Question #1 of 6
B) uses anchoring.
Timmons uses anchoring. Despite the disappointing earnings announcements, he states that he
is not convinced that the firms' prospects are as grim. He under-adjusts to new information
because his beliefs about the firms are anchored in his previous optimistic forecasts.
Question #2 of 6
B) is overconfident.
Davis is overconfident. He states that he is certain of his forecasts and reports a remarkable (and
perhaps not fully disclosed) performance record.
Question #3 of 6
B) is susceptible to cognitive dissonance.
When professionals are overconfident, they tend to be susceptible to cognitive dissonance. The
professional will ignore information that conflicts with his image of being successful. Davis admits
only one past forecasting mistake in 15 years, which he then blames on an event outside of his
Question #4 of 6
A) self attribution.
Davis states that if Congress had not unexpectedly increased spending above what he had
expected, then his prediction would have been correct. He is exhibiting self attribution bias, in
which the analyst takes credit for successes and blames external events for failures, by claiming
their forecast would have been accurate if the factors that were incorporated into the forecasting
model hadn't changed. The illusion of knowledge bias is when analysts think they are smarter
than they actually are, which can be fueled by collecting a large amount of data. The
representativeness bias is when the analyst judges the probability of a forecast being correct
based on how much the available data represents the outcome.
Question #5 of 6
A) support level.
This is the sort of odd question you do see occasionally on the exam. It is based more on the
general CFA curriculum than on the specific reading. It is completely unpredictable, and the most
important issue is to not spend too long on it. If you do not think of an answer, guess and move
First, recognize Brooks's strategy is to buy out of favor cheap stocks. Second, notice all of the
answer choices are technical analysis charting terms. Third, think creatively to select or eliminate
answers. A support level refers to a price moving down and then rallying back up. It vaguely fits
in with buying a low-price stock. Nothing in the data or question relates to a moving average of
price. So eliminate answer "B". A resistance level might refer to a ceiling or floor on a price chart.
It is not a wrong answer but "A" is the best-fit answer.
Question #6 of 6
B) moving average where the short-term moving average is above the long-term moving
average, indicating a "buy" signal.
Davis is describing the moving average trading tactic in which the short-term moving average is
above the long-term average, indicating a buy signal.