p.3
Mid-Semester Exam Details
In which weeks do Stream B students participate?
Weeks 3, 5, 8, 10, and 12.
p.36
Cognitive Biases in Investing
What is a common example of herding in the stock market?
Frenzied buying during stock market bubbles.
p.35
Cognitive Biases in Investing
What is representativeness in the context of investment judgment?
Judgment based on stereotypes.
p.35
Cognitive Biases in Investing
What could be the future return prospects for a company that has reached maximum growth?
Future return prospects may be moderate.
p.20
Asset Allocation Strategies
What is the approximate asset mix for a very conservative investor?
Cash 60%, Fixed interest 30%, Growth investments 10%.
p.23
Socially Responsible Investing (SRI)
What is socially responsible investing (SRI)?
The practice of incorporating social goals into the investment decision-making process.
p.28
Socially Responsible Investing (SRI)
What is negative screening in investing?
A strategy that excludes certain sectors, companies, or practices from investment portfolios based on ethical or moral criteria.
p.27
Socially Responsible Investing (SRI)
What does ESG stand for in investing?
Environmental, Social, and Governance.
p.43
Behavioural Finance Concepts
What is the goal for financial planners regarding client thought processes?
To help clients use a more rational System 2 thought process.
p.17
Financial Literacy and Decision Making
What is a potential issue with the understandability of risk profile questionnaires?
Use of complex language and technical terms.
p.28
Socially Responsible Investing (SRI)
What is the primary goal of negative screening?
To avoid investing in companies that do not meet certain ethical standards.
p.20
Asset Allocation Strategies
What is the asset allocation for an aggressive investor?
Cash 5%, Fixed interest 15%, Growth investments 80%.
p.28
Socially Responsible Investing (SRI)
Can negative screening affect financial performance?
Yes, it may limit diversification and potential returns, but can also attract socially conscious investors.
p.22
Asset Allocation Strategies
What is the goal of indexing a portfolio to a nominated benchmark?
To invest in securities in the index to match the performance of the benchmark.
p.45
Risk Profiling Methods
What is the expected value calculation for option B?
30% x 1,000,000 + 50% x 0 = +500,000.
p.7
Investment Portfolio Design
What should a recommended investment portfolio be designed around?
The client's risk/return philosophy.
p.21
Risk Profiling Methods
How does a fact find contribute to effective financial planning?
It helps in understanding the client's risk tolerance and investment objectives.
p.12
Risk Profiling Methods
How do needs differ from wants in risk profiling?
Needs are essential (e.g., place to live) and not exposed to risky assets, while wants are desires (e.g., place in Monaco) that can involve risky assets.
p.21
Risk Profiling Methods
What is the purpose of a fact find in risk profiling?
To gather detailed information about a client's financial situation and preferences.
p.18
Asset Allocation Strategies
What are the main asset classes in investment?
Cash, Fixed Interest/Bonds, Shares/Equity, Property, Commodities, Derivatives, Currency, Ethical/Socially Responsible, Infrastructure, and Private Equity.
p.36
Cognitive Biases in Investing
What phrase summarizes the concept of herd behaviour?
Two heads are sometimes better than one.
p.32
Cognitive Biases in Investing
What is the role of System 2 in Kahneman's framework?
It allocates attention to effortful mental activities that demand it, including complex computations.
p.27
Socially Responsible Investing (SRI)
What is the purpose of the forum for sustainable and responsible investment?
To promote sustainable and responsible investing practices.
p.27
Socially Responsible Investing (SRI)
What are negative screens in ESG investing?
Criteria that exclude certain sectors or companies from investment.
p.1
Client Preferences in Financial Planning
What is the focus of Week 4 in FINA2209?
Client Preferences and Behavioural Finance.
p.27
Socially Responsible Investing (SRI)
What are positive screens in ESG investing?
Criteria that include companies or sectors based on specific ESG criteria.
p.15
Risk Profiling Methods
How does a fact find contribute to effective financial planning?
