Prospect Theory Is Based on the Concept That Investors Are

question 35

Multiple Choice

Prospect theory is based on the concept that investors are:

• A)always risk-takers.
• B)risk-averse regarding losses.
• C)risk-taking regarding losses.
• D)always risk-averse.
• E)neutral regarding risk.

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Definitions:

Asset Allocation

The strategy of dividing investments across various asset categories, such as stocks, bonds, and cash, to optimize risk and return.

Treynor-Black Model

A portfolio optimization model that adjusts for risk and incorporates passive and active components.

Active Portfolio

An Active Portfolio is a collection of investments actively managed by fund managers or investors, regularly making buy, sell, and hold decisions in an attempt to outperform the benchmark index.

Abnormal Returns

Returns on a stock or portfolio that differ significantly from the expected return based on the market or certain benchmarks.