行为金融代写 MANG6239W1代写 金融考试代写 FINANCE代写

MANG6239W1  BEHAVIOURAL FINANCE

行为金融代写 This paper contains SIX questions. Answer FIVE questions in total. You must answer ALL questions from SECTION A, and ONE question from SECTION B.

This paper contains SIX questions.

Answer FIVE questions in total.

You must answer ALL questions from SECTION A, and ONE question from SECTION B.

100 Marks are allocated as follows:

SECTION A: A total of 85 marks.

SECTION B: A total of 15 marks.

SECTION A 行为金融代写

You must answer ALL FOUR questions from this section.

A1.

Jennifer’s initial wealth is £2000. She is considering the following prospects:

P1: her terminal wealth level will be either £4200 with probability 20% or £1600 with probability 80%.

P2: her terminal wealth level will be either £2600 with probability 50% or £1900 with probability 50%.

(a) Assume that, under the Expected Utility Theory (EUT), Jennifer’s utility function is u(w) = ln(w), where wmeasures her terminal wealth level and ln is the natural logarithm function. According to the EUT, which prospect should she choose? (Show all your work and explain your logic step by step) [10 marks]

(b) Compute the certainty equivalent for prospect P1 and explain its meaning in simple terms. [4 marks]

(c) Now instead assume that Jennifer acts as predicted by Cumulative Prospect Theory (CPT), and her value function under CPT is

v(z) = z^0.88                   if z ≥ 0

= -2.25(-z)^0.88     if z < 0

Note that z does not denote her terminal wealth level but rather the change in her wealth (e.g., gain or loss) relative to her initial wealth.

Her probability weighting function is the following:

where γ = 0.61 and χ = 0.69.

According to the CPT, which prospect will Jennifer choose? (Show all your work and explain your logic step by step) [12 marks]

(d) Now assume that P2 is no longer available, and the only available prospect is P1. According to the CPT, will Jennifer accept prospect P1? Explain your logic thoroughly. [4 marks]

A2. 

Discuss the key differences between Cumulative Prospect Theory and the Expected Utility Theory (600 words max). [21 marks]

A3. 行为金融代写

After briefly describing the disposition effect, discuss its possible causes and its impact on investor wealth (600 words max). [21 marks]

A4.

Read the following dialogue between two economists.

Economist A: “Studies show that many investors tend to be overconfident.”

Economist B: “Well, that’s interesting, but what does psychology have to do with investing?”

Economist A: “Well, I’m concerned about this because overconfidence leads individuals to overinvest in risky stocks.”

Economist B: “Why worry? According to the CAPM, risk and expected return are positively correlated. If overconfident investors take on more risk, they can expect a higher rate of return. That’s one of the key tenets of finance.”

Discuss the content of the dialogue from the perspective of behavioural finance (400 words max). [13 marks]

SECTION B 行为金融代写

You must answer ONE question from this section.

B1.

Some companies pay annual bonuses to their employees when specific company goals have been met. There is evidence that many employees spend their bonus money more lavishly than their base salary. For example, they often spend their bonus money on new cars, fancy clothes, and exotic vacations, whereas they would never do so with their “regular” income.

Is this sort of behaviour consistent with mainstream economics? From the perspective of behavioural finance, what behavioural bias(es) can explain this kind of behaviour? Explain your logic in detail (400 words max). [15 marks]

B2. 行为金融代写

A financial adviser is in a meeting with one of his clients. The adviser is trying to convince the client that it is a good idea to invest some money in the stock market. Consider the following two statements:

(A) “You’ll save money by investing in the stock market. You can expect a higher rate of return, and you’ll have more money when you retire.”

(B) “You’re losing money by not investing in the stock market. Your friends and relatives who have invested in the stock market can expect a higher rate of return, and they will have more money when they retire. You will be left behind.”

Which of the two statements would be more effective in getting the client to take action and why? Make sure that in your analysis you draw on the behavioural biases that we studied in the module (400 words max). [15 marks]

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