Who is the Unit Coordinator and Tutor for FINA2209?
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Dr. Ricky Chung.
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Who is the Unit Coordinator and Tutor for FINA2209?
Dr. Ricky Chung.
In which weeks do Stream B students participate?
Weeks 3, 5, 8, 10, and 12.
How are wants achieved in risk profiling?
Through risky assets.
What is a common example of herding in the stock market?
Frenzied buying during stock market bubbles.
What is representativeness in the context of investment judgment?
Judgment based on stereotypes.
What could be the future return prospects for a company that has reached maximum growth?
Future return prospects may be moderate.
What is the weighting of the group assignment?
15%.
What is the approximate asset mix for a very conservative investor?
Cash 60%, Fixed interest 30%, Growth investments 10%.
What is socially responsible investing (SRI)?
The practice of incorporating social goals into the investment decision-making process.
What is negative screening in investing?
A strategy that excludes certain sectors, companies, or practices from investment portfolios based on ethical or moral criteria.
What type of skills does System 1 utilize?
Innate skills.
What does ESG stand for in investing?
Environmental, Social, and Governance.
What is the goal for financial planners regarding client thought processes?
To help clients use a more rational System 2 thought process.
What is a potential issue with the understandability of risk profile questionnaires?
Use of complex language and technical terms.
What is the primary goal of negative screening?
To avoid investing in companies that do not meet certain ethical standards.
What is the asset allocation for an aggressive investor?
Cash 5%, Fixed interest 15%, Growth investments 80%.
Can negative screening affect financial performance?
Yes, it may limit diversification and potential returns, but can also attract socially conscious investors.
When will group assignment information be available?
Next week on LMS.
What is the goal of indexing a portfolio to a nominated benchmark?
To invest in securities in the index to match the performance of the benchmark.
What is the expected value calculation for option B?
30% x 1,000,000 + 50% x 0 = +500,000.
What should a recommended investment portfolio be designed around?
The client's risk/return philosophy.
How does a fact find contribute to effective financial planning?
It helps in understanding the client's risk tolerance and investment objectives.
How do needs differ from wants in risk profiling?
Needs are essential (e.g., place to live) and not exposed to risky assets, while wants are desires (e.g., place in Monaco) that can involve risky assets.
When will tutors finalize group allocations in tutorials?
This week.
What are the two systems of thinking proposed by Kahneman?
System 1 and System 2.
What is the purpose of a fact find in risk profiling?
To gather detailed information about a client's financial situation and preferences.
What are the main asset classes in investment?
Cash, Fixed Interest/Bonds, Shares/Equity, Property, Commodities, Derivatives, Currency, Ethical/Socially Responsible, Infrastructure, and Private Equity.
What phrase summarizes the concept of herd behaviour?
Two heads are sometimes better than one.
What is the role of System 2 in Kahneman's framework?
It allocates attention to effortful mental activities that demand it, including complex computations.
What is the purpose of the forum for sustainable and responsible investment?
To promote sustainable and responsible investing practices.
What are negative screens in ESG investing?
Criteria that exclude certain sectors or companies from investment.
What is the focus of Week 4 in FINA2209?
Client Preferences and Behavioural Finance.
What are positive screens in ESG investing?
Criteria that include companies or sectors based on specific ESG criteria.
How does a fact find contribute to effective financial planning?
It helps advisors understand the client's risk tolerance and investment objectives.
What should be considered when exposing financial capital to risk?
The risks of your human capital.
When might a referral be necessary in the financial planning process?
If specialized advice or services are needed.
What is the asset allocation range for an Assertive investor type in Australian shares?
28-55%.
When is the Mid-Semester Exam scheduled?
Thu 12 September.
What happens when System 2 is activated in decision making?
You tend to make better decisions by burning more energy.
What can result from herding behaviour during market downturns?
Frenzied selling leading to stock market crashes.
How can herd behaviour affect individual decision-making?
It can lead individuals to conform to group actions rather than think critically.
What type of information is typically collected in a fact find?
Personal details, financial assets, liabilities, income, expenses, and investment goals.
What is the asset mix for a conservative investor?
Cash 20%, Fixed interest 40%, Growth investments 40%.
How does negative screening impact investment portfolios?
It limits investment options but aligns portfolios with the investor's values.
What does a balanced investor's portfolio look like?
Cash 10%, Fixed interest 30%, Growth investments 60%.
How are students assigned to streams A and B?
Stream A for odd last digit of student ID, Stream B for even last digit.
What are the three types of clients based on risk profile?
Conservative, balanced, and aggressive.
Why is personal experience important in shaping financial literacy?
