Question

Your client is 75 years old and has $100,000 to invest. He enjoys a relatively high income and is not concerned with immediate liquidity, although he is risk averse. The most suitable asset allocation strategies listed below would be a:

A)50% municipal bond fund, 40% money market fund, 10% large-cap common stock fund.
B)50% municipal bond fund, 40% government bond fund, 10% large-cap common stock fund.
C)50% municipal bond fund, 40% government bond fund, 10% money market fund.
D)50% municipal bond fund, 50% large-cap common stock fund.

Answer 1

Option B (50% municipal bond fund, 40% government bond fund, 10% large-cap common stock fund) is the most suitable asset allocation for a risk-averse, high-income 75-year-old, balancing reduced risk with potential for returns.

Step-by-step explanation:

The most suitable asset allocation strategy for a 75-year-old client who has a relatively high income and is risk-averse would be Option B: 50% municipal bond fund, 40% government bond fund, 10% large-cap common stock fund. This allocation balances the client's need for reduced risk and certainty about retirement income with a small exposure to the stock market to potentially enhance returns. Municipal and government bonds offer more stability and could provide tax benefits, while the allocation to a large-cap stock fund offers a touch of growth potential without taking on excessive risk.