CFA CFA Level 1 CFA Level 1 Question of the Week – Equity Investments

CFA Level 1 Question of the Week – Equity Investments

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    • Matt_AnalystPrep
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      Fatima Al-Mukhtar is an investment manager who invests in the informationally efficient capital market of Libya. Which of the following investment styles should result in the highest net returns if Al-Mukhtar only invests in mid-cap Libyan stocks?

      • A. Active management
      • B. Passive management
      • C. Both methods will result in the same net returns
    • dollface
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      Assuming informationally efficient, active and passive should net the same returns. However passive should be more cost-efficient, so passive should have the highest net returns.

      …right?

    • Matt_AnalystPrep
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      The correct answer is B.

      In an informationally efficient capital market, investors should use a passive management style because an active management strategy has high transaction and execution costs which is why actively managed investments should underperform.

    • Matt_AnalystPrep
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      dollface said:
      Assuming informationally efficient, active and passive should net the same returns. However passive should be more cost-efficient, so passive should have the highest net returns.

      …right?

      Exactly, you have the right thought process.

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