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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Basics of Behavioural Finance

Caselet: Ms. Nair receives a Rs 2 lakh annual bonus. She spends it freely on luxuries but keeps her Rs 2 lakh savings account untouched even while paying 12% interest on a personal loan. Which statements are correct? (I) She exhibits mental accounting. (II) Treating money as fungible would suggest repaying the loan. (III) Her behaviour is consistent with the efficient market hypothesis.

Statements I and II are correct. She uses mental accounting by treating bonus and savings as separate pots, whereas money is fungible and repaying the 12% loan would be rational. The efficient market hypothesis is unrelated here.

  1. AI and II onlyCorrect
  2. BII and III only
  3. CI and III only
  4. DI, II and III

Explanation

Mental accounting treats money differently by source or purpose, such as bonus versus savings. Rationally, money is fungible, so using savings earning less than 12% to clear the loan is better. The efficient market hypothesis concerns asset prices, not this behaviour, so III is wrong.

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