It helps advisors understand the client's risk tolerance and investment objectives.
p.9
Risk Profiling Methods
What should be considered when exposing financial capital to risk?
The risks of your human capital.
p.8
Financial Literacy and Decision Making
When might a referral be necessary in the financial planning process?
If specialized advice or services are needed.
p.33
Cognitive Biases in Investing
What happens when System 2 is activated in decision making?
You tend to make better decisions by burning more energy.
p.36
Cognitive Biases in Investing
What can result from herding behaviour during market downturns?
Frenzied selling leading to stock market crashes.
p.36
Cognitive Biases in Investing
How can herd behaviour affect individual decision-making?
It can lead individuals to conform to group actions rather than think critically.
p.21
Risk Profiling Methods
What type of information is typically collected in a fact find?
Personal details, financial assets, liabilities, income, expenses, and investment goals.
p.20
Asset Allocation Strategies
What is the asset mix for a conservative investor?
Cash 20%, Fixed interest 40%, Growth investments 40%.
p.28
Socially Responsible Investing (SRI)
How does negative screening impact investment portfolios?
It limits investment options but aligns portfolios with the investor's values.
p.20
Asset Allocation Strategies
What does a balanced investor's portfolio look like?
Cash 10%, Fixed interest 30%, Growth investments 60%.
p.3
Mid-Semester Exam Details
How are students assigned to streams A and B?
Stream A for odd last digit of student ID, Stream B for even last digit.
p.7
Risk Profiling Methods
What are the three types of clients based on risk profile?
Conservative, balanced, and aggressive.
p.39
Financial Literacy and Decision Making
Why is personal experience important in shaping financial literacy?
It influences how individuals deal with their money and make financial decisions.
p.12
Risk Profiling Methods
How are needs achieved in risk profiling?
Through non-risky assets.
p.24
Socially Responsible Investing (SRI)
What is a characteristic of the global marketplace for the Vice Fund's investments?
It is not limited to the U.S. economy.
p.37
Cognitive Biases in Investing
How might a person perceive $100 from winning a bet compared to $100 from salary?
They may be more likely to spend the $100 from winning a bet due to its perceived value.
p.36
Cognitive Biases in Investing
What is herd behaviour in investing?
The tendency of individuals to follow group behaviour without critical thinking.
p.4
Mid-Semester Exam Details
When is the group assignment due?
Friday, 27 September at 11:59pm (via LMS).
p.42
Hofstede's Dimensions of National Culture
How did Hofstede develop his cultural measures?
By surveying 117,000 IBM employees in 50 countries during the 1960s-1970s.
p.30
Behavioural Finance Concepts
What is the primary goal of investors in traditional finance?
To maximize return while minimizing risk.
p.38
Cognitive Biases in Investing
What is a solution to combat overconfidence in investing?
Check information sources and conduct objective analysis.
p.39
Financial Literacy and Decision Making
What factors can affect your financial literacy?
Personal experiences, education, socioeconomic status, and access to financial resources.
p.26
Socially Responsible Investing (SRI)
How does best-of screening differ from negative screening?
Best-of screening does not completely exclude companies with minor involvement in SRI-prohibited industries, unlike negative screening.
p.16
Risk Profiling Methods
What is the purpose of a fact find in risk profiling?
To gather detailed information about a client's financial situation and preferences.
p.26
Socially Responsible Investing (SRI)
What happens to companies under negative screening if they derive any profits from SRI-prohibited industries?
They are completely excluded.
p.42
Hofstede's Dimensions of National Culture
Can culture change over time?
Yes, due to factors like globalization, deflation in Japan, and political instability.
p.7
Risk Profiling Methods
What does the client's risk/return philosophy determine?
The amount of risk a client is prepared to accept to generate a certain rate of return.
p.15
Risk Profiling Methods
What is a key outcome of conducting a fact find?
Establishing a comprehensive profile that informs investment strategies.
p.41
Hofstede's Dimensions of National Culture
What does the dimension of Individualism in Hofstede's model focus on?
