Question

Kevin and Maria are building their portfolios. Kevin purchases shares in a mutual fund and pays fees to a manager who actively manages the mutual fund's portfolio. He does so because he believes that the manager can identify inexpensive stocks that will rise in value. Maria is not convinced. She buys shares in an index fund—a type of mutual fund that simply buys all of the stocks in a given stock index rather than actively managing a portfolio.

Answer 1

Answer:

Kevin builds his portfolio on the supposition that stock analysts can use fundamental analysis to identify undervalued stocks.

Maria builds her portfolio based on the notion that the stock market exhibits informational efficiency.