Question

The financial advisor at Ashland Bank offered an 'enhanced index fund' that she claimed would provide a higher return on Mabel's investment without greater risk. Is this claim true or false?

1) True
2) False

Answer 1

The claim that an 'enhanced index fund' offers a higher return without greater risk is generally false (Option 2).

Step-by-step explanation:

An enhanced index fund attempts to outperform a specific index by using various strategies, like leverage or derivatives. While it aims to beat the index, it often entails higher risk due to these strategies, contradicting the notion of maintaining the same risk level. Although it might occasionally yield higher returns, the methods used can increase the fund's volatility and exposure to market fluctuations, thereby elevating risk.

Traditional index funds, while more conservative, typically offer lower risk by mirroring the market index they track. In contrast, the pursuit of higher returns through an enhanced index involves accepting a higher level of risk, making the claim of achieving greater returns without added risk generally untrue.

Correct Answer: False (Option 2)