Module 2 Flashcards
Which of the following may be affected by client risk tolerance and risk perception
- Investment decisions
- Decisions concerning insurance coverage
- Decisions concerning types and amounts of mortgages
- Decisions concerning pension payoutAll of the above
All of the above
Under some circumstances, financial planners attempt to substitute clients negative beliefs that lead to poor financial decisions with positive attitudes that should result in better financial results. This represents what approach to financial counseling? A. Economics and resource approach B. Strategic management approach C. Classical economic approach D. Cognitive behavioral approach
D cognitive behavioral approach
The behavioral finance concept that asserts that people are given a means of reference, a set of beliefs or values, which they used to interpret facts or conditions as they make decisions, is known as? A. Anchoring B. Confirmation bias C. Framing bias D. Mental accounting
C framing bias
The tendency of individuals to take a course of action based on the consequences of prior events is known as A. Outcome bias B. Confirmation bias C. Overconfidence D. Anchoring
A outcome bias
define Endowment bias
Occurs when an asset is felt to be special and more valuable simply because it is already owned
List the steps in the correct order according to the financial planning communication model
- Client: response message included and sent
- Financial planner: messaging coded and sent
- Client: message received, decoded, and interpreted
- Financial planner: message received, decoded and interpreted
Two, three, one, and four
which of these statements regarding the process of communication is correct?
- Effect refers to sending a message
- Form refers to the method of communication
Two only
which of these statements regarding people who have a kinesthetic learning style is correct?
- They retain information by hearing or speaking
- They express themselves through facial expressions
- They tend to respond to graphs, charts, pictures, and reading information
- They prefer their goals and objectives to be presented as a to do list in bullet form
four only
A client assessment of the magnitude of the risk being traded off as known as
A. Risk capacity
B. Emotional intelligence
C. Risk tolerance
D. Risk perception
The following statements regarding behavioral finance concepts are correct except:
A. A planner should recognize his own attitudes, values, biases, and behaviors and be certain they do not impact recommendations made to clients
B. Beliefs are a type of attitude because they reveal a person‘s understanding of some aspects of life
C. A client profiles largely influenced by contacts, which includes past history or any conditions that presently exist
D. A client contacts represents what he believes to be right
D, A client contexts represents what he believes to be right
Which of the following statements regarding the forms of representativeness is correct?
- Sample size neglect makes the initial classification based on an overly small and potentially unrealistic sample of data
- Base rate neglect occurs when a stock is classified as a growth stock even though new information asserts this may no longer be the case
Both one and two
The client is presented with two equal investment opportunities. The first stated in terms of potential gains, and the second is stated in terms of potential losses. Without having any additional information, the client selects the first investment. The clients decision reflects
Loss aversion theory
which of the following statements regarding the economic and resurge approach to financial counseling is correct
- The client is assumed to be rational
- The focuses on obtaining and analyzing quantitative data, such as cash flow, assets, and liabilities
- Individuals would change to the most favor behavior if given the appropriate counseling
strategic management approach
Uses strength weaknesses opportunities and threats analysis and is completed early on and a planning process. Planner assumes role of consultant
Which of the following statements regarding emotional biases are correct?
- They are more difficult to overcome than cognitive biases
- They are the result of feelings, intuition, or impulse and are not related to conscious thought
Both one and two
General categories of communication include
Intrapersonal, interpersonal, group, and mass
which of the following statements regarding behavioral finances correct?
- Behavioral finance attempts to understand why people often act irrationally when making financial decisions
- Concept use in behavioral finance include herding and confirmation bias
Both one and two
Which of these statements regarding the theory of communication is correct?
- Language is composed of nothing more than a series of signs
- Writing best models communications as a series of signs
Both one and two
Mental accounting
Involves a tendency of individuals to mentally put their money into separate accounts or money jars based on the purpose of these accounts
Which of the following statements regarding the classical economics approach to financial counseling are correct?
- A choice among alternatives is based on objectively defined cost benefit and risk returns
- It is based on the belief that increasing financial resources or reducing financial expenditures results in improved financial results
Both one and two
What is defined as a tendency to follow the actions of a larger group of people when making financial decisions whether those actions are rational or not?
Herding
