INVESTMENTS (LL)
11th Edition
ISBN: 9781260150407
Author: Bodie
Publisher: MCG
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Chapter 12, Problem 4CP
Summary Introduction
To determine:
The principle of behavioural finance that stands consistent with the statement" The investor is happy with return ascertained from the Petrie stock in last 2 years and he is sure that this stock will provide extraordinary return in the near future.
Introduction:
Overconfidence refers to the behavioral bias which stand dangerous, especially in the financial markets. It was assumed that overconfidence does not impact the investor, however the more the investor is overconfidence the more it will impact. In other words, it depicts underestimation of risk, overestimation of knowledge and exaggerating the ability of controlling the events.
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Anita is looking forward to her retirement which is only five years away. Her retirement account did not accumulate as much as she had hoped. She decided to make some changes in her financial planning. Based on this information, which of the following statements is correct?
a. At this stage, Anita should rebalance her funds in a way that maximizes her investment in growth stocks to accelerate her fund balance.
b. At this stage, Anita should focus on preserving what she has accumulated and minimize all debt obligations.
c. At this stage, Anita should plan on extending her career, going on a diet, moving in with her children, and eliminating all recreational activities.
d. At this stage, Anita should borrow as much as possible and plan on making the payments with her social security earnings.
Anita is looking forward to her retirement which is only five years away. Her retirement account did
not accumulate as much as she had hoped. She decided to make some changes in her financial
planning. Based on this information, which of the following statements is correct?
At this stage, Anita should rebalance her funds in a way that maximizes her investment in growth stocks to
accelerate her fund balance.
At this stage, Anita should focus on preserving what she has accumulated and minimize all debt obligations.
At this stage, Anita should borrow as much as possible and plan on making the payments with her social
security earnings.
At this stage, Anita should plan on extending her career, going on a diet, moving in with her children, and
eliminating all recreational activities.
Allen Young has always been proud of his personal investment strategies and has done very well over the past several years. He invests primarily in the stock market. Over the past several months, how ever, Allen has become very concerned about the stock market as a good investment. In some cases it would have been better for Allen to have his money in a bank than in the market. During the next year, Allen must decide whether to invest $ 10,000 in the stock market or in a certificate of deposit (CD) at an interest rate of 9%. If the market is good, Allen believes that he could get a 14% return on his money. With a fair market, he expects to get an 8% return. If the market is bad, he will most likely get no return at all - in other words, the return would be 0%. Allen estimates that the probability of a good market is 0.4, the probability of a fair market is 0.4, and the probability of a bad market is 0.2, and he wishes to maximize his long - run average return. (a) Develop a decision…
Chapter 12 Solutions
INVESTMENTS (LL)
Ch. 12 - Prob. 1PSCh. 12 - Prob. 2PSCh. 12 - Prob. 3PSCh. 12 - Prob. 4PSCh. 12 - Prob. 5PSCh. 12 - Prob. 6PSCh. 12 - Prob. 7PSCh. 12 - Prob. 8PSCh. 12 - Prob. 9PSCh. 12 - Prob. 10PS
Ch. 12 - Prob. 11PSCh. 12 - Prob. 12PSCh. 12 - Prob. 13PSCh. 12 - Prob. 14PSCh. 12 - Prob. 15PSCh. 12 - Prob. 16PSCh. 12 - Prob. 17PSCh. 12 - Prob. 18PSCh. 12 - Prob. 19PSCh. 12 - Prob. 20PSCh. 12 - Prob. 21PSCh. 12 - Prob. 22PSCh. 12 - Prob. 23PSCh. 12 - Prob. 24PSCh. 12 - Prob. 25PSCh. 12 - Prob. 1CPCh. 12 - Prob. 2CPCh. 12 - Prob. 3CPCh. 12 - Prob. 4CPCh. 12 - Prob. 5CP
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