Question

The investment approach of one of T. Rowe Price's mutual funds is: "Reflecting a value approach to investing, the fund will seek the stocks of companies whose current stock prices do not appear to adequately reflect their underlying value as measured by assets, earnings, cash flow, or business franchises." This fund is a(n):

Answer 1

The fund described seeks undervalued stocks, following a value investing approach, which differentiates it from an index fund that imitates the market. It provides diversification by investing in a range of stocks.

Step-by-step explanation:

The investment approach described in the question is characteristic of a value mutual fund. This type of fund looks for stocks that are undervalued by the market, with the belief that the stock price does not reflect the company's true, underlying value. These funds focus on assets, earnings, cash flow, and business franchises to identify such stocks. Unlike an index fund, which aims to mimic the overall behavior of the stock market, a value fund seeks individual stocks that are believed to be undervalued by the market. Investment in a mutual fund like this offers the benefit of diversification, as it pools money from many investors to buy a broader range of securities than most individuals could afford on their own.

Answer 2

Active fund

Step-by-step explanation:

Active funds refer to the fund in which the expertise and a lot of research are required with respect to whether the investment should be hold or not. It could be changed in terms of performance, and the market conditions

Therefore according to the given situation, since the current stock price do not display the underlying value with respect to the assets, earnings, cash flow, etc

So this represents the active fund