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Which of the two strategies for meeting lifestyle-based objectives results in a frontier of risk and reward, and under what circumstances would the alternative be more desirable?

A) Monte Carlo simulations generating a large number of potential outcomes from asset allocation strategies (also referred to as lifestyle protection strategies) result in a frontier of risk and reward. The alternative, a fixed investment horizon strategy, would be more appropriate when the investment horizon is known with reasonable certainty and maintaining as much upside potential as possible is seen as being of critical importance.

B) Monte Carlo simulations generating a large number of potential outcomes from fixed horizon strategies (also referred to as lifestyle protection strategies) result in a frontier of risk and reward. The alternative, an asset allocation strategy, would be more appropriate when maintaining as much upside potential as possible is seen as being of critical importance.

C) Monte Carlo simulations generating a large number of potential outcomes from fixed horizon strategies (also referred to as lifestyle protection strategies) result in a frontier of risk and reward. The alternative, an asset allocation strategy, would be more appropriate when meeting some minimum objective is seen as being of critical importance.

D) Monte Carlo simulations generating a large number of potential outcomes from asset allocation strategies (also referred to as lifestyle protection strategies) result in a frontier of risk and reward. The alternative, a fixed investment horizon strategy, would be more appropriate when the investment horizon is known with reasonable certainty and meeting some minimum objective is seen as being of critical importance.

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Answer and Explanation

Monte Carlo simulations generating a large number of potential outcomes from asset allocation strategies (also referred to as lifestyle protection strategies) result in a frontier of risk and reward. This is analogous to the efficient risk-return frontier concept in traditional finance.

The alternative, a fixed investment horizon strategy, would be more appropriate when the investment horizon is known with reasonable certainty and meeting some minimum objective is seen as being of critical importance. Asset allocation strategies are more appropriate when the investor has the ability to make up any shortfall, or when retaining the potential to reach the maximum objective is important.

Monte Carlo simulations generating a large number of potential outcomes from asset allocation strategies (also referred to as lifestyle protection strategies) result in a frontier of risk and reward. This is analogous to the efficient risk-return frontier concept in traditional finance.

The alternative, a fixed investment horizon strategy, would be more appropriate when the investment horizon is known with reasonable certainty and meeting some minimum objective is seen as being of critical importance. Asset allocation strategies are more appropriate when the investor has the ability to make up any shortfall, or when retaining the potential to reach the maximum objective is important.