True or false 1.The free cash flow to equity will always be higher than the net income of the firm, because depreciation is added back. 2.Susan is expecting the economy to worsen over the next few years, perhaps falling into a recession. Investing in the construction industry should be part of Susan’s strategy. 3. Preference shares combine the fixed income features of bonds with the same price appreciation potential as ordinary shares.
True or false
1.The
2.Susan is expecting the economy to worsen over the next few years, perhaps falling into a recession. Investing in the construction industry should be part of Susan’s strategy.
3.
4. Identify any one behavioural bias in each of the following statements:
a) Mary writes the following letter to an investment columnist: “I invested quite a bit of money (R26 000) in Intel stock. Of course, like most technological stocks, it has been struggling, and on paper I am in trouble. Do you think it will ever reach the R80 that I paid for it? I really hate to cash it in for such a big loss and I don’t trust it enough to buy it at the low price (R8) it is now trading for. I feel like the company shows promise, but I am certainly not astute in such matters – I am a dentist”.
b) Las Vegas casinos offer many games. All games favour the casino. The size and elegance of the buildings reflect how much money the casinos make – and how much gamblers lose. Still, hordes of gamblers still pack the gaming tables and slot machines for hours on end. Over time, gamblers inevitably lose money, and yet they still come back the following year. What bias might cause this cycle?
c) A gambler wins a very large pot of money playing poker. In the next hand, the gambler bets heavily on a hand that is of only average quality. What bias may have caused this bet?
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