(Last Word) Before Trading Costs and Management Fees Are Taken

question 297

Multiple Choice

(Last Word) Before trading costs and management fees are taken into account, passively managed funds outperform actively managed funds by about ______ percent per year.

• A) 5
• B) 1
• C) zero
• D) 3

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Definitions:

Retained Earnings

Portion of a company's profits that is kept or retained within the company, rather than paid out to shareholders as dividends, for reinvestment in the business or to pay off debt.

Opportunity Cost Principle

The opportunity cost principle denotes the value of the best alternative foregone when a decision is made to pursue a particular action.

Operating Assets

Assets that are used in the day-to-day operations of a business to generate revenue, excluding investments and non-operational assets.

CAPM

The Capital Asset Pricing Model, an investment theory that shows the relationship between the expected return of an investment and market risk.