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NPTEL Assign 1 Jan23 Behavioral and Personal Finance

This document contains a 10 question multiple choice quiz on behavioral and personal finance concepts. The questions cover topics like overconfidence bias, utility functions of risk-averse vs risk-seeking individuals, assumptions of utility theory, forms of market efficiency, and how working capital decisions affect daily business operations. The questions are followed by short explanations of the correct answers.

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Nitin Mehta - 18-BEC-030
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83 views5 pages

NPTEL Assign 1 Jan23 Behavioral and Personal Finance

This document contains a 10 question multiple choice quiz on behavioral and personal finance concepts. The questions cover topics like overconfidence bias, utility functions of risk-averse vs risk-seeking individuals, assumptions of utility theory, forms of market efficiency, and how working capital decisions affect daily business operations. The questions are followed by short explanations of the correct answers.

Uploaded by

Nitin Mehta - 18-BEC-030
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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NPTEL Online Certification Courses

Indian Institute of Technology Kharagpur

Behavioral and Personal Finance


Assignment- 1
TYPE OF QUESTION: MCQ
Number of questions: 10 Total Marks: 10 X 2 = 20
_____________________________________________________________________________
QUESTION 1:

Rohit is an investor and he often overestimates how good and accurate his predictions are. So,
as part of managing his portfolio, he tries to keep the stocks that are losing money and sells the
ones that are making money. Which of the following can be said about Rohit's actions?

a. Herding
b. Forecasting errors
c. Overconfidence
d. Conservatism

Correct Answer: c

Solution: Rohit exhibits overconfidence in managing his portfolio as he often overestimates how
good and accurate his predictions are.

.
_____________________________________________________________________________
QUESTION 2:

Debentures of a company are ______________________.

a. Portfolio of the company


b. Securitized ownership of the company
c. Securitized borrowings of the company
d. None of the above

Correct Answer: c

Solution: Debenture is a debt instrument. It is securitized borrowings of the company.

______________________________________________________________________________
NPTEL Online Certification Courses
Indian Institute of Technology Kharagpur

QUESTION 3:
The utility functions of a risk-averse individual and a risk-seeking individual correspond to the
______________ and ____________ shapes, respectively.

a. Concave, Straight line


b. Convex, Concave
c. Concave, Convex
d. Straight line, Convex
Correct Answer: c

Solution: The utility functions of a risk-averse individual and a risk-seeking individual correspond
to the concave and convex shapes, respectively.

____________________________________________________________________________

QUESTION 4:

When people are slow to change their minds and don't react enough to new information, they
are said to be affected by the ______________________ bias or error.

a. Conservatism bias
b. Anchoring bias
c. Overconfidence
d. Forecasting errors

Correct Answer: a

Solution: When people are slow to change their minds and don't react enough to new
information, they are said to be affected by the Conservatism bias.

____________________________________________________________________________
NPTEL Online Certification Courses
Indian Institute of Technology Kharagpur

QUESTION 5:

In accordance with the Utility function, the expected utility of economic agents for the riskier
option will be

a. Higher
b. Lower
c. Average
d. None of the above

Correct Answer: a

Solution: According to the Utility function, the expected utility of economic agents for the higher
risky choice will be higher. The risk seeker will seek a risk premium to assume greater risk.
__________________________________________________________________________

QUESTION 6:

People have rational preferences for all potential outcomes or states of nature. This assumption
is the basis for the ______________________.

a. Behavioral economic theory


b. Utility theory
c. Asset pricing theory
d. Prospect theory

Correct Answer: b

Solution People have rational preferences across possible outcomes or states of nature. This
assumption is the foundation of Utility theory.

_____________________________________________________________________________
NPTEL Online Certification Courses
Indian Institute of Technology Kharagpur

QUESTION 7:

A utility function can be described mathematically with the help of a ____________________.

a. Logarithmic function
b. Ordinary Least Square
c. Generalized Least Square
d. Vector Autoregression.
Correct Answer: a

Solution: Mathematically, a utility function can be explained with the help of a Logarithmic
function.

QUESTION 8:
Which of the following assumptions implies Bounded rationality?

a. Individual economic agents exhibit rationality


b. During the decision-making process, the information processing capabilities of
individual economic agents are limited
c. Individual economic agents select options rationally
d. None of the above

Correct Answer: b

Solution: Bounded rationality implies that Individual economic agents suffer from limited
information processing capabilities while undertaking a decision.

______________________________________________________________________________
NPTEL Online Certification Courses
Indian Institute of Technology Kharagpur

QUESTION 9:
Stock prices will react instantly to both previous information and all other publicly available
information, such as annual earnings announcements, stock splits, interim dividends, and so on. This
indicates a ........................ of market efficiency.

a. Strong form
b. Semi-Strong form
c. Weak form
d. None of the above

Correct Answer: b

Solution:
Stock prices will react instantly to both previous information and all other publicly available
information, such as annual earnings announcements, stock splits, interim dividends, and so on.
This indicates a Semi-Strong form of market efficiency.
______________________________________________________________________________

QUESTION 10:

Which of the following business decisions affects how the business runs daily?

a. Working capital decision


b. Capital structure decision
c. Capital budgeting decision
d. Dividend decision

Correct Answer: a

Solution: The working capital decision depends on how the business runs daily.

______________________________________________________________________________

************END**********

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