If Investors Are Too Slow to Update Their Beliefs About

question 40

Multiple Choice

If investors are too slow to update their beliefs about a stock's future performance when new evidence arises, they are exhibiting ________.

• A) representativeness bias
• B) framing error
• C) conservatism
• D) memory bias

Understand different types of perceptual errors and biases in organizational behavior.

Identify and explain how perceptual tendencies such as the halo effect, fundamental attribution error, stereotyping, and selective perception influence interpersonal interactions and decision making in the workplace.

Recognize the impact of personality traits on individual behavior in organizations.

Explain the role of projection in attributing personal characteristics to others within a professional context.

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Definitions:

Discount Rate

The discount rate applied in the process of discounted cash flow (DCF) analysis to calculate the current value of anticipated future cash flows.

Abnormal Earnings Approach

A valuation method that estimates a company's value based on the prediction of future abnormal earnings, defined as earnings in excess of a normal return on investment.

Free Cash Flow Approach

A valuation method focusing on the cash flows that a company can generate after accounting for capital expenditures required to maintain or expand the asset base.

Return On Assets

A financial ratio indicating the profitability of a company relative to its total assets, measuring how efficiently a company uses its assets to generate profit.