Question

QUESTION 7

1. A hedge fund manager generated a 15% return (after fees) last year. Funds indexed to the S&P 500 used as his benchmark earned 13%. Taking the opportunity cost of equity capital into account, what was the fund manager's total return?

   	a.	3 percent
   	b.	-2 percent
   	c.	12 percent
   	d.	13 percent
   	e.	2 percent

0.5 points   

QUESTION 8

1. To maximize the net benefit of performing an activity (such as studying for a test), you should continue to perform the activity (study) until the total benefit equals the total cost, thus guaranteeing the maximal net benefit from the activity.

   True

   False

Answer 1

Ans 7)

Opportunity cost of equity states that cost forgone by choosing other option hence opportunity cost for fund manager in this case would be 13%

Therefore fund manager's total return =15%-13%=2%

Hence option E is correct

Ans 8)

The net benefit is maximised when Total Benefit-Total Cost is maximum and it is achieved when Marginal Revenue equals to Marginal Cost.

Hence answer is "True"