Changes in Economic Growth Are ____ Related to a Finance

question 37

Multiple Choice

Changes in economic growth are ____ related to a finance company's cash flows, and changes in the risk-free rate are ____ related to a finance company's cash flows.

• A)positively; negatively
• B)negatively; positively
• C)negatively; negatively
• D)positively; positively

---

Definitions:

Overconfidence Effect

A cognitive bias where an individual's subjective confidence in their judgments is greater than their objective accuracy.

Framing Effects

In prospect theory, changes in people’s decision making caused by new information that alters the context, or “frame of reference,” that they use to judge whether options are viewed as gains or losses relative to the status quo.

Mental Accounting

The tendency people have to create separate “mental boxes” (or “accounts”) in which they deal with particular financial transactions in isolation rather than dealing with them as part of an overall decision-making process that would consider how to best allocate their limited budgets across all possible options by using the utility-maximizing rule.

Overpriced Warranties

Service contracts sold at a price significantly higher than the expected cost of repairs, often criticized for their value relative to the benefits provided.