Module 1 Unit 2 Quiz
Under some circumstances, financial planners attempt to substitute clients' negative beliefs that lead to poor financial decisions with positive attitudes that should result in better financial results. This represents what approach to financial counseling? A) Cognitive-behavioral approach B) Strategic management approach C) Economic and resource approach D) Classical economics approach
A) Cognitive-behavioral approach
Brittany's mother, Joan, passed away two years ago. As part of Brittany's comprehensive financial plan, her financial planner recommends that Brittany sell the ABC stock she inherited from Joan. Because Joan purchased the stocks on the day Brittany was born, they are sentimental to Brittany and she doesn't want to sell. This best describes what type of emotional bias on Brittany's part? A) Endowment bias B) Status quo bias C) Regret-aversion bias D) Overconfidence
A) Endowment bias
Which of the following questions a financial planner might ask a client are closed-ended? Do you have disability insurance coverage? How do you feel about investing in the stock market? Do you have a car payment? How are your job prospects for the future? A) I and III B) II and IV C) III only D) I, II, and III
A) I and III
Which of these statements regarding the process of communication is CORRECT? Effect refers to sending a message. Form refers to the method of communication.
A) II only
Which of these statements regarding people who have a kinesthetic learning style is CORRECT? They retain information by hearing or speaking. They express themselves through facial expressions. They tend to respond to graphs, charts, pictures, and reading information. They prefer their goals and objectives to be presented as a to-do-list in bullet form.
A) IV only
In determining a client's psychological ability to deal with uncertain outcomes, which of the following refers to a client's assessment of the magnitude of the risks being traded off? A) Risk perception B) Emotional intelligence C) Risk capacity D) Risk tolerance
A) Risk perception
The tendency of individuals to take a course of action based on the consequences of prior events is known as A) outcome bias. B) overconfidence. C) confirmation bias. D) anchoring.
A) outcome bias.
During his initial interview with a financial planner, Sam explains the tradeoffs he is willing to make between potential risks and rewards. These tradeoffs illustrate Sam's A) risk tolerance. B) loss aversion. C) risk capacity. D) risk perception.
A) risk tolerance.
Which of the following statements regarding the field of behavioral finance is CORRECT? Behavioral finance tries to explain why people sometimes make irrational decisions regarding their finances. The concepts used in behavioral finance include anchoring and overconfidence. A) I only B) Both I and II C) II only D) Neither I nor II
B) Both I and II
Which of the following statements regarding the forms of representativeness is CORRECT? 1. Sample-size neglect makes the initial classification based on an overly small and potentially unrealistic sample of data. 2. Base rate neglect occurs when a stock is classified as a growth stock even though new information asserts this may no longer be the case.
B) Both I and II
Justin and Maddie have asked you to provide them with a comprehensive financial plan. During your initial meeting, you asked several questions to understand their feelings, goals, and objectives. Based on this discussion, you believe a consultative approach should be used that specifically identifies their strengths and weaknesses, among other factors. Which of the following techniques is most closely aligned with your financial counseling approach in this case? A) Cognitive-behavioral approach B) Strategic management approach C) Economic and resource approach D) Classical economics approach
B) Strategic management approach
Which of the following statements regarding the classical economics approach to financial counseling are CORRECT? A choice among alternatives is based on objectively defined cost-benefit and risk-returns It is based on the belief that increasing financial resources or reducing financial expenditures results in improved financial results. A) II only B) Neither I nor II C) Both I and II D) I only
C) Both I and II
Which of these statements regard the theory of communication is CORRECT? Language is composed of nothing more than a series of signs. Writing best models comunication as a series of signs.
C) Both I and II
Which of the following statements regarding interpersonal communication between financial planners and their clients are CORRECT? Mirroring is accomplished by imitating the client's body language or verbal style. Body language can impact how clients receive and interpret messages more than any other type of communication. Emotional intelligence includes the ability to recognize emotional expressions and select socially appropriate responses. Proper use of these communication skills helps develop a relationship of honesty and trust between financial planners and their clients.
