Question: 2. (a) What are the main differences between actively and passively managed funds? Explain which of the two investment management approaches is based on

2. (a) What are the main differences between actively and passively managed

2. (a) What are the main differences between actively and passively managed funds? Explain which of the two investment management approaches is based on the two-fund separation theorem and why.+ (10%)+ (b) Ella has been offered the chance to invest in a risky portfolio. In one year's time the portfolio will be worth either 70,000 or 200,000 with equal probabilities. Alternatively, she could invest in sterling treasury bills which are risk-free and pay 2% per year. The market risk premium is 5% per year. (i) If Ella requires a risk premium of 8% per year for investing in the risky portfolio, how much would she be willing to pay for the portfolio now? (10%)+ (ii) Suppose that the covariance of the risky portfolio with the market portfolio falls by half while everything else remains the same. According to the Capital Asset Pricing Model, how much would Ella be willing to pay for the risky portfolio now?+ (10%)+ (30%)+

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a The main differences between actively and passively managed funds are as follows 1 Investment Strategy Actively managed funds aim to outperform a specific benchmark or market by actively selecting a... View full answer

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