Rafael, Who Has Committed Large Amounts of Time and Money

question 31

Multiple Choice

Rafael, who has committed large amounts of time and money to his house-painting business, continues to keep his business running despite incurring heavy losses. What form of cognitive bias is Rafael demonstrating?

• A)escalating commitment
• B)illusion of control
• C)confirmation bias
• D)representativeness bias
• E)dialectical inquiry

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Definitions:

Straight-Line Method

A method of allocating an asset's cost evenly throughout its useful life.

Redemption

The act of repaying or buying back something, such as redeeming a bond at maturity or a company repurchasing its own shares.

Semiannual Interest

Interest that is calculated and paid twice a year on a loan or investment.

Premium Amortization

Premium amortization is the gradual reduction of the premium paid above the par value of a bond, allocated over the bond's life.