It influences how individuals deal with their money and make financial decisions.
How are needs achieved in risk profiling?
Through non-risky assets.
What are the two types of asset allocation strategies mentioned?
Passive and Active.
What is the asset allocation for an Assertive investor type in Cash and fixed interest?
0-5%.
What is a characteristic of the global marketplace for the Vice Fund's investments?
It is not limited to the U.S. economy.
How might a person perceive 100 from salary?
They may be more likely to spend the $100 from winning a bet due to its perceived value.
What is the expected value of Gamble C?
$10,900.
What is herd behaviour in investing?
The tendency of individuals to follow group behaviour without critical thinking.
When is the group assignment due?
Friday, 27 September at 11:59pm (via LMS).
How did Hofstede develop his cultural measures?
By surveying 117,000 IBM employees in 50 countries during the 1960s-1970s.
What is the primary goal of investors in traditional finance?
To maximize return while minimizing risk.
What is a solution to combat overconfidence in investing?
Check information sources and conduct objective analysis.
What factors can affect your financial literacy?
Personal experiences, education, socioeconomic status, and access to financial resources.
How does best-of screening differ from negative screening?
Best-of screening does not completely exclude companies with minor involvement in SRI-prohibited industries, unlike negative screening.
What is the purpose of a fact find in risk profiling?
To gather detailed information about a client's financial situation and preferences.
What happens to companies under negative screening if they derive any profits from SRI-prohibited industries?
They are completely excluded.
Can culture change over time?
Yes, due to factors like globalization, deflation in Japan, and political instability.
What does the client's risk/return philosophy determine?
The amount of risk a client is prepared to accept to generate a certain rate of return.
What does ATP stand for in the financial planning process?
Authority to proceed.
What is a key outcome of conducting a fact find?
Establishing a comprehensive profile that informs investment strategies.
How is labor and wage income viewed in risk profiling?
As an investment.
What does the dimension of Individualism in Hofstede's model focus on?
The placement of the self and the choice to invest in one's own financial future.
Who is the manager of the Barrier Fund?
Gerry Sullivan.
Does past performance guarantee future returns for high-profile companies?
Not necessarily, as past performance is not a guarantee of future performance.
What is a common method to measure risk tolerance?
Risk profile questionnaires.
How does behavioral finance differ from traditional finance in its approach?
It provides a descriptively detailed model of investors.
What is negative screening in SRI?
Excludes companies based on their involvement in SRI-prohibited industries like alcohol, tobacco, gambling, and defense stocks.
What is the first method of risk profiling?
Are you stock-like or bond-like?
What is the loss for option C?
-500,000.
What does a stock-like profile indicate?
High income and high sensitivity to the economy.
What should financial planners focus on when communicating with clients during volatile times?
The big picture story, emphasizing long-term perspectives along with facts.
What does a bond-like profile indicate?
Low income and low sensitivity to the economy.
How can understanding biases benefit financial planners?
It can help them develop personalized financial plans.
Which profession is likely to have a stock-like profile?
Project Manager.
What is Method 3 in risk profiling?
Risk profile questionnaire.
What is overconfidence in investing?
Subjective confidence in one's own judgments outweighs objective accuracy.
What is a disadvantage of self-reporting in risk profile questionnaires?
Biases may exist, such as overconfidence and optimism.
What is the maximum marks for tutorial participation?
10% (5 weeks x 2%).
What is the first step in the risk profiling process according to Bodie & Taqqu?
Identify your goals/objectives.
When do tutorials start?
In week 2.
What was the former name of the Barrier Fund?
Vice Fund.
How does socioeconomic status influence financial literacy?
It can affect access to education and resources for learning about finance.
What types of industries does the Vice Fund invest in?
Tobacco, alcohol, gaming, and weapons/defense.
What type of information is typically collected in a fact find?
Personal details, financial assets, liabilities, income, expenses, and investment goals.
What is a key characteristic of best-of screening?
It considers companies that derive a small portion of their earnings from SRI-prohibited industries.
What was the original purchase price per share for Investor B?
$200 per share.
What does FSG stand for in the context of financial planning?
Financial Services Guide.
What is an example of a mental account that might be treated differently?
100 from salary.
What is the probability of Payoff 2 for Gamble G?
90%.
Which type of employment is considered bond-like?
Public Servant.
How do individuals with high Uncertainty Avoidance cope with financial decisions?
They establish rules, such as saving, to cope with uncertainty.
What weeks does the Mid-Semester Exam cover?
Weeks 1-5.
Who is the author of the concepts discussed?
Kahneman (2011).
What might indicate that a company's share price has already reflected its quality?