The placement of the self and the choice to invest in one's own financial future.
p.35
Cognitive Biases in Investing
Does past performance guarantee future returns for high-profile companies?
Not necessarily, as past performance is not a guarantee of future performance.
p.17
Risk Profiling Methods
What is a common method to measure risk tolerance?
Risk profile questionnaires.
p.30
Behavioural Finance Concepts
How does behavioral finance differ from traditional finance in its approach?
It provides a descriptively detailed model of investors.
p.26
Socially Responsible Investing (SRI)
What is negative screening in SRI?
Excludes companies based on their involvement in SRI-prohibited industries like alcohol, tobacco, gambling, and defense stocks.
p.10
Risk Profiling Methods
What is the first method of risk profiling?
Are you stock-like or bond-like?
p.10
Risk Profiling Methods
What does a stock-like profile indicate?
High income and high sensitivity to the economy.
p.43
Behavioural Finance Concepts
What should financial planners focus on when communicating with clients during volatile times?
The big picture story, emphasizing long-term perspectives along with facts.
p.10
Risk Profiling Methods
What does a bond-like profile indicate?
Low income and low sensitivity to the economy.
p.43
Cognitive Biases in Investing
How can understanding biases benefit financial planners?
It can help them develop personalized financial plans.
p.13
Risk Profiling Methods
What is Method 3 in risk profiling?
Risk profile questionnaire.
p.38
Cognitive Biases in Investing
What is overconfidence in investing?
Subjective confidence in one's own judgments outweighs objective accuracy.
p.17
Cognitive Biases in Investing
What is a disadvantage of self-reporting in risk profile questionnaires?
Biases may exist, such as overconfidence and optimism.
p.12
Risk Profiling Methods
What is the first step in the risk profiling process according to Bodie & Taqqu?
Identify your goals/objectives.
p.39
Financial Literacy and Decision Making
How does socioeconomic status influence financial literacy?
It can affect access to education and resources for learning about finance.
p.24
Socially Responsible Investing (SRI)
What types of industries does the Vice Fund invest in?
Tobacco, alcohol, gaming, and weapons/defense.
p.16
Risk Profiling Methods
What type of information is typically collected in a fact find?
Personal details, financial assets, liabilities, income, expenses, and investment goals.
p.26
Socially Responsible Investing (SRI)
What is a key characteristic of best-of screening?
It considers companies that derive a small portion of their earnings from SRI-prohibited industries.
p.8
Financial Literacy and Decision Making
What does FSG stand for in the context of financial planning?
Financial Services Guide.
p.37
Cognitive Biases in Investing
What is an example of a mental account that might be treated differently?
$100 from a tax refund may be viewed as 'extra' money and spent differently than $100 from salary.
p.41
Hofstede's Dimensions of National Culture
How do individuals with high Uncertainty Avoidance cope with financial decisions?
They establish rules, such as saving, to cope with uncertainty.
p.35
Cognitive Biases in Investing
What might indicate that a company's share price has already reflected its quality?
If the company has leveled out and achieved maximum growth.
p.30
Behavioural Finance Concepts
What does behavioral finance use to explain investor behavior?
Psychology and economics.
p.39
Financial Literacy and Decision Making
What is the nature of the decision to invest in financial literacy according to Lusardi et al. (2017)?
It is an endogenous human capital choice.
p.23
Socially Responsible Investing (SRI)
What is the research question regarding SRI investing?
Does SRI investing increase or decrease investor’s risk exposure and is this beneficial or detrimental to expected returns?
p.17
Risk Profiling Methods
What range of questions can risk profile questionnaires have?
Anywhere from less than 10 to more than 45 questions.
p.30
Behavioural Finance Concepts
How are investors viewed in neo-classical finance?
As rational and unbiased in evaluating and acting on information.
p.7
Risk Profiling Methods
What factors influence a client's risk acceptance?
