In What Way Does Prospect Theory Differ from the Standard

question 11

Multiple Choice

In what way does prospect theory differ from the standard theory of expected utility?

• A)With prospect theory,preferences depend only on final wealth levels.
• B)With prospect theory,preferences vary with initial (reference) wealth levels.
• C)With prospect theory,individuals are risk loving over small losses.
• D)With prospect theory,risk aversion does not play a role.

Define and explain interest rate risk premium, liquidity premium, and protective covenants.

Analyze the relationship between the coupon rate, YTM, and bond prices for various types of bonds (premium, discount, par value).

Understand the concept and implications of the term structure of interest rates.

Explain the implications of different interest rate environments on bond prices and yields.