Kane, Marcus, and Trippi (1999) show that the annualized fee that investors should be willing to pay for active management, over and above the fee charged by a passive index fund, depends on I) the investor's coefficient of risk aversion.
II. the value of the at-the-money call option on the market portfolio.
III. the value of the out-of-the-money call option on the market portfolio.
IV. the precision of the security analyst.
V. the distribution of the squared information ratio in the universe of securities.
A)I, II, and IV
B)I, III, and V
C)II, IV, and V
D)I, IV, and V

Question

Quizplus · Accepted Answer

Kane, Marcus, and Trippi (1999) suggest that the annualized fee investors might be willing to pay for active management depends on factors such as the investor's coefficient of risk aversion, the precision of the security analyst, and the distribution of the squared information ratio in the universe of securities. These factors directly impact the expected performance and risk-adjusted returns of active management compared to passive index funds.

Kane, Marcus, and Trippi (1999) Show That the Annualized Fee