $1,025.77
Q3) An investor in a pure yield pickup swap is most concerned about changes in interest rates.
A)True
B)False
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Chapter 14: An Introduction to Derivative Markets and Securities
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102 Verified Questions
102 Flashcards
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Sample Questions
Q1) In the valuation of an option contract, the following statements apply EXCEPT:
A) The value of an option increases with its maturity.
B) There is a negative relationship between the market interest rate and the value of a call option.
C) The value of a call option is negatively related to its exercise price.
D) The value of a call option is positively related to the volatility of the underlying asset.
E) The value of a call option is positively related to the price of the underlying stock.
Q2) A stock currently sells for $15 per share. A put option on the stock with an exercise price of $20 currently sells for $6.50. The put option is
A) at-the-money.
B) in-the-money.
C) out-of-the-money.
D) at breakeven.
E) above-the-money.
Q3) A primary function of futures markets is to allow investors to transfer risk.
A)True
B)False
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Page 20
Chapter 15: Forward, Futures, and Swap Contracts
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148 Verified Questions
148 Flashcards
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Sample Questions
Q1) Refer to Exhibit 15.13. Calculate the overall profit.
A) -$50,000
B) -$150,000
C) $50,000
D) $150,000
E) $550,000
Q2) Refer to Exhibit 15.17. Assuming that one year after the swap was initiated the fixed rate on a new two-year receive fixed pay floating LIBOR swap has fallen to 7 percent per year, calculate the market value of the 7.5 percent fixed rate bond based on a $100 face value. Settlement is on a semiannual basis.
A) $101.33
B) $100.92
C) $100.00
D) $98.67
E) $95.83
Q3) An investor in a hedge position is no longer exposed to the absolute price movement of the underlying asset, but the investor is still exposed to basis risk.
A)True
B)False
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Page 21
Chapter 16: Option Contracts
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122 Verified Questions
122 Flashcards
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Sample Questions
Q1) A calendar spread requires the purchase and sale of two calls or two puts in the same stock with
A) the same expiration date but different exercise prices.
B) the same exercise price but different expiration dates.
C) different exercise prices and different expiration dates.
D) the same exercise price and the same expiration month.
E) traded in different markets.
Q2) Refer to Exhibit 16.8. If XYZ were trading at $90/share and you formed a bull money spread, what is your profit if XYZ is trading at $110 at expiration?
A) $912.50 loss
B) $87.50 gain
C) $87.50 loss
D) $1,000.00 gain
E) $1,000.00 loss
Q3) The owner of a call option on a futures contract has the obligation to buy the futures contract at a predetermined strike price during a specified time period.
A)True
B)False
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Chapter 17: Professional Money Management, Alternative
Assets, and Industry Ethics
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109 Verified Questions
109 Flashcards
Source URL: https://quizplus.com/quiz/71228
Sample Questions
Q1) Investing in emerging markets can be viewed as a global application of A) fixed-income arbitrage.
B) convertible arbitrage.
C) merger arbitrage.
D) distressed opportunistic strategies.
E) equity market neutral.
Q2) When the offer price and the NAV of a mutual fund are equal, it is an indication that
A) the fund's assets are in equilibrium.
B) the fund is trading at par.
C) it is strictly a coincidence.
D) the fund has no initial fee.
E) the fund is backloaded.
Q3) The offering price of a load fund equals the NAV of the fund
A) less an initial requirement.
B) plus a sales charge.
C) plus a sales charge and an administrative fee.
D) less a negotiated discount.
E) at its stated value.
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Chapter 18: Evaluation of Portfolio Performance
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111 Verified Questions
111 Flashcards
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Sample Questions
Q1) Refer to Exhibit 18.8. Compute the Jensen Measure for the C fund.
A) 0.16 percent
B) 1.80 percent
C) 7.20 percent
D) 9.00 percent
E) 9.13 percent
Q2) Portfolio managers are often evaluated using a boxplot of returns for a universe of investors over a specific period of time which is known as a(n)
A) return adjusted comparison.
B) efficient frontier comparison.
C) time plot comparison.
D) peer group comparison.
E) None of these are correct.
Q3) An advantage of the GT statistic is that it can be computed without reference to any specific benchmark.
A)True
B)False
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