NASAA Series 66 — All Questions

A 30-year-old client with stable income, a long time horizon, and high risk tolerance wants aggressive growth. Which asset allocation is MOST suitable?

• a.70% investment-grade bonds, 30% cash
• b.80% diversified equities, 20% bonds✓
• c.90% money market, 10% Treasury bills
• d.100% short-term CDs

A young investor with a long horizon and high risk tolerance seeking growth is best served by an equity-heavy allocation that can compound over time and weather volatility. Cash-heavy or bond-heavy portfolios would not meet the aggressive growth objective. Suitability aligns the portfolio with the client's profile.

A retired client living on a fixed income needs current cash flow and capital preservation. Which recommendation best fits this profile?

• a.Leveraged index options
• b.A private, illiquid venture fund
• c.A laddered portfolio of high-quality bonds and dividend-paying stocks✓
• d.A concentrated position in a single speculative small-cap stock

A retiree needing income and preservation is well served by high-quality bonds laddered to manage reinvestment risk plus dividend-paying equities for some inflation protection. Speculative, leveraged, or illiquid holdings conflict with income and preservation goals. Matching investments to the profile is the core of suitability.

Bond laddering is a strategy primarily used to manage which risk?

• a.Interest-rate and reinvestment risk✓
• b.Currency risk
• c.Political risk
• d.Business risk

A bond ladder staggers maturities so that portions of the portfolio mature at intervals, reducing exposure to reinvesting all funds at a single rate and smoothing interest-rate risk. It provides regular liquidity and flexibility. It does not primarily address currency or political risk.

An investor holds municipal bonds. The interest is generally MOST attractive to which type of investor?

• a.A foreign investor with no U.S. tax liability
• b.A tax-exempt pension fund
• c.A high-income investor in a high marginal tax bracket✓
• d.A young investor with minimal income

Municipal bond interest is generally exempt from federal income tax, so its after-tax yield is most valuable to high-bracket investors. Tax-exempt entities and low-income investors gain little from the exemption. Comparing taxable-equivalent yield is essential in suitability.

Under the strategic asset allocation approach, an investor primarily:

• a.Concentrates in whatever sector performed best last quarter
• b.Frequently times the market based on short-term forecasts
• c.Avoids equities entirely
• d.Sets long-term target weights across asset classes and periodically rebalances✓

Strategic asset allocation establishes long-term target weights based on the client's goals and risk tolerance, then rebalances periodically back to those targets. It contrasts with tactical allocation, which makes shorter-term shifts. This disciplined approach reduces emotional, performance-chasing decisions.

A client sells stock held for 14 months at a gain. This gain is generally taxed as:

• a.A short-term capital gain, taxed as ordinary income
• b.A long-term capital gain, taxed at preferential rates✓
• c.Tax-free
• d.Subject to a 10% early withdrawal penalty

Assets held longer than one year produce long-term capital gains, which are taxed at preferential rates below ordinary income rates. A 14-month holding period exceeds the one-year threshold. Short-term gains, from holdings of one year or less, are taxed as ordinary income.

An investor sells a stock at a loss and repurchases the same stock 10 days later. The wash-sale rule will:

• a.Trigger a 50% penalty
• b.Allow the full loss immediately
• c.Disallow the loss and add it to the basis of the repurchased shares✓
• d.Convert the loss into a gain

The wash-sale rule disallows a loss when substantially identical securities are purchased within 30 days before or after the sale. The disallowed loss is added to the basis of the replacement shares, deferring the benefit. This prevents harvesting losses without a real change in position.

The Sharpe ratio measures:

• a.Total return without regard to risk
• b.A portfolio's dividend yield
• c.Risk-adjusted return, using excess return over the risk-free rate per unit of total risk (standard deviation)✓
• d.The correlation between two assets

The Sharpe ratio divides a portfolio's return in excess of the risk-free rate by its standard deviation, expressing return per unit of total risk. Higher values indicate better risk-adjusted performance. It is a key tool in performance measurement.

Beta measures a security's:

• a.Volatility relative to the overall market (systematic risk)✓
• b.Company-specific, diversifiable risk
• c.Absolute dollar return
• d.Dividend growth rate

Beta gauges a security's sensitivity to overall market movements, capturing systematic, non-diversifiable risk. A beta above 1 indicates greater volatility than the market. It is used in the capital asset pricing model to estimate required return.

