Question

Question 1: If value funds generally outperform growth funds, this must imply:

A. Value fund managers are better skilled at funds management

B. Assets included in a Value fund are generally more mispriced than those included in a Growth fund.

C. Growth funds have lower risk than Value funds.

D. Assets to be included in growth fund are more difficult to identify than assets to be included in value funds.

E. C and D only

Question 2: Active funds, on aggregate, are unable to beat the benchmark because.:

A. Benchmarks are not efficient

B. Fund managers are not skilled

C. Aggregate investors hold the same asset but indifferent proportions as the index

D. Aggregate passive investors hold the same assets, and in same proportions, as the index.

E. Aggregate active investors hold the same assets, and in same proportions, as the passive index investor

Question 3: ______ leads to ________ turnover and _______ returns.

A.Conservatism; lower; lower

B. Conservatism; higher; higher

C. Overconfidence; lower; lower

D. Overconfidence; higher; higher

E. none of the above

Answer 1

1. If the value funds are generally outperforming the Growth fund, it will mean that the asset, which are included in the value fund are generally more mispriced and there is a wider gap between price and the value of those shares and assets in the Growth fund are generally not mispriced in nature.

It is not about better skilled managers or having lower risk.

Growth fund will always be having a higher risk then the value funds because there is no price protection because growth funds are generally purchased at higher price,and they have more potential to lose their overall capital.

Correct answer would be option ( B)