Question

According to proponents of the efficient-market hypothesis, the best strategy for a small investor with a portfolio worth $40,000 is probably to ___________.
A. perform fundamental analysis.
B. exploit market anomalies.
C. invest in Treasury securities.
D. invest in derivative securities.
E. invest in mutual funds.

Answer 1

Answer:

E. Invest in mutual funds.

Explanation:

Individual investors tend to have relatively small portfolios and are usually unable to realize economies of size. The best strategy is to pool funds with other small investors and allow professional managers to invest the funds. Here, a fund manager is hired to invest the cash the investors have contributed, and the fund manager's goal depends on the type of fund; a fixed-income fund manager, for example, would strive to provide the highest yield at the lowest risk.