behavioral finance final exam.

Behavioral Finance- FIN 645 Final Exam; Summer 2015; Dr. Rassoul Yazdipour

Caution: Please note this is an individual exam only- and not a team or group effort. All relevant UMUC

policies- and especially those related to Academic Honesty and Personal Conduct- will be in full force.

So please keep these in mind at all times as I always take the extra steps, including “Comparative

Exam/File Analysis” and use of any needed software available, to make sure that the work submitted is the

student’s own original work and no one else’s. The only goal is to protect and reward hard work done by

a super super majority of my students and prevent grade dilution.

INSTRUCTIONS- Please follow ALL the instructions given here and in the syllabus; otherwise you

may lose points ranging from just a few percentage points to 100% of the grade for this test:

1. Answer all the following three (3) questions, worth 300 points or 30% of your total class grade. Score for each question is shown in the parentheses at the end of each question. For qualitative questions,

maximum allowed pages are also given at the end of each question.

2. At submission time, you can ONLY submit a maximum of TWO (2) files for the entire exam; one Excel file to be used ONLY for quantitative questions that naturally require calculations, and

one Word file for ALL written/non-quantitative/qualitative responses. Warning: If you submit

more than two (2) files as stated, I will grade the most recent two files and ignore any extra file(s)

submitted. So please be careful.

3. No emailed exam will be accepted or graded. The 24-hour Tech Support is to be called for all your tech problems, if any at all.

4. As a general rule in GRADING your responses, I am very much interested in seeing the extent to which you have utilized the assigned and posted class materials and textbooks in your responses.

This means using materials from non-class sources like the Internet or outside content will receive

distant secondary consideration in grading your work.

5. You will have until 11:59 PM EST on Tuesday, 7/4, to submit your answers via your Final Exam folder. This gives ample time for the test.

6. Finally, given questions regarding the exam bring even more questions; and this may not only confuse some students but also create un-needed anxieties for some classmates, I have decided to

give you the test “as is”. This means, you should trust the info/data given for each question and then

come up with the best possible answers for the test. In very rare cases when there are general problems

with some questions, like typos, etc, I can always account for them- and if legitimate, give any due

credit to all at the time of grading.

I wish all of you the very best!

Dr. Yazdipour.

QUESTION 1.

In your basic finance/investment class you learned about risk according to the traditional finance theory;

which is based on market efficiency. In this class however you learned new concepts, models, and theories

about risk that were not taught in your previous finance class or classes. Shefrin and Ackert & Deaves, as well

as the class discussions and assignments, did a fine job in helping you to learn about risk from the behavioral

finance perspective. With this brief background, below is a three-part question for this segment of the exam.

Part I. Briefly summarize your understanding of risk according to the traditional finance theory as alluded to

in above. You may state any theory, formula, or definition in a brief manner using the standard finance

terminology. Here I just want to see what you know about this topic so it is important to display your

knowledge on the issue.

Part II. Explain in details what else you learned about risk in this class that was not covered in part I in

above. Make sure you stay on the topic which is the behavioral aspects of risk. This part is the main part of

the question and tests your knowledge of risk at this point in this class.

Part III. Based on parts I and II in above, clearly explain how your cumulative knowledge of risk learned up

to this point can help you to become a better decision maker; that is:

a. A better investment professional, and b. A better corporate decision maker/manager.

Note: Points will be taken off for responses that lack organization and order.

Maximum pages: 4 pages, double-space, size 12

Total Grade: 100

QUESTION 2.

This question tests your understanding of Retirement Saving/Planning in light of your learned

knowledge of behavioral finance and related discussions in the present course. Answer the

following questions in the order given and in needed details.

A. What are the specific risks associated with retirement saving and planning? In your responses make sure you look at risk from both a traditional finance as well as a

behavioral finance perspective.

B. What can you, as a future retiree, do about the above risks that you just listed? In other words, and as you plan and save for your retirement, how can you manage and mitigate

the above-listed risks? In your answers make sure to include and explain any available

model(s) that behavioral finance academics and professionals have offered.

C. How much control do you think you have over your own retirement savings? In other words, after all said and done in above, do you really think you can reasonably count on

your retirement savings at the time of your retirement? If yes, explain how and why. If

no, explain your thoughts and the concerns that you may have regarding the issue.

Be organized in responding. This simply means present your responses in an orderly and

organized fashion. In other words, you do not want to jump around in your responses. Points

will be taken off for not being organized in responding to the questions asked.

Maximum pages allowed: four pages, double-space, size 12; reference page(s) does not

count in the maximum page limit.

Total Grade: 100

QUESTION 3.

By expanding upon Mary Meeker’s work on eBay valuation as discussed in chapter two of your textbook,

Shefrin discusses in details how heuristics, framing, and other psychological factors can affect the way

managers and analysts value companies. He also discusses how calculation of Free Cash Flows could be

manipulated and possibly misused when it comes to arriving at a price for a given stock.

In this question, I want to test your understanding of what exactly Shefrin tries to accomplish in

chapter two through both qualitative and quantitative arguments. To do that, consider that you have been

invited to present a workshop before a group of analysts and managers; and the topic of your discussion is

similar to the discussions presented in chapter two of Shefrin on valuation which involves both concepts and

numbers. I want you to consider and expand upon both the qualitative and quantitative discussions that were

used in that chapter. In this question and based on what was stated in above, your job then is to prepare and

submit to me the needed lecture notes along with any related calculations that you would use in your

presentation. Your submission should then contain a fair amount of conceptual/qualitative materials along

with some supporting quantitative analysis and/or examples. For such a purpose, feel free to use and build

upon the tables and numerical examples that are discussed in chapter 2. Your quantitative analysis would

certainly help the attendees to better understand the points that you want to make in your presentation. For the

conceptual portion of your submission use one (1) Word file and for the quantitative portion use one (1) Excel

file.

Note: Points will be taken off for responses that lack organization and order.

Maximum pages: 4 pages, double-space, size 12 for your Word file. There is no page limit for using tables or

Excel sheets/tabs

Total Grade: 100 (50 points for the qualitative portion in Word and 50 points for the quantitative

portion in Excel)

End of the Final Exam!