Question

1. Which of the following is a TRUE statement regarding trend lines?

A. Using closing prices, rather than intraday prices, increases the chance of a false breakout from a trend line

B. The flatter a trend line is, the sooner it will be broken.

C. The longer a trend line is in play, the less significant is a break in the trend line.

D. The more times a trend line has been touched by prices, the more significant is a break in the trend line.

2. An investor’s retirement portfolio is regarded as conservative while he takes part of her year-end bonus to buy bitcoin futures. He is likely to engage in

A. Representativeness

B. Forecast errors

C. Underconfidence

D. Mental accounting

3. Suppose the U.S. government decides to increase the budget deficit. Which of the following will most likely increase?

A. interest rates

B. government borrowing

C. unemployment

D. both A and B

E. none of the above

4. Which one of the following error or bias may explain why active investments management is more prevalent than passive investments management?

A. Forecasting errors

B. Overconfidence

C. Conservatism

D. Regret avoidance

E. Mental accounting

Answer 1

1. C. The longer a trend line is in play, the less significant is a break in the trend line as it symbolises that trend is very strong to highly absorb trades on the opposite sides so it can continue for a long period.

2.He is likely to engage in

D. Mental accounting as it involves the people to engage in irrational decision making and behave in counterproductive or detrimental ways as he is a conservative person investing into bitcoins as it reflects complete opposite of his style and approach.

3.It will increase the (B) government borrowing as it will increase the overall exposure into liabilities increasing the overall amount of debt and increasing deficits.

The increase in deficit will reduce unemployment and increase in interest rate will increase surplus not deficits

4. (d) Regret avoidance is the reason why active investment is preferred over passive investment as people are highly skeptical about misssing out on rallies and missing a trend so they donot want to regret missing.

It is also called FOMO as fear of missing out.

conservatism promotes passive investments while forecasting errors are prevelant as errors of active investment