The Warren Buffett Way Workbook

Chapter 7

The Value of Patience

Multiple-Choice Questions

1. Which of the following potential reasons have contributed to a majority of investors focusing on short-term returns?

I. The belief that they can predict changes in market psychology

II. The impact of two bear markets and the financial crises over the past decade

III. Greed

A. I and II

B. II and III

C. I and III

D. I, II, and III

2. In the paper “The New Theory of the Firm: Equilibrium Short Horizons of Investors and Firms,” what is the definition of the cost of arbitrage?

A. The risk-free amount that may be made in a trade

B. The amount of time your capital is invested

C. The difference between the bid and offer prices

D. The amount earned over a risk-free rate

3. In the paper “The New Theory of the Firm: Equilibrium Short Horizons of Investors and Firms,” what is the definition of risk?

A. The chance of losing on an investment

B. The standard deviation of returns

C. The exposure to the overall market of a particular investment

D. The amount of uncertainty over the outcome for an investment

4. In the paper “The New Theory of the Firm: Equilibrium Short Horizons of Investors and Firms,” what is the definition of return?

A. The amount of money made on an investment

B. The amount of money made on an investment relative to the risk-free return

C. The amount of money made on an investment relative to risk

D. The amount of money made on an investment relative to alternative returns

5. Which of the following statements is a ...