A client's investment policy calls for rebalancing when any asset class drifts more than five percentage points from target. Equities have risen sharply, pushing the equity weight above the band. The adviser should:

• a.Do nothing because winners should always run
• b.Double the equity allocation to capture momentum
• c.Sell some equities and buy the underweighted classes to restore targets✓
• d.Move the entire portfolio to cash

Disciplined rebalancing means trimming the overweight asset class and adding to underweighted ones to restore the target allocation and control risk. Ignoring the policy or chasing momentum abandons the client's agreed risk profile. Rebalancing enforces buy-low, sell-high discipline.

Dollar-cost averaging involves:

• a.Investing a lump sum all at once at the market peak
• b.Selling fixed amounts each month
• c.Investing a fixed dollar amount at regular intervals regardless of price✓
• d.Timing purchases to buy only at market bottoms

Dollar-cost averaging invests a constant dollar amount at regular intervals, buying more shares when prices are low and fewer when high, lowering the average cost per share over time. It reduces the risk of a poorly timed lump-sum entry. It is a systematic, discipline-based approach.

Diversification across uncorrelated asset classes primarily reduces which type of risk?

• a.Interest-rate risk on all bonds
• b.Systematic (market) risk
• c.Unsystematic (company- or sector-specific) risk✓
• d.Inflation risk entirely

Diversification lowers unsystematic risk, the portion of risk unique to a company or sector, by spreading exposure. It cannot eliminate systematic risk that affects the entire market. Combining low-correlation assets improves the risk-return tradeoff.

A client contributes to a Roth IRA. Which statement is correct?

• a.Contributions are made with after-tax dollars, and qualified distributions are tax-free✓
• b.Earnings are taxed annually
• c.Contributions are tax-deductible and withdrawals are always taxed
• d.Required minimum distributions begin at age 59.5

Roth IRA contributions are made with after-tax dollars, so qualified distributions of both contributions and earnings are tax-free. There are no lifetime required minimum distributions for the original owner. This makes Roths attractive for investors expecting higher future tax rates.

A married couple wants to pass assets to heirs while minimizing estate tax and retaining some control. An appropriate estate-planning tool to discuss is:

• a.An irrevocable trust that removes assets from the taxable estate✓
• b.A variable-rate demand note
• c.A margin account
• d.A day-trading strategy

An irrevocable trust can remove assets from the grantor's taxable estate while providing for distribution according to the grantor's wishes. It is a common estate-planning vehicle for tax efficiency and control over succession. Margin accounts and trading strategies are unrelated to estate transfer.

A client asks about the tax treatment of qualified dividends. Qualified dividends are generally:

• a.Taxed as ordinary income at the highest rate
• b.Subject to payroll taxes
• c.Completely tax-free
• d.Taxed at preferential long-term capital gains rates✓

Qualified dividends meet holding-period and other requirements and are taxed at the lower long-term capital gains rates rather than as ordinary income. This favorable treatment enhances after-tax returns on eligible equity income. Nonqualified dividends are taxed as ordinary income.

When determining suitability, the FIRST and most fundamental step is to:

• a.Gather and understand the client's financial situation, objectives, risk tolerance, and time horizon✓
• b.Recommend the highest-commission product
• c.Buy whatever is trending in the market
• d.Place the client entirely in cash

Suitability begins with a thorough understanding of the client, including financial situation, goals, risk tolerance, time horizon, and constraints. Only after building this profile can appropriate recommendations follow. Skipping this step undermines the entire advisory process.

The present value of a future sum will be lower when:

• a.The discount rate is zero
• b.The discount rate is higher✓
• c.There is no interest
• d.The time period is very short

Present value falls as the discount rate rises, because future dollars are discounted more heavily. A higher rate or a longer horizon reduces present value. This time-value-of-money concept underlies bond pricing and retirement planning.

An investor wants exposure to a broad market index at low cost with high tax efficiency and intraday liquidity. Which vehicle is MOST appropriate?

• a.A single micro-cap stock
• b.A leveraged inverse ETN held long term
• c.A broad-market exchange-traded fund (ETF)✓
• d.A non-traded REIT

A broad-market ETF offers diversified index exposure, low expense ratios, intraday trading, and generally strong tax efficiency due to its structure. Leveraged or inverse products are unsuitable for long-term index exposure, and single stocks lack diversification. The ETF best matches the stated needs.

A client in the accumulation phase of a variable annuity is concerned about outliving assets in retirement. Annuitization with a life payout option primarily addresses:

• a.Reinvestment risk
• b.Currency risk
• c.Longevity risk✓
• d.Interest-rate risk

A life-contingent annuity payout provides income for as long as the annuitant lives, directly addressing longevity risk, the danger of outliving one's assets. It transfers that risk to the insurer. It does not specifically hedge interest-rate or currency risk.

