An active strategy utilized for common stocks
A) involves less diversifiable risk than an index fund.
B) involves a lower cost of paying the forecasters either in form of salaries or in the management fees than a passive strategy.
C) requires higher turnover as opposed to the very low turnover of the buy and hold strategies of an index fund.
D) requires lower transaction cost as compared to passive management.

Question

Quizplus · Accepted Answer

Active strategies typically require higher turnover as opposed to the low turnover of a passive buy and hold index fund strategy. This is because active strategies attempt to outperform the market through constant buying and selling of stocks based on market trends and analysis. Therefore, the correct choice is C.

A is incorrect because an active strategy typically involves more diversifiable risk as compared to an index fund, which is well-diversified across multiple stocks.

B is incorrect because the cost of paying forecasters or fund managers is usually higher in active strategies than in passive strategies like index funds, which have low management fees.

D is incorrect because active management typically incurs higher transaction costs than passive management, which buys and holds a diversified group of stocks.

An Active Strategy Utilized for Common Stocks