Term of investment, future fund needs, previous investment experience, investment knowledge, objectives, and the portfolio's importance to total wealth.
p.17
Cognitive Biases in Investing
What type of biases can affect self-evaluation in risk profile questionnaires?
Biases such as anchoring.
p.15
Risk Profiling Methods
What type of information is typically collected in a fact find?
Personal details, financial assets, liabilities, income, expenses, and investment goals.
p.20
Asset Allocation Strategies
What is the asset mix for a very aggressive investor?
Cash 5%, Fixed interest 10%, Growth investments 85%.
p.37
Cognitive Biases in Investing
How does assigning different utility affect consumption decisions?
It influences how individuals decide to spend or save money.
p.31
Cognitive Biases in Investing
What can affect investors' decision making and preferences?
Biases, heuristics, and emotions.
p.24
Socially Responsible Investing (SRI)
What financial benefits do companies in the Vice Fund's industries typically have?
Potentially high profit margins and the ability to generate excess cash flow and pay and increase dividends.
p.29
Socially Responsible Investing (SRI)
What do some studies find about the returns of SRI funds?
Slightly superior returns compared to non-SRI funds.
p.14
Risk Profiling Methods
What is a key outcome of conducting a fact find?
Establishing a comprehensive profile that informs investment strategies.
p.5
Mid-Semester Exam Details
What is the total mark distribution for the Mid-Semester Exam?
60 (raw) marks in total: 40 MCQs and 1 written question.
p.33
Cognitive Biases in Investing
What is a heuristic?
A practical method that is not guaranteed to be optimal but is sufficient for the immediate goal; a mental shortcut.
p.23
Socially Responsible Investing (SRI)
What do the constraints of SRI investment suggest about portfolio diversification?
A fully diversified portfolio is not possible.
p.38
Cognitive Biases in Investing
How do overconfident investors typically behave?
They underestimate downside risk and hold undiversified portfolios.
p.22
Asset Allocation Strategies
What is Strategic Asset Allocation (SAA)?
Investment in asset classes over the long term, generally more than 10 years.
p.18
Asset Allocation Strategies
What types of bonds are included in fixed interest?
Corporate and Government bonds.
p.22
Asset Allocation Strategies
What does Tactical Asset Allocation (TAA) involve?
Re-weighting the portfolio over a shorter period, such as a month, away from SAA.
p.31
Cognitive Biases in Investing
What factors hinder optimal decision making in reality?
Biases, heuristics, and emotions.
p.6
Asset Allocation Strategies
What is asset allocation?
The process of dividing investments among different asset categories.
p.18
Asset Allocation Strategies
What are the two types of property investments?
Direct and Listed property.
p.18
Asset Allocation Strategies
What are the characteristics to consider in asset allocation?
Security/Risk, Liquidity, and Income/Growth.
p.16
Risk Profiling Methods
What is a key outcome of conducting a fact find?
Establishing a comprehensive profile that informs investment strategies.
p.46
Financial Literacy and Decision Making
Are the eight gambles ordered in descending order of attractiveness?
No, they are not necessarily ordered by expected value.
p.9
Risk Profiling Methods
Which type of employment is considered stock-like?
Professional investment manager.
p.40
Hofstede's Dimensions of National Culture
What is the relationship between Power distance and investment in financial literacy?
Negative relationship; less likely to invest in financial literacy.
p.13
Risk Profiling Methods
What is the purpose of a risk profile questionnaire?
To assess an individual's risk tolerance and investment preferences.
p.23
Socially Responsible Investing (SRI)
What are the potential impacts of SRI constraints on investment returns?
They could be either good or bad for potential investment return.
p.32
Cognitive Biases in Investing
How does System 2 interact with System 1?
System 2 monitors thought and action proposed by System 1.
p.8
Financial Literacy and Decision Making
What is the purpose of the follow-up interview in financial planning?
To gather additional information and clarify details.
p.43
Financial Literacy and Decision Making
What should financial planners avoid to prevent decision paralysis in clients?
