Peter Hesitates When It Comes to Picking an Individual Stock

question 20

Multiple Choice

Peter hesitates when it comes to picking an individual stock to purchase as he feels that he will later realize that a different stock would have been a better investment. Peter is suffering from:

• A)money illusion.
• B)frame dependence.
• C)regret aversion.
• D)risk-taking.
• E)mental accounting.

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Definitions:

Cap

An upper limit set on the amount of money that can be charged or paid in a certain situation, such as interest rates on a loan or fees.

Cross-Hedging

Cross-hedging involves using a hedge to manage risk by investing in a financial instrument that is not directly correlated to the underlying asset but has similar price movements.

Hedge Price

A price locked in through hedge contracts to reduce exposure to price fluctuations of commodities, currencies, or securities.

Futures Contract

A formal, uniform agreement for purchasing or selling an item at a set price at a future date, commonly utilized for trading commodities or financial instruments.