Compare active and passive investment strategies in terms of cost and aim.

• A. Active tends to have lower fees than passive
• B. Passive aims to beat the market through stock picking
• C. Active seeks to beat the market through stock selection and typically carries higher fees; passive seeks to match market indices with lower costs
• D. They are identical in cost

Answer: (C)

Active management tries to outperform the overall market by picking which stocks to buy and when to trade them. That effort requires research, analysis, and more frequent buying and selling, all of which drive higher fees and costs for investors. In contrast, passive management simply aims to mirror a market index, holding a broad mix of the index’s securities and trading only as the index changes. This approach keeps costs down because it involves less research and less turnover. So, the best description is that active seeks to beat the market through stock selection and typically carries higher fees, while passive seeks to match the market with lower costs.