Your investment philosophy as shown below:

I.Investments should offer strong return potential but with very limited risk. I prefer to be conservative and to minimise losses, even if I miss out on substantial growth opportunities.

II.All nongovernmental investments should be in industry-leading and financially strong companies.

III.Income needs should be met entirely through interest income and cash dividends. All equity securities held should pay cash dividends.

IV.Investment decisions should be based primarily on consensus forecasts of general economic conditions and company-specific growth.

V.If an investment falls below the purchase price, that security should be retained until it returns to its original cost. Conversely, I prefer to take quick profits on successful investments.

VI.I will direct the purchase of investments, including derivative securities, periodically. These aggressive investments result from personal research and may not prove consistent with my investment policy. I have not kept records on the performance of similar past investments, but I have had some big winners.

Select the statement from the points above that best illustrates each of the following behavioural finance concepts. Justify your selection.

a.)Mental accounting. [20%]

b.)Overconfidence (illusion of control). [20%]

c.)Disposition effect. [20%]

Q2.) In the same appointment, your dad made the following two statements to the financial advisor:

a.)I have been very pleased with the returns I've earned on Petrie stock over the past two years and I am certain that it will be a superior performer in the future. [20%]

b.)I am pleased with the returns from the Petrie stock because I have specific uses for that money. For that reason, I certainly want my retirement fund to continue owning the Petrie stock. [20%]

Identify which principle of behavioural finance is most consistent with each of the investor's two statements.