1. An investment implication of Prospect Theory, often labeled the Disposition Effect is that investors

1. Tend to sell their winners (stocks that have risen in value) and hold onto their losers (stocks that have declined in value).
2. Tend to pursue buy and hold strategies.
3. Tend to have undiversified portfolios.
4. Tend to prefer equities to bonds.

2. In the event a firm files for bankruptcy to liquidate the firm

1. The firm's stockholders are personally liable for all of the firm's obligations.
2. The most shareholders can lose is their original investment in the firm's stock.
3. Common shareholders are the first in line to receive their claims on the firm's assets.
4. Bondholders have claim to any remaining funds from the liquidation of the firm's assets after paying shareholders.

3. Shareholders face a risk that executives in publicly traded corporations may act in their own self-interest rather than in shareholders best interest. The corporations _________________ is supposed to ensure that corporate executives act in shareholders best interest.

1. President and CEO.
2. CFO.
3. Board of Directors.
4. Chief Compliance Officer

4. Research on effective corporate governance indicates

1. Diminishing returns to effective governance appear to set in when a company has more than about 15 directors.
2. The more insiders on a companys Board the less effective is the companys governance.
3. Both A and B are valid.
4. Neither A nor B are valid.

5. Bonds as an asset class are generally considered _______________ risky than stocks as an asset class because ______________________, and therefore investors require __________________ expected returns

1. Less; bondholders claims precede stockholders; lower.
2. More; stockholders claims precede bondholders; lower.
3. Equally; bondholders and stockholders have the same claims; the same
4. None of the above.