The Tendency of Investors to Take Greater Risks After a Large

question 34

Multiple Choice

The tendency of investors to take greater risks after a large loss and fewer risks after a large gain can be attributed to

• A)overconfidence.
• B)the "house money" effect.
• C)loss aversion.
• D)representativeness.

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Definitions:

Credit Risk

The risk that the bond will not make all of its promised payments; default risk.

Swap Market

A market in which individuals, businesses, and institutions exchange financial instruments, like interest rates or currencies.

Fixed Rate

An interest rate that remains constant over the life of a loan or investment.

Portfolio's Beta

A measurement of the volatility or systematic risk of a portfolio in comparison to the market as a whole.