(Last Word) Passively Managed Funds Produce Higher Rates of Return

question 268

Multiple Choice

(Last Word) Passively managed funds produce higher rates of return for investors than actively managed funds because

• A) trading and management costs are higher with actively managed funds.
• B) passively managed funds invest in riskier assets that have higher rates of return.
• C) actively managed funds invest in riskier assets that have not reached expected rates of return.
• D) actively managed funds are taxed, while passively managed funds are not taxable.

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Definitions:

Economic Life

The duration during which an asset remains useful and productive for its intended purpose.

Capital Lease

A lease classified as a financial transaction where the lessee essentially buys an asset and finances it over time.

Straight-Line Method

A depreciation method that allocates an equal amount of the depreciable cost of an asset to each year of the asset's useful life.

Capital Lease

An agreement that grants the lessee the right to use an asset for a long period, typically seen as a purchase by the lessee for accounting purposes.