According to Prospect Theory

question 73

Multiple Choice

According to prospect theory

• A) Investors have a propensity to sell winners too soon and hang on to losers too long.
• B) Investors ignore bad news and overemphasize good news.
• C) Investors tend to follow the herd.
• D) Investors put more money into a failure rather than into a success.
• E) Investors are all noise traders.

---

Definitions:

Sharpe Ratio

A measure used to evaluate the risk-adjusted return of an investment portfolio, calculated by subtracting the risk-free rate of return from the portfolio's return and dividing by the portfolio's standard deviation of returns.

Risk-free Rate

The theoretical rate of return of an investment with zero risk, often represented by Treasury bills.

Borrowing Rate

The interest rate or cost that a borrower pays to secure funds from a lender.

Expected Value

The calculated average result of all possible outcomes of a particular investment or decision, considering both the probability and the impact of each outcome.