Overwhelming clients with too many options; instead, present smaller choice sets.
p.24
Socially Responsible Investing (SRI)
Why do industries targeted by the Vice Fund tend to thrive?
They have steady demand regardless of economic conditions.
p.10
Risk Profiling Methods
Who generally has the capacity for more financial risk?
Individuals with a stock-like profile.
p.34
Cognitive Biases in Investing
How does availability bias affect investors' perceptions of the stock market?
Investors are more likely to fear a stock market crash if they experienced one recently.
p.41
Hofstede's Dimensions of National Culture
How does Masculinity affect female participation in financial decision-making?
It leads to lower female participation.
p.5
Mid-Semester Exam Details
What is the mode of the Mid-Semester Exam?
Face-to-face, closed book, paper-based, with formulae provided.
p.5
Mid-Semester Exam Details
What are the two parts of the Mid-Semester Exam?
Part A (case) and Part B (calculations).
p.11
Risk Profiling Methods
What are the two main questions addressed in risk profiling according to Bodie & Taqqu?
Which portfolio has the highest return for the given risk and which has the lowest risk for the given return.
p.13
Risk Profiling Methods
How does a risk profile questionnaire help in financial planning?
It helps tailor investment strategies to match the client's risk tolerance.
p.7
Risk Profiling Methods
What is a key component of client analysis?
Assessing the client’s risk profile.
p.28
Socially Responsible Investing (SRI)
What types of companies are typically excluded in negative screening?
Companies involved in tobacco, firearms, gambling, or fossil fuels.
p.42
Hofstede's Dimensions of National Culture
Is there homogeneity within countries?
There can be varying degrees of homogeneity within countries.
p.37
Cognitive Biases in Investing
What is mental accounting in the context of Prospect Theory?
It refers to how people place different values on the same amount of money based on subjective criteria.
p.9
Risk Profiling Methods
What is the first method of risk profiling?
Are you stock-like or bond-like?
p.6
Client Preferences in Financial Planning
What is a key consideration in understanding client preferences?
Assessing both risk tolerance and other personal factors.
p.37
Cognitive Biases in Investing
What are the two types of mental accounts in investments?
Income vs capital gain and loss vs gain.
p.16
Risk Profiling Methods
Why is it important to regularly update the fact find?
To reflect changes in the client's financial situation and goals.
p.41
Hofstede's Dimensions of National Culture
What does the Uncertainty Avoidance dimension measure?
The level of comfort in ambiguity and unstructured situations.
p.14
Risk Profiling Methods
Why is it important to regularly update the fact find?
To reflect changes in the client's financial situation and goals.
p.32
Cognitive Biases in Investing
How does System 1 operate according to Kahneman?
Automatically and quickly, with little or no effort and no sense of voluntary control.
p.13
Risk Profiling Methods
What type of information is typically gathered in a risk profile questionnaire?
Personal financial situation, investment goals, and risk tolerance.
p.42
Hofstede's Dimensions of National Culture
What type of data did Hofstede use to establish his cultural measures?
Survey data from IBM employees.
p.31
Behavioural Finance Concepts
What is the assumption about humans in an ideal world regarding decision making?
Humans are rational, can perform calculations accurately, have self-control, and are not ruled by emotions.
p.6
Client Preferences in Financial Planning
What are client preferences in financial planning related to?
Risk tolerance and investment goals.
p.45
Risk Profiling Methods
What is the calculation for option D?
(50% x 0) + 150% x -1,000,000 = -500,000.
p.47
Behavioural Finance Concepts
Who is more upset about the one-day loss of $10, Investor A or Investor B?
Investor B is more upset.
p.31
Financial Literacy and Decision Making
Who are typically able to achieve the best possible outcomes in investment?
Professional investment managers and institutional investors.
p.6
Behavioural Finance Concepts
What factors can affect investors' decision-making and preferences?
Behavioral finance concepts such as emotions, biases, and social influences.
p.31
Financial Literacy and Decision Making
Why is it important for financial planners to understand biases?
