Jennifer invests in a diversified portfolio of mutual funds. The portfolio's value changes with the performance of the underlying assets. Is this a variable investment, and why or why not?
Answer
A
Yes, because it offers fixed returns.
B
No, because it guarantees the return of principal.
C
No, because it is not affected by market conditions.
D
Yes, because the returns depend on the performance of the underlying assets.
Explanation
A variable investment’s value and returns can change as the underlying assets perform. Jennifer’s mutual-fund portfolio changes value with those assets, so it is a variable investment. Choice D correctly says the returns depend on the performance of the underlying assets.
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