Jack Is near Retirement and Worried That If the Stock

question 20

Multiple Choice

Jack is near retirement and worried that if the stock market falls he will not be able to wait to take his funds out, and will have to sell at the bottom of the market. Richard thinks the probability of a stock market downturn is the same, but he is only 40 and could therefore wait for another turnaround. They face the same budget line. Jack's risk/return indifference curve:

• A) will be concave; Richard's will be convex.
• B) will be convex; Richard's will be concave.
• C) will be tangent to the budget line at a point to the left of Richard's.
• D) will be tangent to the budget line at a point to the right of Richard's.
• E) must still be tangent to the budget line at the same point as Richard's.

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