Exam 3

Which of the following defines frame dependence?

a. Investors react differently to prospective gains and losses. b. Investors tend to make more cognitive errors when they view investing as gambling. c. Investors tend to be more irrational in bear markets than in bull markets. d. Investors react differently depending on how an opportunity is presented. e. Investors suffer from money illusion in bull markets but not in bear markets.

Which of the following defines frame dependence?

a. Investors react differently to prospective gains and losses. b. Investors tend to make more cognitive errors when they view investing as gambling. c. Investors tend to be more irrational in bear markets than in bull markets. d. Investors react differently depending on how an opportunity is presented. e. Investors suffer from money illusion in bull markets but not in bear markets.

d.

Loss aversion is defined as:

a. the inability to mentally acknowledge a loss on a security. b. selling any security for less than the price paid to acquire it. c. selling a security as soon as it has increased significantly in value. d. the reluctance to sell a security after it has decreased in value. e. the tendency to quickly sell any investment that has decreased in value.

d.

Which one of the following best describes heuristics?

a. clustering b. rules of thumb c. grouping d. representativeness e. herding

b.

Which one of the following is a trader whose trades are not based on meaningful financial analysis or information?

a. specialist b. arbitrageur c. noise trader d. sentiment trader e. market maker

c.

The tendency to overvalue an item because you own it is referred to as which one of the following?

a. endowment effect b. money illusion c. regret aversion d. myopic loss aversion e. sunk cost fallacy

a.

Which one of the following rates is the rate that banks charge each other for overnight loans of $1 million or more?

a. institutional b. financial overnight c. Federal funds d. monetary e. daily

c.

Which one of the following is a short-term debt instrument issued by the U.S. Treasury?

a. Freddie Mac b. Ginnie Mae c. T-note d. T-bill e. T-bond

d.

A pure discount security is an interest-bearing asset that pays:

a. interest on a semi-annual basis b. interest on an annual basis c. a single payment at maturity d. no interest e. a variable-rate interest

c.

Which one of the following is a basis point?

a. 1% b. .1% c. .01% d .001% e. .0001%

c.

Which one of the following rates is typically quoted?

a. nominal b. deflated c. inflated d. real e. indexed

a.

What is the annual interest divided by the market price of a bond called?

a. coupon rate b. effective annual yield c. current yield d. yield to maturity e. yield to market

c.

A premium bond is defined as a bond that:

a. has a duration that is less than one b. has a face value that exceeds its market value c. is callable at a price which exceeds the face value d. has a market price that exceeds par value e. is selling for less than face value

d.

A callable bond:

a. can be paid off early at either the issuer's or the bondholder's request b. can be redeemed early if the bondholder so requests c. can have its maturity date extended by the issuer d. can be redeemed by the issuer prior to maturity e. is a bond that pays a variable interest payment

d.

Which one of the following measures a bond's sensitivity to changes in market interest rates?

a. yield to call b. yield to market c. duration d. immunization e. target date valuation

c.

Which one of the following involves creating a portfolio in a manner that minimizes the uncertainty of the portfolio's maturity target date value?

a. duration b. reinvestment c. immunization d. modification e. call protection

c.