1. Advertising is expensive. A company will only invest in an advertising campaign if management believes increased revenue from the advertising campaign will more than offset the expenses. To help determine how to advertise, management spends a great deal of time trying to understand consumer behavior. Consumers know that color ads cost more to print. Accordingly, empirical studies show that color ads make consumers believe a product is of higher quality and that consumers are willing to pay a premium for the product. On the other hand, black and white ads make consumers believe the product is of inferior quality and the company often cannot recoup the advertising dollars spent. In behavioral finance, by equating higher advertising cost to higher product quality, the consumers are exhibiting which of the following:
A. Overconfidence bias
B. Prospect theory
C. Representativeness bias
D. Regret bias
E. Confirmation bias
2. Clark Kent is considering an investment opprtunity that will pay him? $100,000 each year forever? (in perpetuity). Hs discounting rate is? 13%. If this investment opprtunity costs him? $500,000 today should he go ahead and make the investment.
A. Insufficient information
B. Yes
C. Cannot Determine
D. No
3. Which of the following is the mission of the Securities & Exchange Commission?
To protect investors and maintain the integrity of the securities markets.
To maintain good order on the country's stock exchanges through the use of specialists.
To regulate mutual funds and hedge funds.
To seek out and evaluate all disclosures of public U.S. corporations for correctness.