C) I, II, III, and IV
Jason is meeting with Christine, who was recently referred to him by a friend. Which of the following strategies might Howard use in a meeting with Christine to foster good communication? Adopting the client's body language Imitating the client's word use, tone of voice, and communication method Asking as many questions as possible that require only a "yes" or "no" answer Paying full attention to what the client is saying and responding by paraphrasing the client's comments A) I, III, and IV B) II only C) I, II, and IV D) III and IV
C) I, II, and IV
Ed has accumulated $10,000 in a savings account over the last few years and has earmarked that money as a down payment on a new boat. His air conditioner breaks and requires $5,000 in repairs. Ed is reluctant to spend the money in his savings account to make the repairs because he wants to use that money for the boat down payment. Instead, he puts the $5,000 repair bill on his credit card at an annual interest rate of 23%. This is an example of which of the following behaviors? A) Herding B) Loss aversion C) Mental accounting D) Confirmation bias
C) Mental accounting
One of your clients, Phil, has a tendency to follow the actions of a larger group of people when making financial decisions, whether those actions are rational or not. Phil's behavior is an example of A) anchoring. B) confirmation bias. C) herding. D) overconfidence.
C) herding.
General categories of communication include all of these except A) intrapersonal. B) mass. C) restricted. D) interpersonal.
C) restricted.
A client's assessment of the magnitude of the risks being traded off is known as A) emotional intelligence. B) risk capacity. C) risk perception. D) risk tolerance.
C) risk perception.
Max is meeting with his clients, Steve and Anne, to define their goals. Steve tells Max one of his goals is purchasing a hunting camp in two years, and Anne rolls her eyes. What is the best action for Max to take next? A) Recommend how Steve and Anne can pay for the camp. B) Ask Steve and Anne if they have any other goals. C) Get more details regarding the purchase of the camp. D) Ask Anne if the camp is a mutually agreed-upon goal.
D) Ask Anne if the camp is a mutually agreed-upon goal.
Which of the following statements regarding behavioral finance is CORRECT? Behavioral finance attempts to understand why people often act irrationally when making financial decisions. Concepts used in behavioral finance include herding and confirmation bias.
D) Both I and II
Which of the following statements regarding emotional biases is CORRECT? They are more difficult to overcome than cognitive biases. They are a result of feelings, intuition, or impulse and are not related to conscious thought.
D) Both I and II
Which of the following may be affected by a client's risk tolerance and risk perception? Investment decisions Decisions concerning insurance coverage Decisions concerning types and amount of mortgages Decisions concerning pension payout options
D) I, II, III, and IV
Which of the following statements regarding the economic and resource approach to financial counseling is CORRECT? Clients are assumed to be rational. The focus is on obtaining and analyzing quantitative data, such as cash flow, assets, and liabilities. In this approach, the client is the agent of change. Individuals will change to the most favorable behavior if given the appropriate counseling. A) I and III B) II and IV C) I, II, III, and IV D) I, II, and IV
D) I, II, and IV
List these steps in the CORRECT order according to the financial planning communication model. Client: Response message encoded and sent Financial planner: Message encoded and sent Client: Message received, decoded, and interpreted Financial planner: Message received, decoded and interpreted
D) II, III, I, IV
The following statements regarding behavioral finance concepts are CORRECT except A) a planner should recognize his own attitudes, values, biases, and behaviors and be certain they do not impact recommendations made to clients. B) beliefs are a type of attitude because they reveal a person's understanding of some aspect of his life. C) a client's profile is largely influenced by context, which includes past history or any conditions that presently exist. D) a client's context represents what he believes to be right.
D) a client's context represents what he believes to be right.
You have recently become a financial planner for Shylah, a local restaurateur. All of these would strengthen your relationship with Shylah except A) understanding her needs and concerns. B) providing her with peace of mind. C) clearly explaining difficult concepts. D) creating financial goals for her.
D) creating financial goals for her.
The behavioral finance concept that asserts that people are given a means of reference, a set of beliefs or values, which they use to interpret facts or conditions as they make decisions, is known as A) anchoring. B) confirmation bias. C) mental accounting. D) framing bias.
D) framing bias.
A client is presented with two equal investment opportunities. The first is stated in terms of potential gains, and the second is stated in terms of potential losses. Without having any additional information, the client selects the first investment. The client's decision reflects A) anchoring. B) herding. C) framing bias. D) loss aversion theory.
D) loss aversion theory.
A client's assessment of the magnitude of the risks being traded off is known as A) loss aversion. B) risk capacity. C) risk tolerance. D) risk perception.
D) risk perception.
