1. Based on the figure about expected return and past return we cover in class, what kind of correlation is there between the past/ current returns and expectations of returns for

the next year?

A. Inverse Correlation

B. No Correlation

C. Low Correlation

D. High Correlation

2. Disposition effect exists because

A. because we have one mental account for gains and losses, not separate mental accounts.

B. investors likes to realize losses but are reluctant to realize gains.

C. investors likes to realize gains but are reluctant to realize losses.

D. investors want to sell the stock

3.

Given
I. long term reversal
II. momentum
III. tight probability
IV. high p/e firms earn low returns
Investor overextrapolation explains which of the following?

A. III only

B. I only

C. I, II, IV

D. II, III

4. If earnings have been high in the past what will happen when earnings start to slow or are less than the expectation?

A. stocks will consolidate

B. stocks will increase

C. stocks will decrease

D. stocks will go though a stock split