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CFA Level I · CFA Level I Exam · Portfolio Management: An Overview

An individual investor is 35 years old, has stable employment, and is saving for retirement in 30 years. Compared with an investor aged 63 who plans to retire in two years, the younger investor is most likely to have a:

The younger investor most likely has a greater ability to take risk. A thirty-year horizon and substantial future earning capacity, or human capital, let the portfolio absorb and recover from losses, whereas the investor near retirement has little time and fewer future earnings to offset declines.

  1. Ashorter time horizon and lower human capital
  2. Bgreater ability to take risk because of a longer horizon and greater human capitalCorrect
  3. Clower willingness to take risk due to age alone

Explanation

A 35-year-old has more years to recover from losses and more future earnings (human capital), which raises ability to take risk. Willingness depends on attitude, not age alone, so C is unsupported, and A reverses the horizon and human capital.

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