You Are Deciding Whether to Start a 40-Year Retirement Investing

question 61

Multiple Choice

You are deciding whether to start a 40-year retirement investing plan now,or ten years from now.You think rates of return will be about the same in the future as they are now.Discussion in the text of this decision shows

• A)very little difference in the future value of an investment made now versus one made 10 years from now.
• B)an investment made now will accumulate about 20% more (at a 10% rate of interest,compounded annually)than the investment made later.
• C)the same facts as in response b,but the accumulation is only 10% greater.
• D)that you will accumulate more in the additional 10 years than you do for the first 30 years.

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Definitions:

Expected Return

The weighted average of all possible returns for an investment, with weights being the probabilities of each outcome.

Standard Deviation

A statistical measure of the dispersion of returns for a given security or market index, indicating how much returns can deviate from the average return.

Correlation

A statistical measure indicating the degree to which two variables' movements are associated with each other, ranging from -1 (perfect negative correlation) to 1 (perfect positive correlation).

Time Diversification

An investment strategy that spreads exposure across different periods to reduce risk associated with market volatility.