Department Management Sciences

Program Name BS ACCOUNTING AND FINANCE

Examination Mid Term (2021 Spring)

Course Code
Course Title BEHAVIORIAL FINANCE
Exam Date 12/APR/2021
Exam Time (2:00 p.m.—7:00 p.m.)
Duration 5 Hours
Maximum Marks 50
Teacher Name ZAIN ULLAH

Student Name SAMI ULAH KHAN

Section Student Id
9494
(if any)
INSTRUCTIONS TO CANDIDATES
 Write your Student ID, Name and Section clearly on any of your answer books.
 Use A4 Size plain or lined sheets.
 Write the same question number on answer book / sheet as mentioned on question paper.
 Solve the paper in your own words because if paper grader reports copying/ cheating, your
paper will be cancelled and UFM case will be initiated against you.
 In case answers of two or more students match, their paper will be cancelled and UFM case
will be initiated against each student.
 You are required to submit solved answer book/sheet on LMS as per prescribed date and time.
 Submission of papers on LMS is compulsory, however e-mail your paper “To:”
answersheets@cusit.edu.pk and “cc:” hod.mgt@cusit.edu.pk
 In case of sending papers to wrong email, no further chances will be given.
 Anyone failing to submit his/ her answer book/ sheet on specified time as per his/ her exam
date sheet will be declared ABSENT and late submissions will not be accepted in any case.

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 QUESTION:1
You purchase XYZ Corp. stock and discover that it is now worth
25% less than what you paid for it following many lackluster
earnings results. What is the most appropriate course of action?
 ANSWER:
My course of action will be that we should reevaluate or do analysis
of the stocks maybe it can give us benefit in future because the market
is unpredictable.

 QUESTION:2
One year since purchasing two especially attractive stocks, one
has risen in value while the other has fallen, what is your opinion
of your performance?
 ANSWER:
My past record is a dismal 50/50, according to an honest assessment.
Many investors, on the other hand, would remember how they knew
the surging stock would be a winner all along, while conveniently
forgetting they were equally optimistic about the second stock a
reasoning flaw known as hindsight bias.

 QUESTION: 3
The financial analyst recommends the range of new securities to
replace a number of long-held but underperforming shares in
your portfolio, what should your reaction be?
 ANSWER:
First of all we should listen to our financial analyst reasoning, what
he has in his mind about these new stocks. If he has a proper valid
reasoning then we should consider these new stocks because it’s
likely that there's a better investment for you if you're willing to give
up what you already have.

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 QUESTION: 4
You get cash inheritance of $100,000. What are your plans for the
future? How and where will you invest it? How your supposed
investment is better than other investment alternatives?
 ANSWER:
Cash continues to perform poorly the stock market over time, even
when invested at the market's peak, so putting your $100,000 payout
to work in the market might be the best option. Many investors, on
the other hand, suffer from option exhaustion, causing them to remain
on the sidelines rather than participate in the market.

 QUESTION:5
You review your investing strategy in light of the latest stock
market correction. What is the most appropriate course of
action?
 ANWER:
Long-term patterns have traditionally been more accurate than closer
events when making financial decisions. Recency bias, or our
tendency to give more weight to events that have happened recently,
causes investors to overlook this reality. If a market has been rising,
we prefer to believe that more rises are more likely, while a recent
downturn will lead us to believe that another is on the way.

 QUESTION:6
The portfolio gains 10% for two consecutive years before losing
half of its earnings in the third year. What will be your course of
actions?
 ANSWER:
You should feel pain because a 10% loss should cause as much pain
as a 10% gain; researchers have discovered that the pain of loss is
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 approximately twice as strong as the joy of an equal gain, a
phenomenon known as loss aversion.

 QUESTION:7
Despite the fact that technology companies have helped your
portfolio rise by double digits last year, the investment analyst
now claims the market is overvalued. So, what exactly do you do?
 ANSWER:
Confirmation bias affects our decision-making because inclination to
gravitate toward evidence that confirms what we already believe, In
other words, if you're already heavily invested in technology stocks, it
may be time to reconsider rather than affirm your decision.
Confirmation bias is one of the most destructive of our behavioral
tics, manifesting itself in everything from political division to asset
class overconcentration.

 QUESTION:8
You saw a TV host thanking a CEO for a number of new items
that her company has developed. Should you invest in the stock
because of the TV show?
 ANSWER:
The 24/7 news cycle is a less accurate barometer of a stock's future
success than company fundamentals. Unfortunately, an availability
bias cause’s human to assess probabilities based on how quickly
corroborating knowledge comes to mind.
A convincing TV presence by a CEO in this case risks crowding out
other details that could have a greater impact on the company's stock.
In reality, availability bias is one of the reasons why people think they
have a far higher chance of winning the lottery than they really do,
since those who win the jackpot get a lot of attention, while the
millions who don't win go unnoticed.
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