Some People Argue That There Are Two Advantages to Holding

question 14

Multiple Choice

Some people argue that there are two advantages to holding mutual funds.The first is that mutual funds provide an inexpensive way to hold a diversified portfolio.The second is that because of their expertise mutual fund managers should be able to consistently beat the market.Which of the following does the evidence show?

• A)Diversification does reduce risk and mutual funds typically outperform the market.
• B)Diversification does reduce risk,but mutual funds do not typically outperform the market.
• C)Diversification does not reduce risk but mutual funds typically outperform the market.
• D)Diversification does not reduce risk and mutual funds do not typically outperform the market.

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Definitions:

Taxes

Compulsory financial charges levied by a government on individuals, businesses, or transactions to fund public expenditure.

Sole Proprietorship

A business structure where a single individual owns, manages, and is responsible for all aspects of the business, including liabilities.

Management

The process of dealing with or controlling things or people, often within an organizational context.

Limited Liability Company

A blend of organizational structures that offers the tax efficiencies of a partnership or sole proprietorship alongside the minimized personal financial risk characteristic of a corporation.