A Study of Trading Behavior of Individual Investors at a Discount

question 6

Multiple Choice

A study of trading behavior of individual investors at a discount brokerage found that individual investors ________.

• A) trade very actively, despite the fact that their performance is actually worse because of trading costs
• B) trade very conservatively, despite the fact that their performance is actually worse because of trading costs
• C) trade very actively, partly because their performance is better than the professionals' due to low trading costs
• D) trade very conservatively, partly because their performance is better than the professionals' due to low trading costs

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Definitions:

Securitization

The process of converting an asset, often a loan or a group of loans, into a marketable security, typically for raising capital.

Liquidity

The ability to quickly convert assets into cash without significant loss in value, crucial for meeting short-term financial obligations.

Securitized Assets

Financial securities created by pooling various types of contractual debt such as mortgages, loans, and receivables, and selling their related cash flows to third-party investors.

Fully Diluted EPS

Earnings Per Share calculated assuming all convertible securities and warrants have been converted into common stock.