Case29

Posted on February 20, 2017

case study

 
1. Lou Donaldson and his neighbor, both U.S. residents, are meeting at a local restaurant. During lunch, they discuss investing and Donaldson, age 45, makes the following statements:
 
a. “My father was a buy-and-hold investor but I am an active trader. To keep trading costs low, I use an online brokerage firm. I have done well investing in technology companies because I know the industry.”
 

b. “I am holding a large position in Omega Corporation with a large unrealized loss. Omega’s stock price declined last year when reported sales and earnings failed to meet analyst expectations. I took advantage of the decline to increase my position. Omega sales growth has continued to slow over the last year, but I believe the stock is still a good investment.”
 

c. “I read a newspaper article reporting that commercial property values in the city have increased 14 percent annually since 2000. According to the article, the average commercial property in the city sold for $1.5 million last year. This makes me very happy because I just purchased a piece of commercial property last month. There is no doubt that it will be a good investment.”
 
Select the behavioral finance concept best exhibited in each of Donaldson’s three statements. Explain how the behavioral finance concept you selected affects Donaldson’s investment decision making. And no behavioral finance concept can be used more than once.
 

How it Works

How It works ?

Step 1:- Click on Submit your Assignment here or shown in left side corner of every page and fill the quotation form with all the details. In the comment section, please mention product code mentioned in end of every Q&A Page. You can also send us your details through our email id support@assignmentconsultancy.com with product code in the email body. Product code is essential to locate your questions so please mentioned that in your email or submit your quotes form comment section.
 
Step 2:- While filling submit your quotes form please fill all details like deadline date, expected budget, topic , your comments in addition to product code . The date is asked to provide deadline.
 
Step 3:- Once we received your assignments through submit your quotes form or email, we will review the Questions and notify our price through our email id. Kindly ensure that our email id assignmentconsultancy.help@gmail.com and support@assignmentconcultancy.com must not go into your spam folders. We request you to provide your expected budget as it will help us in negotiating with our experts.
 
Step 4:- Once you agreed with our price, kindly pay by clicking on Pay Now and please ensure that while entering your credit card details for making payment, it must be done correctly and address should be your credit card billing address. You can also request for invoice to our live chat representatives.
 
Step 5:- Once we received the payment we will notify through our email and will deliver the Q&A solution through mail as per agreed upon deadline.
 
Step 6:-You can also call us in our phone no. as given in the top of the home page or chat with our customer service representatives by clicking on chat now given in the bottom right corner.
 

Features

Features for Assignment Help

Zero Plagiarism
We believe in providing no plagiarism work to the students. All are our works are unique and we provide Free Plagiarism report too on requests.

 

Relevancy
We believe in providing perfect, relevant and 100% accurate solutions to the student as per questions asked. All our experts are perfect in providing that so as to give unique experience to the students.

 

Three Stage Quality Check
We are the only service providers boasting of providing original, relevant and accurate solutions. Our three stage quality process help students to get perfect solutions.

 

 

100% Confidential
All our works are kept as confidential as we respect the integrity and privacy of our clients.

Related Services


 
2. Joyce Siosan is a 42-year-old lawyer at a prestigious law firm. She is meeting with Joel Murray, a financial advisor, to organize her finances. During the interview process, Siosan tells Murray that she has been purchasing short-term, out-of-the-money call and put options. Siosan acknowledges these options have a low probability of paying off and that the expected return from her options trading is negative. However, she states that she is attracted by the possibility of high returns when she can exercise in-the-money options. At the same time, Murray notes that Siosan has been purchasing low-payoff earthquake insurance on her home, which is located in a low-probability earthquake zone.
 
a. Describe Siosan’s utility function. Contrast her utility function with that assumed in traditional finance theory.
 
Siosan purchases a new luxury vehicle every two years and takes expensive annual vacations. She has a reputation for paying the entire bill at the upscale restaurants where she dines regularly with her friends. Siosan’s annual consumption, options trading, and housing expenditures are paid for entirely out of her salary income and half of her modest annual bonus. She deposits the other half of her annual bonus and any other non-salary sources of income into her relatively small retirement account, which excludes her options trading. Siosan is reluctant to incur debt and has only a small mortgage on her home, despite the fact that she will soon be made a partner in her firm and will have much higher earnings. Murray believes that Siosan exhibits behavioral biases that interfere with an optimal savings and consumption allocation. In particular, he thinks that she is not saving enough for retirement.
 
b. Discuss how Siosan’s behavior reflects the bias of:
i. Self-control
ii. Mental accounting
 
Explain how a rational economic individual in traditional finance would behave differently with respect to each bias.
 

Siosan’s retirement portfolio is allocated 50% to money-market securities and 50% to a few speculative stocks that she read about in an investment newsletter. Murray observes that Siosan’s retirement portfolio allocation is consistent with Behavioral Portfolio Theory and not consistent with a mean–variance framework.
 
c. Determine whether Murray’s observation about Siosan’s retirement portfolio allocation is correct. Justify your response with two reasons.

 

Product Code :Case29

To get answer for this question, kindly click here (Note: Don’t forget to write the product code in comment section)

You can also email us at assignmentconsultancy.help@gmail.com but please mentioned product code in the mail body while sending emails.You can browse more questions to get answer in our Q&A sections here.

Summary