To help clients make better investment decisions.
p.27
Socially Responsible Investing (SRI)
What classification systems are used for screening in ESG investing?
SICs (Standard Industrial Classification), NAICs (North American Industry Classification System), GICs (Global Industry Classification Standard).
p.41
Hofstede's Dimensions of National Culture
What does the Masculinity dimension in Hofstede's model emphasize?
The value placed on masculine traits in society, focusing on men as breadwinners and decision-makers.
p.25
Client Preferences in Financial Planning
How does the average person feel about owning the Barrier Fund?
They don't feel good about owning it.
p.14
Risk Profiling Methods
How does a fact find contribute to effective financial planning?
It helps in understanding the client's risk tolerance and investment objectives.
p.26
Socially Responsible Investing (SRI)
What does positive screening involve?
Seeking out companies that enhance SRI practices, such as those with good labor relations or community involvement.
p.42
Hofstede's Dimensions of National Culture
What are some factors that bind or shape countries?
Economics, such as the EU and ASEAN.
p.18
Asset Allocation Strategies
What are the two categories of shares/equity?
Domestic and International shares.
p.22
Asset Allocation Strategies
What is meant by 'Sector Rotation' in investing?
Taking shorter-term bets on particular sectors within an asset class.
p.22
Investment Portfolio Design
What is the process of asset selection after deciding on SAA, TAA, and Sector Rotation?
Determining which particular company, bond, or equity to buy that is likely to outperform.
p.46
Financial Literacy and Decision Making
Which gamble has the highest potential payoff?
Gamble F with a potential payoff of $118,000.
p.44
Behavioural Finance Concepts
What does Prospect Theory suggest about decision-making under risk?
People tend to prefer certain outcomes over probabilistic ones when it comes to gains, and they are more risk-seeking when facing potential losses.
p.40
Hofstede's Dimensions of National Culture
What does Power distance in Hofstede's model describe?
How less powerful members of organizations accept and expect unequal power distribution.
p.41
Hofstede's Dimensions of National Culture
What is the relationship between Masculinity and financial literacy investment?
It can be negative (less likely to invest) or positive (if both genders are assertive/competitive).
p.29
Socially Responsible Investing (SRI)
What do other studies suggest about non-SRI funds?
A slight underperformance compared to SRI funds.
p.11
Risk Profiling Methods
What is the primary focus of financial theory in risk profiling?
Optimization based on maximizing return for a given risk.
p.11
Risk Profiling Methods
In the context of risk profiling, what is the comparison made between portfolios?
Comparing portfolios based on their return and risk levels.
p.33
Cognitive Biases in Investing
What are some examples of heuristics in everyday life?
Rule of thumb, stereotyping, intuitive judgment.
p.15
Risk Profiling Methods
What is the purpose of a fact find in risk profiling?
To gather detailed information about a client's financial situation and preferences.
p.12
Risk Profiling Methods
What type of investments are recommended to meet needs?
Federal Government Inflation Indexed Bonds, Term Deposits, or Annuities.
p.3
Mid-Semester Exam Details
In which weeks do Stream A students participate?
Weeks 2, 4, 6, 9, and 11.
p.24
Socially Responsible Investing (SRI)
What are some natural barriers to entry for the industries targeted by the Vice Fund?
Natural barriers to new competition.
p.16
Risk Profiling Methods
How does a fact find contribute to effective financial planning?
It helps advisors understand the client's risk tolerance and investment objectives.
p.18
Asset Allocation Strategies
What is the purpose of asset allocation?
To diversify investments across different asset classes.
p.40
Hofstede's Dimensions of National Culture
What does the dimension of Indulgence in Hofstede's model refer to?
The relatively free gratification of basic and natural desires of enjoying life and having fun.
p.15
Risk Profiling Methods
Why is it important to regularly update the fact find?
To reflect changes in the client's financial situation and goals.
p.25
Client Preferences in Financial Planning
What is the primary reason people hold onto the Barrier Fund despite not feeling good about it?
