The Key Idea Behind Constructing an Index Fund Is to Choose

question 21

Multiple Choice

The key idea behind constructing an index fund is to choose a portfolio of securities that

• A) is a mix of growth-oriented and income-oriented stocks.
• B) minimizes risk without sacrificing liquidity.
• C) mimics the performance of a broad market index.
• D) balances short-term and long-term investments.

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Definitions:

Management Efficiency

The effectiveness with which managers utilize resources and make decisions to achieve organizational goals with minimal waste or effort.

Leverage

The use of various financial instruments or borrowed capital, such as debt, to increase the potential return of an investment.

Activity

Actions taken or work performed, typically aimed at achieving certain goals or objectives.

Profitability

The ability of a business to earn a profit, which is a financial gain that results when the amount of revenue gained from business activities exceeds the expenses, costs, and taxes involved in sustaining the activity.