An adviser notices a client has an unusually large, concentrated position in the client's employer stock. The primary concern the adviser should raise is:

• a.Concentration risk, since both the client's job income and portfolio depend on one company✓
• b.Long-term capital gains treatment
• c.The stock's beta is exactly 1.0
• d.The stock pays qualified dividends

A concentrated position in employer stock exposes the client to significant unsystematic risk, compounded because both employment income and investment value depend on the same company. Diversification would reduce this concentration risk. Tax features are secondary to the risk concern.

The alpha of a portfolio measures:

• a.The portfolio's total risk
• b.The dividend yield
• c.The excess return relative to what its beta would predict✓
• d.The correlation to the benchmark

Alpha represents the return earned above or below what the portfolio's market risk, or beta, would predict under a model such as CAPM. Positive alpha suggests value added by the manager. It is a common measure of active management skill.

A client withdraws funds from a traditional IRA before age 59.5 without qualifying for an exception. The tax consequence is generally:

• a.Capital gains tax at 15%, with no early withdrawal penalty
• b.Ordinary income tax plus a 10% early withdrawal penalty✓
• c.Ordinary income tax plus a 20% early withdrawal penalty
• d.A 10% penalty only, with no income tax on the amount withdrawn

A distribution from a traditional IRA before age 59 and a half is generally taxed as ordinary income, and Internal Revenue Code Section 72(t) adds a 10% additional tax unless an exception applies, such as certain medical costs or a first-home purchase within the limit. Withdrawals are not taxed at capital gains rates, the additional tax is 10% rather than 20%, and income tax is still due because the contributions were generally deductible.Internal Revenue Code Sec. 72(t)

Modern portfolio theory suggests that the efficient frontier represents portfolios that:

• a.Guarantee no losses
• b.Offer the highest expected return for a given level of risk✓
• c.Contain only one asset class
• d.Have the lowest possible return

The efficient frontier plots portfolios offering the maximum expected return for each level of risk, or the minimum risk for a given return. Rational investors select portfolios on this frontier. Combining assets with low correlation shifts the frontier favorably.

An adviser recommends tax-loss harvesting near year-end. The primary benefit is to:

• a.Avoid the wash-sale rule automatically, because the losses are realized in December rather than January
• b.Convert the client's short-term capital gains into long-term capital gains taxed at lower rates
• c.Realize losses that can offset capital gains and up to a limited amount of ordinary income✓
• d.Deduct an unlimited amount of capital losses against ordinary income, with no carryover of the excess

Tax-loss harvesting realizes capital losses that offset capital gains and then a limited amount of ordinary income each year, with any excess carried forward to later years. The annual limit on losses claimed against ordinary income is $3,000, or $1,500 for a married person filing separately. Harvesting does not exempt the client from the wash-sale rule, it does not change the holding period of any gain, and the deduction against ordinary income is capped rather than unlimited.IRS Topic No. 409, Capital Gains and Losses; IRC Sec. 1211(b)

A client has a short time horizon of one year for a down payment on a home. The MOST suitable investment is:

• a.A long-dated zero-coupon bond
• b.A short-term, high-quality money market instrument✓
• c.A concentrated growth stock
• d.A leveraged equity fund

For a short horizon and a near-term spending goal, capital preservation and liquidity dominate, making short-term, high-quality instruments most suitable. Volatile equities or long-duration bonds could lose value right when the funds are needed. Time horizon strongly shapes suitability.

Duration is used to estimate a bond's:

• a.Credit rating
• b.Coupon payment date
• c.Price sensitivity to changes in interest rates✓
• d.Callability

Duration measures the sensitivity of a bond's price to interest-rate changes; longer duration implies greater price movement for a given rate shift. It helps advisers manage interest-rate risk. It is distinct from credit quality or call features.

A client wants growth but panics and sells during every market decline. This behavioral tendency is best described as:

• a.Loss aversion driving poorly timed selling✓
• b.Rational rebalancing
• c.Tax-loss harvesting
• d.Strategic asset allocation

Loss aversion causes investors to feel losses more acutely than equivalent gains, prompting panic selling at market lows that locks in losses. Recognizing this behavioral bias helps the adviser coach the client and design a suitable, resilient plan. It is not a disciplined strategy.

A 529 plan is primarily used for:

• a.Short-term trading
• b.Estate liquidity
• c.Qualified education expenses with tax-advantaged growth✓
• d.Retirement income

A 529 plan offers tax-advantaged growth and tax-free withdrawals when used for qualified education expenses. It is a common tool in education funding within a financial plan. It is not designed for retirement income or trading.

