Before Taking Management and Trading Costs into Account, Arbitrage Activities

question 112

Multiple Choice

Before taking management and trading costs into account, arbitrage activities in the market ensure that the returns of actively managed funds are

• A) significantly higher than those of index funds with similar risk.
• B) significantly lower than those of index funds with similar risk.
• C) about the same as those of index funds with similar risk.
• D) more volatile than those of index funds with similar risk.

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Definitions:

Crop Insurance

Insurance that farmers can purchase that will pay out if crop selling prices or crop revenues fall below predetermined values.

Moral Hazard

A situation where one party takes greater risks because they do not have to bear the full consequences of their actions.

Subsidized

Financial support provided by a government or organization to reduce the cost of producing goods or services, often to encourage consumption or investment.

Co-pays

Fixed amounts paid by patients for healthcare services at the time of service, with the balance covered by insurance.