If the company has leveled out and achieved maximum growth.
What does behavioral finance use to explain investor behavior?
Psychology and economics.
What is the nature of the decision to invest in financial literacy according to Lusardi et al. (2017)?
It is an endogenous human capital choice.
What is the research question regarding SRI investing?
Does SRI investing increase or decrease investor’s risk exposure and is this beneficial or detrimental to expected returns?
What range of questions can risk profile questionnaires have?
Anywhere from less than 10 to more than 45 questions.
How are investors viewed in neo-classical finance?
As rational and unbiased in evaluating and acting on information.
What factors influence a client's risk acceptance?
Term of investment, future fund needs, previous investment experience, investment knowledge, objectives, and the portfolio's importance to total wealth.
In which week is the fact find method discussed?
Week 2.
What type of biases can affect self-evaluation in risk profile questionnaires?
Biases such as anchoring.
What type of information is typically collected in a fact find?
Personal details, financial assets, liabilities, income, expenses, and investment goals.
What is the asset mix for a very aggressive investor?
Cash 5%, Fixed interest 10%, Growth investments 85%.
How does assigning different utility affect consumption decisions?
It influences how individuals decide to spend or save money.
What can affect investors' decision making and preferences?
Biases, heuristics, and emotions.
What financial benefits do companies in the Vice Fund's industries typically have?
Potentially high profit margins and the ability to generate excess cash flow and pay and increase dividends.
How much did Investor B lose before the drop?
$50 per share.
What do some studies find about the returns of SRI funds?
Slightly superior returns compared to non-SRI funds.
What is a key outcome of conducting a fact find?
Establishing a comprehensive profile that informs investment strategies.
What is the total mark distribution for the Mid-Semester Exam?
60 (raw) marks in total: 40 MCQs and 1 written question.
What is a heuristic?
A practical method that is not guaranteed to be optimal but is sufficient for the immediate goal; a mental shortcut.
What do the constraints of SRI investment suggest about portfolio diversification?
A fully diversified portfolio is not possible.
How do overconfident investors typically behave?
They underestimate downside risk and hold undiversified portfolios.
What is Strategic Asset Allocation (SAA)?
Investment in asset classes over the long term, generally more than 10 years.
What types of bonds are included in fixed interest?
Corporate and Government bonds.
What does Tactical Asset Allocation (TAA) involve?
Re-weighting the portfolio over a shorter period, such as a month, away from SAA.
What factors hinder optimal decision making in reality?
Biases, heuristics, and emotions.
What is asset allocation?
The process of dividing investments among different asset categories.
What are the two types of property investments?
Direct and Listed property.
What was the original purchase price per share for Investor A?
$100 per share.
What are the characteristics to consider in asset allocation?
Security/Risk, Liquidity, and Income/Growth.
What is a key outcome of conducting a fact find?
Establishing a comprehensive profile that informs investment strategies.
Are the eight gambles ordered in descending order of attractiveness?
No, they are not necessarily ordered by expected value.
What is the current value of the shares today?
$150 per share.
What is the recommended allocation for Property in a Moderately Conservative investor type?
0-16%.
Which type of employment is considered stock-like?
Professional investment manager.
What is the relationship between Power distance and investment in financial literacy?
Negative relationship; less likely to invest in financial literacy.
What is the asset allocation for a Moderately Conservative investor type in Cash and fixed interest?
7-17%.
How many marks are allocated to the written question in the Mid-Semester Exam?
20 marks.
What is the purpose of a risk profile questionnaire?
To assess an individual's risk tolerance and investment preferences.
What is the gain for option A?
+300,000.
What are the potential impacts of SRI constraints on investment returns?
They could be either good or bad for potential investment return.
What is the first step in the financial planning process?
Initial interview.
How does System 2 interact with System 1?
System 2 monitors thought and action proposed by System 1.
What is the purpose of the follow-up interview in financial planning?
To gather additional information and clarify details.
What type of investor is associated with option D?
Risk-seeking.
What type of interviews are conducted throughout the financial planning process?
Ongoing interviews.
What should financial planners avoid to prevent decision paralysis in clients?
Overwhelming clients with too many options; instead, present smaller choice sets.
Why do industries targeted by the Vice Fund tend to thrive?
They have steady demand regardless of economic conditions.
Who generally has the capacity for more financial risk?
Individuals with a stock-like profile.
What percentage of Australian shares should a Balanced investor hold?
24-42%.
How does availability bias affect investors' perceptions of the stock market?
Investors are more likely to fear a stock market crash if they experienced one recently.
What is the asset allocation for a Defensive investor type in Cash and fixed interest?
100%.
