Q4. Which of the following is NOT one of the behavioral finance traits that leads to market inefficiency? Investors:

A)   think a well run company will be a good investment.

B)   are overconfident in their ability to interpret information and predict performance.

C)   all have the same information and interpret it the same way.

Q5. For understanding an individual’s preferences, goals and desires, situational profiling:

A)   places individuals into categories according to sources of wealth and level of risk aversion.

B)   places individuals into categories according to stage of life and economic circumstances.

C)   is superior to psychological profiling.

Q6. Which of the following statements about Wang's ability and willingess to take on risk is most accurate? Wang’s

A)   willingness to take risk is more important than her ability to take risk.

B)   willingness and ability to take risk are incongruent therefore Rineholt should defer to Wang’s desire for a moderately aggressive portfolio.

C)   ability to take risk is determined by her time horizon and portfolio size.

Q7. Which of the following statements about behavioral finance is TRUE?

A)   Behavioral finance assumes investors exhibit character traits in addition to those stipulated by traditional finance.

B)   Investors are more concerned with portfolio construction versus individual assets' characteristics.

C)   Investors realize their lack of experience in forecasting.

答案和详解如下：

Q4. Which of the following is NOT one of the behavioral finance traits that leads to market inefficiency? Investors:

A)   think a well run company will be a good investment.

B)   are overconfident in their ability to interpret information and predict performance.

C)   all have the same information and interpret it the same way.

Correct answer is C)         

Market efficiency assumes all investors have the same information, interpret it the same way, and make the same forecasts.  Some behavioral finance traits can lead to market inefficiencies such as representativeness, anchoring-and-adjustment, loss aversion, frame dependence, and overconfidence. Representativeness can take many forms and can be characterized as any time an investor bases expectations for the future on some past characteristic. Anchoring-and-adjustment refers to the inability to fully incorporate the impact of new information on previous projections. Loss aversion can lead to investors holding on to a losing stock too long or to increased risk seeking behavior to recover from a loss. Frame dependence refers to investors' tendency to frame their tolerance on the current direction of the market or in the context of the information received rather than on its own merits. Overconfidence is when people place too much confidence in their ability to predict resulting in unjustified bets.

Q5. For understanding an individual’s preferences, goals and desires, situational profiling:

A)   places individuals into categories according to sources of wealth and level of risk aversion.

B)   places individuals into categories according to stage of life and economic circumstances.

C)   is superior to psychological profiling.

Correct answer is B)         

Situational profiling can enhance an advisor’s understanding of an investor’s preferences, goals, and desires by categorizing individuals according to sources and measures of wealth as well as stage of life.

Q6. Which of the following statements about Wang's ability and willingess to take on risk is most accurate? Wang’s

A)   willingness to take risk is more important than her ability to take risk.

B)   willingness and ability to take risk are incongruent therefore Rineholt should defer to Wang’s desire for a moderately aggressive portfolio.

C)   ability to take risk is determined by her time horizon and portfolio size.

Correct answer is C)

Willingness to take on risk is the investor's own personal view of their level of risk aversion. Ability to take on risk is determined by several factors such as length of lifespan and portfolio size relative to goals. It is usually best to defer to a person's willingness to take on risk unless a conflict arises and their willingness is greater than their ability. Under the current circumstances, it appears that Wang’s stated risk tolerance is not only incongruent with her economic status, but is also in conflict with her personality profile. Rinehart should meet with Wang for education purposes and to explore the inconsistencies.

Q7. Which of the following statements about behavioral finance is TRUE?

A)   Behavioral finance assumes investors exhibit character traits in addition to those stipulated by traditional finance.

B)   Investors are more concerned with portfolio construction versus individual assets' characteristics.

C)   Investors realize their lack of experience in forecasting.

Correct answer is A)

The three major characteristics exhibited by traditional finance are risk aversion, rational expectations, and portfolio diversification. Behavioral finance assumes investors exhibit three other major characteristics which are loss aversion, biased expectations, and they construct portfolios via asset segregation. Most individual investors overestimate their ability to forecast the future.

Thank you!