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 onI) 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
E) II, III, and V

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Arjela Mustaj · Accepted Answer

Final Answer : D, Explanation :  Kane, Marcus, and Trippi (1999) suggest that the annualized fee investors should be willing to pay for active management depends on 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.

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