How does Masculinity affect female participation in financial decision-making?
It leads to lower female participation.
What is the mode of the Mid-Semester Exam?
Face-to-face, closed book, paper-based, with formulae provided.
What are the two parts of the Mid-Semester Exam?
Part A (case) and Part B (calculations).
What are the two main questions addressed in risk profiling according to Bodie & Taqqu?
Which portfolio has the highest return for the given risk and which has the lowest risk for the given return.
How does a risk profile questionnaire help in financial planning?
It helps tailor investment strategies to match the client's risk tolerance.
What is a key component of client analysis?
Assessing the client’s risk profile.
What types of companies are typically excluded in negative screening?
Companies involved in tobacco, firearms, gambling, or fossil fuels.
What is the primary social responsibility of business according to Friedman (1970)?
To increase its profit.
What is the probability of Payoff 1 for Gamble A?
95%.
Is there homogeneity within countries?
There can be varying degrees of homogeneity within countries.
What is mental accounting in the context of Prospect Theory?
It refers to how people place different values on the same amount of money based on subjective criteria.
What is the first method of risk profiling?
Are you stock-like or bond-like?
What is a key consideration in understanding client preferences?
Assessing both risk tolerance and other personal factors.
What are the two types of mental accounts in investments?
Income vs capital gain and loss vs gain.
What defines the transition from the safety zone to the risky zone?
The Risk Set-Point.
Why is it important to regularly update the fact find?
To reflect changes in the client's financial situation and goals.
What is the asset allocation range for International shares in a Conservative investor type?
6-14%.
What is the expected value of Gamble H?
$10,000.
What does the Uncertainty Avoidance dimension measure?
The level of comfort in ambiguity and unstructured situations.
Why is it important to regularly update the fact find?
To reflect changes in the client's financial situation and goals.
How does System 1 operate according to Kahneman?
Automatically and quickly, with little or no effort and no sense of voluntary control.
What type of information is typically gathered in a risk profile questionnaire?
Personal financial situation, investment goals, and risk tolerance.
What type of data did Hofstede use to establish his cultural measures?
Survey data from IBM employees.
What is the assumption about humans in an ideal world regarding decision making?
Humans are rational, can perform calculations accurately, have self-control, and are not ruled by emotions.
What are client preferences in financial planning related to?
Risk tolerance and investment goals.
What is the calculation for option D?
(50% x 0) + 150% x -1,000,000 = -500,000.
Who is more upset about the one-day loss of $10, Investor A or Investor B?
Investor B is more upset.
Who are typically able to achieve the best possible outcomes in investment?
Professional investment managers and institutional investors.
What factors can affect investors' decision-making and preferences?
Behavioral finance concepts such as emotions, biases, and social influences.
Why is it important for financial planners to understand biases?
To help clients make better investment decisions.
What classification systems are used for screening in ESG investing?
SICs (Standard Industrial Classification), NAICs (North American Industry Classification System), GICs (Global Industry Classification Standard).
What was the value of the shares yesterday?
$160 per share.
What are the two main categories of investment strategies?
Defensive and Growth.
How much did Investor A gain before the drop?
$60 per share.
What does the Masculinity dimension in Hofstede's model emphasize?
The value placed on masculine traits in society, focusing on men as breadwinners and decision-makers.
How does the average person feel about owning the Barrier Fund?
They don't feel good about owning it.
How much of the portfolio should a Conservative investor allocate to Property?
16-33%.
How does a fact find contribute to effective financial planning?
It helps in understanding the client's risk tolerance and investment objectives.
What are some costs associated with investing in financial literacy?
Time, effort, and money.
What does positive screening involve?
Seeking out companies that enhance SRI practices, such as those with good labor relations or community involvement.
What are some factors that bind or shape countries?
Economics, such as the EU and ASEAN.
What are the two categories of shares/equity?
Domestic and International shares.
What is meant by 'Sector Rotation' in investing?
Taking shorter-term bets on particular sectors within an asset class.
What is the expected value of Gamble B?
$10,000.
What is the process of asset selection after deciding on SAA, TAA, and Sector Rotation?
Determining which particular company, bond, or equity to buy that is likely to outperform.
Which gamble has the highest potential payoff?
Gamble F with a potential payoff of $118,000.
Which profession is likely to have a bond-like profile?
Teacher.
What is the marking scale for tutorial participation?
0, 1, or 2.
Why are there no classes in week 7?
Due to the mid-sem exam.
What does Prospect Theory suggest about decision-making under risk?
People tend to prefer certain outcomes over probabilistic ones when it comes to gains, and they are more risk-seeking when facing potential losses.
