Suppose You Purchase 100 Shares of GM Stock at the Beginning

question 52

Multiple Choice

Suppose you purchase 100 shares of GM stock at the beginning of year 1 and purchase another 100 shares at the end of year 1. You sell all 200 shares at the end of year 2. Assume that the price of GM stock is $50 at the beginning of year 1, $55 at the end of year 1, and $65 at the end of year 2. Assume no dividends were paid on GM stock. Your dollar-weighted return on the stock will be __________ your time-weighted return on the stock.

• A) higher than
• B) the same as
• C) less than
• D) exactly proportional to
• E) More information is necessary to answer this question.

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Definitions:

Representativeness Heuristic

A cognitive shortcut that involves making judgments about the probability of an event under uncertainty, based on how much it resembles the typical case.

Theory of Mind

The ability to attribute mental states—beliefs, intents, desires, emotions, knowledge—to oneself and others, and to understand that others have beliefs, desires, and intentions that are different from one's own.

Transference

The process by which emotions, desires, or expectations are redirected and applied to a new object or person, often unconsciously and stemming from previous relationships.

Primacy Effect

The tendency to remember and give more weight to information that is encountered first in a series.