For diversification and returns.
p.9
Risk Profiling Methods
What does sensitivity to general market conditions indicate?
How employment correlates with the economy.
p.34
Cognitive Biases in Investing
What is a common reaction to news influenced by availability bias?
Overreacting to good or bad news.
p.34
Cognitive Biases in Investing
What does the 'law of small numbers' refer to in the context of availability bias?
Generalizing from small samples.
p.14
Risk Profiling Methods
What type of information is typically collected in a fact find?
Personal details, financial assets, liabilities, income, expenses, and investment goals.
p.34
Cognitive Biases in Investing
What is availability bias?
A cognitive bias where decisions are made based on the most recently observed information.
p.9
Risk Profiling Methods
What does flexibility in risk profiling refer to?
The ability to work extra hours, overtime, have a second job, or delay retirement.
p.40
Hofstede's Dimensions of National Culture
What does Long-term orientation in Hofstede's model signify?
It indicates a focus on the future and the importance of investing in financial literacy.
p.44
Behavioural Finance Concepts
In the second scenario, what are the two options presented?
C: Lose $500,000; D: 50% chance to lose nothing and 50% chance to lose $1,000,000.
p.44
Behavioural Finance Concepts
What is the common behavioral tendency when faced with a gain versus a loss according to Prospect Theory?
Individuals are generally risk-averse when it comes to gains and risk-seeking when it comes to losses.
p.34
Cognitive Biases in Investing
How does availability bias affect initial judgments?
People cling to initial judgments despite new, contradictory information.
p.41
Hofstede's Dimensions of National Culture
What is the relationship between Uncertainty Avoidance and financial literacy investment?
It can be positive (more likely to invest) or negative (less likely if uncomfortable with volatility).
p.8
Financial Literacy and Decision Making
What is the purpose of a Fact Finder in financial planning?
To collect detailed information about the client's financial situation.
p.40
Hofstede's Dimensions of National Culture
What is the relationship between Indulgence and investment in financial literacy?
Negative relationship; less likely to invest in financial literacy.
p.34
Cognitive Biases in Investing
What is an example of availability bias in investment choices?
Choosing investments that are heavily advertised.
p.44
Behavioural Finance Concepts
In the first scenario, what are the two options presented?
A: Receive $500,000; B: 50% chance to win $1,000,000 and 50% chance to win nothing.
p.29
Socially Responsible Investing (SRI)
What is a finding of some studies regarding SRI funds and non-SRI funds?
No statistical difference in returns.
p.29
Socially Responsible Investing (SRI)
What is screening intensity in the context of SRI funds?
The degree to which stocks are filtered out based on social concerns.
p.11
Risk Profiling Methods
What does the risk set-point method help determine?
Which portfolio has the highest return for a given risk and which has the lowest risk for a given return.
p.33
Cognitive Biases in Investing
What occurs when a complex task is repeated often enough?
System 1 acquires the response as a heuristic, decreasing the energy required for decision making.
p.41
Hofstede's Dimensions of National Culture
How does Individualism relate to financial literacy investment?
There is a positive relationship; individuals are more likely to invest in their financial literacy.
p.5
Mid-Semester Exam Details
How long is the Mid-Semester Exam?
2 hours (5:30pm – 7:30pm).
p.40
Hofstede's Dimensions of National Culture
What is the relationship between Long-term orientation and investment in financial literacy?
Positive relationship; more likely to invest in financial literacy.
p.34
Cognitive Biases in Investing
What is a potential outcome of availability bias?
Decisions based on incomplete or incorrect data.
p.14
Risk Profiling Methods
What is the purpose of a fact find in risk profiling?
To gather detailed information about a client's financial situation and preferences.
p.29
Socially Responsible Investing (SRI)
How is SRI performance typically measured?
Against a benchmark, which is calculated based on specific criteria.
p.33
Cognitive Biases in Investing
What are systematic errors in System 1 responsible for?
They can lead to biases in decision making.
