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Reading Behavioral Finance and Investment Processes FinQuiz.com FinQuiz.com CFA Level III Item-set - Solution Study Session June 2018 Copyright © 2010-2018 FinQuiz.com All rights reserved Copying, reproduction or redistribution of this material is strictly prohibited info@finquiz.com FinQuiz.com © 2018 - All rights reserved Reading Behavioral Finance and Investment Processes FinQuiz.com FinQuiz Level III 2018 – Item-sets Solution Reading 7: Behavioral Finance and Investment Processes Question ID: 17036 Correct Answer: B Client B is an Independent Individualist since he enjoys investing and is subject to conservatism and availability biases Independent Individualists are most likely to be contrarian Question ID: 17037 Correct Answer: C Client C is an Active Accumulator as is evident from his preference for high risk investments, quick decision making and lack of self-control The best approach to dealing with such clients is to take control of the situation Advisors should prove to them that they have the ability to make objective, wise and long-term decisions Question ID: 17038 Correct Answer: C Client A is a friendly follower He wants to be in the latest, most popular investments without regard to current market conditions and is subject to framing and availability biases He is most likely overestimating his risk tolerance For Friendly Followers, regret aversion is an emotional bias with a significant impact Question ID: 17039 Correct Answer: C Client D places a great deal of emphasis on financial security and has gained most of his wealth passively (through inheritance) He also has a low risk tolerance Hence, the client is most likely a passive preserver Passive preservers would not respond well to educational discussions on portfolio diversification and other quantitative aspects of investment decision making Since most of their biases are emotional, they respond better to ‘big picture’ advice Question ID: 17040 Correct Answer: B Client E is most likely an Independent Individualist since he follows a growth investment style and has medium risk tolerance In addition, he is subject primarily to cognitive errors Independent Individualists are most vulnerable to overconfidence and self-attribution biases Question ID: 17041 Correct Answer: A Price’s approach is incorrect Grande’s IPS was developed seven years ago, and since then, Grande’s circumstances have most likely changed For e.g he is older now and may not have the same risk and return objectives as he had seven years ago Hence, Grande’s BIT classification from his previous IPS may not be an appropriate guide to use for dealing with him now FinQuiz.com © 2018 - All rights reserved .. .Reading Behavioral Finance and Investment Processes FinQuiz. com FinQuiz Level III 20 18 – Item- sets Solution Reading 7: Behavioral Finance and Investment Processes Question ID: 17 036 Correct... availability biases Independent Individualists are most likely to be contrarian Question ID: 17 0 37 Correct Answer: C Client C is an Active Accumulator as is evident from his preference for high... them that they have the ability to make objective, wise and long-term decisions Question ID: 17 038 Correct Answer: C Client A is a friendly follower He wants to be in the latest, most popular
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