Bill and Shelly Are Friends

question 58

Multiple Choice

Bill and Shelly are friends.Bill invests in a portfolio of hot stocks that almost all his friends are invested in.Shelly invests in a portfolio that is totally different from all her friends.Both Bill and Shelly's stocks fall 15%.According to regret theory _________________________________________.

• A) Bill will have more regret over the loss than Shelly
• B) Shelly will have more regret over the loss than Bill
• C) Bill and Shelly will have equal regret over their losses
• D) Bill and Shelly's risk aversion will increase in the future

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Definitions:

Annual Rate

The interest rate for a period of one year, often used to compare the yearly interest between financial products without compounding.

Appreciated

Refers to an increase in the value of an asset over time.

Compounded Semiannually

Interest calculated twice per year, with the first period's interest being added to the principal before the second period's interest is calculated.

Strip Bond

A financial instrument obtained by separating the coupons from the principal of a bond, which then sells each part as a zero-coupon bond.