1.Berk’s (2005) model provides

1.Berk’s (2005) model provides a framework explains how
investors choose funds to invest with and how funds perform over
time.

Which of the following statements is
incorrect?

A. The model shows that the returns of the best fund will
eventually underperform the benchmark, and the returns of the worst
fund will eventually outperform the benchmark.

B.The model shows that there is an optimal fund size beyond
which fund performance decreases.

C. The model shows that skills are valued in the funds
management industry.

D.The model shows that investors use past fund performance to
judge future fund performance.

E. The model shows that the best fund manager has the highest
capital invested with them

2.

Which of the following statements is incorrect about Passive
investing?

Group of answer choices

A. Passive investing requires a selection of securities from
market and an allocation methodology to decide how much to invest
in the securities to be included in the fund (or portfolio).

B. Passive investing incurs no security analyst cost to identify
undervalued or overvalued investments.

C.Security allocation methodology in a passive investment
include capitalization-based weighting, equal weighting, volume
weighting, price weighting etc.

D.Passive investing incurs no transaction cost when the fund (or
portfolio) is initially formed.

E.Passive fund (or portfolio) managers can pay index providers
(such as MSCI or S&P) to obtain information (through a license)
on the securities in the index, and the allocations for each
security, on a daily basis.

3.

Which of the following statements is incorrect
about Value and Growth investing?

A.Value may outperform or underperform growth investing
depending on the quality of the fund manager, size of the fund and
market conditions.

B. Value and Growth investing result in performance better than
benchmark returns.

C. Growth and Value investing have a higher management fee
(management cost) compared with capitalization weighted index for
the same market segment (such as large capitalized equities).

D. Value investments include firms with depressed prices
relative to their (firms’) forward earnings, dividends, and
sales.

E. Growth investments include firms with healthy short term and
long term forward earnings potential.

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