Business

There are two questions to be answered…no specific word count needed but must be explanatory.

CFA #3) Louise and Christopher Maclin live in London, United Kingdom, and currently rents an apartment in the metropolitan area. During an initial discussion of the Maclins’ financial plans, Christopher Maclin makes the following statements to the Maclins’ financial adviser Grant Webb:

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(a)    “I have used the internet extensively to research the outlook for the housing market over the next five years, and I believe now is the best time to buy a house”

(b)   “I do not want to sell any bond in my portfolio for a lower price than I paid for the bond”

(c)    “I will not sell any of my company stocks because I know my company and I believe it has excellent prospects for the future”

For each statement (a)-(c) identifies the behavioral finance concept most directly exhibited. Explain how each behavioral finance concept is affecting the Maclin’s investment decision making.

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CFA #4) During an interview with her investment adviser, a retired investor made the following two statements:

(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”

(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”

Identify which principle of behavioral finance is most consistent with each of the investors two statements.

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