Question

Which of the following is an implication of the Life Cycle Hypothesis? A. Investors should maintain the same level of risk in investing throughout their life cycle B. Investors should take more risk when they are younger and then switch to safer investments as they age C. Choosing investments is inconsequential as risk/return can never be predicted D. Investors should take more risk when they are older to cover increased costs during retirement

Answer 1

Answer:

The most suitable answer is B. Investors should take more risk when they are younger and then switch to safer investments as they age

Explanation:

Although we can never predict the risk 100%, we can always see the probability. Depending on this, a young investor should take risks and decrease the risk factor in their investments as they grow older.

Mainly this is because when they are young they have the ability to over their loses if they occur, over the time. Yet when they are older time is ot on their side, and their loses may other email covered and their loss burden may be transferred to their family members once the investor is gone.