Question #1 of 19 Question ID: 1396888

Assuming a stock will perform well in the future because the company just released a good
earnings report usually results in:

A) the stock becoming a “winner” and outperforming.

B) the stock becoming overpriced and underperforming.
no change in value since in an efficient market the intrinsic value of the stock is
C)
already reflected in its price.

Question #2 of 19 Question ID: 1396892

What kind of behavioral bias is an investor most likely displaying when they tend to hold on
to their earlier beliefs and fail to fully incorporate new information about a stock into their
forecast?

A) Anchoring and adjustment bias.

B) Hindsight bias.
C) Conservatism bias.

Question #3 of 19 Question ID: 1396898

Andrew inherited a substantial number of shares of a mining company from his uncle
several years ago. The mining company shares constitute about 75% of his total investment
portfolio. The stock price is has been rising steadily since Andrew inherited the shares and
the extensive research he performed on the company suggests the stock price will continue
to rise substantially. Despite some public information that suggests the stock price is
expected to plateau, he refuses to change his initial opinion. He is very confident in his
analytical abilities because he passed all three levels of the CFA exams on his first attempt.
Which of the following behavioral biases demonstrated by Andrew is least difficult to
overcome?

A) Loyalty.
B) Conservatism.
C) Overconfidence.

Question #4 of 19 Question ID: 1396891

Which of the following statements best describes the availability bias? An investor:

A) bases a decision on how the information is presented.

B) associates new information with an easily recalled past event.
C) only notices information that agrees with their perceptions or beliefs.

Question #5 of 19 Question ID: 1396889

Buffalo Manufacturing has just announced earnings that are 3% higher than analysts'
forecasts. Panda Technologies has just announced earnings that are 4% less than analysts'
forecasts. According to the representative heuristic description of investor behavior, what is
the most likely future performance of each stock as they revert to their intrinsic values?

Both Buffalo Manufacturing stock and Panda Technologies stock will outperform in
A)
the future.
Buffalo Manufacturing stock will outperform in the future while Panda Technologies
B)
stock will underperform in the future.
Buffalo Manufacturing stock will underperform in the future while Panda
C)
Technologies stock will outperform in the future.

Question #6 of 19 Question ID: 1396887

Tom Roberts loves to read about stocks. He subscribes to the Los Angeles Times, the New
York Times, and Smart Money Magazine. He respects the various publications but places
more emphasis on Smart Money magazine because it specializes in investment issues. What
behavioral characteristic does Roberts have as the basis for his decision making?

A) Anchoring.
B) Framing.
C) Representativeness.

Question #7 of 19 Question ID: 1396890

Which of the following most closely defines base rate neglect?

Found in conservatism bias where the investor places too little weight on new
A)
information.
When the investor considers the long run average of data and how new information
B)
relates to the past data.
A type of representativeness bias in which the probability of the categorization is not
C)
adequately considered.

Question #8 of 19 Question ID: 1396884

Which of the following are considered biases due to cognitive errors?

A) Loss aversion, self-control, and regret-aversion biases.

B) Representativeness, mental accounting, and overconfidence biases.
C) Conservatism, hindsight, and framing biases.

Question #9 of 19 Question ID: 1396893

Dan Chechele is getting nervous that the market has experienced several consecutive days
of losses and is getting uncomfortable having experienced many market downturns
throughout his lifetime. Based on his past experience he is subconsciously putting the
recent market activity into the category of a market trend. Which of the following biases is
Chechele exhibiting?

A) Representativeness bias.
B) Confirmation bias.
C) Loss aversion bias.

Question #10 of 19 Question ID: 1396880

Which of the following statements would most likely be classified as a cognitive error? The
investor:

A) acts defensively when asked why he made a poor investment decision.

B) tends to take more risk rather than sell a stock at a loss.
C) has a tendency to place information into categories.

Question #11 of 19 Question ID: 1396881

Which of the following statements best describes cognitive errors and emotional bias?

A cognitive error is an error in faulty reasoning whereas an emotional bias is based

A)
on feelings.
A cognitive error is the result of having inadequate information whereas an
B)
emotional bias is having a decision be unduly influenced by feelings.
A cognitive error is the result of the inability to analyze all the information or from a
C) lack of information whereas an emotional bias is caused by individuals' feelings,
impulses, or intuition.

Question #12 of 19 Question ID: 1396897

Rita has been the chief executive officer (CEO) at a large pharmaceutical company for over
ten years. She holds a large amount of her employer's stock, which constitutes 80% of her
total investment portfolio. The stock price is currently below Rita's average cost base per
share and she is waiting for the stock price to rise above her average cost base before selling
any shares. She also believes the stock price will improve dramatically because of her efforts
as the CEO in implementing some new profitable business initiatives. Which of the following
behavioral biases demonstrated by Rita is most difficult to overcome?
A) Familiarity.
B) Illusion of control.
C) Anchoring and adjustment.

Question #13 of 19 Question ID: 1396883

Which of the following cognitive errors are best described as belief persistence biases?

A) Mental accounting, framing, and availability biases.

B) Illusion of control, confirmation, and anchoring and adjustment biases.
C) Conservatism, representativeness, and hindsight biases.

Question #14 of 19 Question ID: 1396885

Which of the following are considered emotional biases?

A) Status quo and endowment biases.

B) Confirmation, control, and availability biases.
C) Anchoring and adjustment bias.

Question #15 of 19 Question ID: 1396882

Which of the following statements resembles the behavioral trait of conservatism bias most
accurately?

Rather than sell at a small gain, the investor waits for the stock to reach his
A)
forecasted target price.
The investor places an incorrect value on information because it readily fits into a
B)
category with which he has recent experience.
C) The investor tends to avoid or ignore information that is contrary to his beliefs.
Question #16 of 19 Question ID: 1396886

Which of the following behavioral biases is most likely related to information processing?

A) Loss aversion.
B) Anchoring and adjustment.
C) Status quo.

Question #17 of 19 Question ID: 1396896

The concept of behavioral finance has begun to be employed in investment management.

Which of the following statements is correct regarding behavioral finance and its potential
effect on a client's risk objectives? Behavioral finance implies that investors are:

loss averse, rather than risk averse, and this may have an impact upon the
A)
investors' willingness to take risk.
risk averse, rather than loss averse, and this may have an impact upon the investors'
B)
willingness to take risk.
loss averse, rather than risk averse, and this may have an impact upon the investors'
C)
ability to take risk.

Question #18 of 19 Question ID: 1396894

An investor is averse to experiencing losses. Which of the following behaviors will result
from the loss aversion? It will lead to:

A) risk-seeking behavior.
B) risk-aversion behavior.
C) the buying of loser stocks.

Question #19 of 19 Question ID: 1396895

Which of the following best describes myopic loss aversion and a way to address its affect?

The investor becomes too focused on short term profits without keeping the long
A) term strategic asset allocation in mind. The remedy is to create an IPS that
incorporates long term goals and create a portfolio reflecting those goals.
The investor focuses too much on long term strategic asset allocation without
B) considering tactical asset allocation. The remedy is to periodically review and adjust
their portfolio in conjunction with capital market expectations.
Investors tend to focus too much on the short term and view investments separately
C) instead of in a portfolio context. A remedy is to perform fundamental analysis on
the investments so as not to hold onto losers too long and sell winners too soon.