What is the Barrier Fund's ticker symbol?
MUTF:VICEX.
What does Power distance in Hofstede's model describe?
How less powerful members of organizations accept and expect unequal power distribution.
What is the relationship between Masculinity and financial literacy investment?
It can be negative (less likely to invest) or positive (if both genders are assertive/competitive).
What do other studies suggest about non-SRI funds?
A slight underperformance compared to SRI funds.
What is the primary focus of financial theory in risk profiling?
Optimization based on maximizing return for a given risk.
In the context of risk profiling, what is the comparison made between portfolios?
Comparing portfolios based on their return and risk levels.
What are some examples of heuristics in everyday life?
Rule of thumb, stereotyping, intuitive judgment.
What is the purpose of a fact find in risk profiling?
To gather detailed information about a client's financial situation and preferences.
What type of investments are recommended to meet needs?
Federal Government Inflation Indexed Bonds, Term Deposits, or Annuities.
In which weeks do Stream A students participate?
Weeks 2, 4, 6, 9, and 11.
What are some natural barriers to entry for the industries targeted by the Vice Fund?
Natural barriers to new competition.
How does a fact find contribute to effective financial planning?
It helps advisors understand the client's risk tolerance and investment objectives.
What is the purpose of asset allocation?
To diversify investments across different asset classes.
What does the dimension of Indulgence in Hofstede's model refer to?
The relatively free gratification of basic and natural desires of enjoying life and having fun.
Why is it important to regularly update the fact find?
To reflect changes in the client's financial situation and goals.
What is the primary reason people hold onto the Barrier Fund despite not feeling good about it?
For diversification and returns.
What does sensitivity to general market conditions indicate?
How employment correlates with the economy.
What is a common reaction to news influenced by availability bias?
Overreacting to good or bad news.
What concept explains why Investor B feels more upset about the loss?
Prospect theory.
What does the 'law of small numbers' refer to in the context of availability bias?
Generalizing from small samples.
What type of information is typically collected in a fact find?
Personal details, financial assets, liabilities, income, expenses, and investment goals.
How many exam venues will there be for the Mid-Semester Exam?
Three exam venues.
What is the probability of the highest payoff in Gamble D?
10%.
What is availability bias?
A cognitive bias where decisions are made based on the most recently observed information.
What does flexibility in risk profiling refer to?
The ability to work extra hours, overtime, have a second job, or delay retirement.
What does Long-term orientation in Hofstede's model signify?
It indicates a focus on the future and the importance of investing in financial literacy.
In the second scenario, what are the two options presented?
C: Lose 1,000,000.
What is the common behavioral tendency when faced with a gain versus a loss according to Prospect Theory?
Individuals are generally risk-averse when it comes to gains and risk-seeking when it comes to losses.
How does availability bias affect initial judgments?
People cling to initial judgments despite new, contradictory information.
What is the relationship between Uncertainty Avoidance and financial literacy investment?
It can be positive (more likely to invest) or negative (less likely if uncomfortable with volatility).
What is the purpose of a Fact Finder in financial planning?
To collect detailed information about the client's financial situation.
What is the relationship between Indulgence and investment in financial literacy?
Negative relationship; less likely to invest in financial literacy.
What is an example of availability bias in investment choices?
Choosing investments that are heavily advertised.
In the first scenario, what are the two options presented?
A: Receive 1,000,000 and 50% chance to win nothing.
What is the weighting of the Mid-Semester Exam?
20%.
What is a finding of some studies regarding SRI funds and non-SRI funds?
No statistical difference in returns.
What is screening intensity in the context of SRI funds?
The degree to which stocks are filtered out based on social concerns.
What does the risk set-point method help determine?
Which portfolio has the highest return for a given risk and which has the lowest risk for a given return.
What occurs when a complex task is repeated often enough?
System 1 acquires the response as a heuristic, decreasing the energy required for decision making.
How does Individualism relate to financial literacy investment?
There is a positive relationship; individuals are more likely to invest in their financial literacy.
How long is the Mid-Semester Exam?
2 hours (5:30pm – 7:30pm).
What is the relationship between Long-term orientation and investment in financial literacy?
Positive relationship; more likely to invest in financial literacy.
What is a potential outcome of availability bias?
Decisions based on incomplete or incorrect data.
What is the purpose of a fact find in risk profiling?
To gather detailed information about a client's financial situation and preferences.
How is SRI performance typically measured?
Against a benchmark, which is calculated based on specific criteria.
How many marks are allocated to the MCQs in the Mid-Semester Exam?
40 marks.
What are systematic errors in System 1 responsible for?
They can lead to biases in decision making.
