51. Discuss some reasons why an investor with a long time horizon might choose to invest in common stocks, even though they have historically been riskier than government bonds or t-bills.
Answer:
Common stocks can be expected to provide for the best growth in
purchasing power based on historical data. An investor with a long
time horizon can tolerate fluctuations in stock returns because of
the long-term upward trend in stock returns. How much common stock
an investor is willing to hold and what types of stocks he chooses
for his portfolio will depend on his level of risk aversion.
Difficulty:
Easy
Bodie,
Investments, Sixth Edition 21
