Which of the following assumptions most clearly underlies Darrell’s pl

QUESTION

Which of the following assumptions most clearly underlies Darrell’s plan?

A) Most young employees are willing to save small amounts of every paycheck toward their retirement.
B) Over the long haul, stock-weighted portfolios will clearly outperform bond-weighted portfolios.
C) Recent stock market crashes are the main reason most young employees are reluctant to invest in 401(k) funds.
D) Young employees are more likely to invest in a safe, steady mutual fund than in one that may decline in value during economic downturns.
E) Junk bonds can produce a higher rate of return but are too risky to include in a mutual fund.

ANSWER

Answer: D
Explanation: D) Darrell’s plan for managing the fund is predicated on making it more attractive to the target group of investors. So Choice D is correct: Darrell is presuming that a mutual fund that appreciates in a steady (if undramatic) way will attract young employees. Choices A and C are relevant, but in a more general way. If many employees are willing to invest small amounts each month, this benefits all mutual funds, but not Leonid specifically; similarly, the fear of stock crashes affects all funds equally. Choice E may explain part of Darrell’s management strategy, but not his plan for marketing the fund. And Choice B would, in fact, be a good reason to invest in a more aggressive fund than Leonid.