Choose wisely. There is only one correct answer to each question.
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1.
What is the underlying rationale of the life-cycle fund approach?
The greater the number of years you have until retirement, the more willing and able you are to tolerate risk. For a given risk level and time horizon, there is an optimal mix of stock, bond and cash-equivalent funds that provides the highest expected return.
2.
Once you have chosen a life-cycle fund for your retirement, _______.
You can switch to a different life-cycle fund if it meets your needs better. You can roll your fund over to a different one.
3.
Two life-cycle funds with the same target date will likely earn different returns.
True. Two life-cycle funds will likely earn different returns because they hold different portfolios inside them.
4.
Life-cycle funds eliminate _______.
The need to adjust asset allocation on your own. These funds take care of that on their own.
5.
A life-cycle fund is ___________.
A fund "basket" composed of other mutual funds. The mix of funds is designed to be suited to the retirement target date you have chosen.