Asked by Arcie Robyn on May 07, 2024

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Just 2 months after you put money into an investment, its price falls 25%. Assuming that none of the investment fundamentals have changed, which of the following actions would evidence the greatest risk tolerance?

A) You sell to avoid further worry and buy something else.
B) You do nothing and wait for the investment to come back.
C) You buy more, thinking that if it was a good investment before, now it's not only good but cheap too.
D) You sue your financial adviser.

Risk Tolerance

The degree of variability in investment returns that an investor is willing to withstand in their investment portfolio.

Investment Fundamentals

The basic factors or considerations, such as earnings, revenue, and market position, that influence the value of an investment.

Financial Adviser

A professional who provides financial services and advice to clients based on their financial situation and goals.

  • Recognize the influence of risk tolerance on investment decisions during different stages of life.
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Salwa ShmouelMay 08, 2024
Final Answer :
C
Explanation :
Buying more when the price has dropped 25% shows a high risk tolerance because it involves investing more money in a declining asset. This strategy assumes that the investment fundamentals are sound and that the price will eventually rebound, which is not guaranteed. Option A shows a lower risk tolerance because it involves selling out of fear, while option B shows a moderate risk tolerance because it involves holding onto the investment but not taking any active steps to increase exposure. Option D is not a viable choice since the advisor has not necessarily done anything wrong, and lawsuits are generally costly and time-consuming.