1. Hindsight bias is when people remember investments that outperformed the mark

Question

1. Hindsight bias is when people remember investments that outperformed the market but forget the investments that underperformed the market. (true/false)

2. Daniel Kahnemann has argued that while some people may act irrationally; professional investors are realistic and disciplined when evaluating their ability to invest other people's money. (true/false)

3. If you borrow at 6 percent per year for five years and use the proceeds to buy a five year bond that has a Yield to Maturity of 8 percent your leveraged position is doomed because of credit risk. (Assume that all bonds pay interest semiannually and that all interest received is reinvested at 8% per year) (true/ false)

4. Warren Buffet has promised to increase the dividend of Berkshire Hathaway by 5% per year for the next twenty years. (true/false)

5. A well-diversified portfolio must contain at least 1000 different financial assets. (assume that the returns of the assets in the portfolio are not perfectly correlated.)

Explanation / Answer

1. FALSE

2. TRUE

3. FALSE

4. TRUE

5. FALSE

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