When comparing two portfolios with the same return, the one with the LOWER standard deviation is generally considered:

• a.Certain to outperform the more volatile portfolio in each future year
• b.Riskier, because a low standard deviation signals larger hidden downside risk
• c.Less volatile and thus more attractive on a risk-adjusted basis✓
• d.Equivalent to the other portfolio, since equal returns mean the two carry equal risk

Standard deviation measures total volatility. For equal returns, the portfolio with the lower standard deviation delivered those returns with less risk, so it is more attractive on a risk-adjusted basis. Past volatility does not guarantee future outperformance, a lower standard deviation does not mean greater risk, and two portfolios with the same return can still differ widely in how much they fluctuate.

An investor is subject to the alternative minimum tax and holds private-activity municipal bonds. The adviser should note that interest on certain private-activity bonds may be:

• a.Always fully tax-free under all circumstances
• b.A preference item includable for AMT purposes✓
• c.Exempt from all federal reporting
• d.Taxed as a capital gain

Interest on certain private-activity municipal bonds is a tax-preference item that can be added back for alternative minimum tax purposes, reducing its benefit for AMT-affected clients. General obligation municipal interest is typically not an AMT preference. Tax status must be evaluated per client.

A client nearing retirement wants to gradually reduce portfolio risk. A glide-path approach would:

• a.Shift the allocation progressively toward more conservative assets as the target date approaches✓
• b.Keep the allocation permanently fixed
• c.Move fully into a single stock
• d.Increase equity exposure each year

A glide path gradually reduces equity exposure and increases conservative holdings as a target date, such as retirement, nears. This aligns risk with a shortening time horizon and rising need for capital preservation. Target-date funds commonly use this method.

A high-net-worth client asks how to reduce estate taxes through lifetime giving. The adviser should mention:

• a.That gifts always trigger immediate income tax for the recipient
• b.That the annual exclusion applies only to gifts made to a spouse or a child
• c.The annual gift tax exclusion, which allows tax-free gifts up to a set amount per recipient each year✓
• d.That the annual exclusion is a single limit per donor, shared by all of the donor's recipients

The annual gift tax exclusion allows a donor to give up to an indexed amount to each recipient every year without using any of the lifetime exemption or filing a taxable gift. Systematic gifting can reduce the taxable estate over time. The exclusion is per recipient, not a single limit per donor, it is not restricted to spouses and children, and recipients generally do not owe income tax on gifts.IRC Sec. 2503(b); IRS Gift Tax FAQ

An adviser evaluates a mutual fund's performance against a benchmark index. The value that shows how closely the fund tracks the benchmark is best captured by:

• a.The fund's sales load
• b.The fund's expense ratio alone
• c.The fund's turnover ratio
• d.R-squared and tracking error relative to the benchmark✓

R-squared indicates how much of a fund's movement is explained by the benchmark, and tracking error measures deviation from it. Together they show how closely the fund follows its index. Expense ratios and loads relate to cost, not tracking fidelity.

A client holds appreciated stock and wishes to donate to charity in a tax-efficient way. Donating the appreciated shares directly, rather than selling first, generally allows the client to:

• a.Avoid capital gains tax on the appreciation and potentially deduct the fair market value✓
• b.Convert the gift into ordinary income
• c.Pay double capital gains tax
• d.Eliminate the need for any records

Donating long-term appreciated securities directly to a qualified charity generally lets the donor avoid capital gains tax on the appreciation and claim a deduction for fair market value, subject to limits. Selling first would trigger capital gains. This is a common tax-efficient giving strategy.

An adviser must recommend a suitable rollover for a client leaving an employer with a 401(k). The option that generally preserves tax deferral without immediate taxation is:

• a.A direct rollover to a traditional IRA✓
• b.Withdrawing and spending the funds
• c.Taking a full cash distribution
• d.Converting to a Roth and ignoring the tax bill

A direct rollover from a 401(k) to a traditional IRA preserves tax deferral and avoids immediate taxation and withholding. A cash distribution triggers taxes and possible penalties. A Roth conversion is taxable, so the client must plan for that liability.

In building a client profile, which of the following is a NONFINANCIAL consideration?

• a.The client's overall net worth, computed as the sum of all assets minus all outstanding liabilities
• b.The client's total annual gross income from wages, self-employment, bonuses, and other recurring sources
• c.The client's prior investment experience and personal attitude toward taking risk✓
• d.The client's current federal marginal income-tax bracket and any applicable state income taxes

Nonfinancial factors such as age, investment experience, and attitude toward risk shape the profile alongside financial factors (income, net worth, tax bracket). Experience and risk attitude are nonfinancial. A complete suitability profile weighs both categories.

A client's time horizon is best defined as:

• a.The length of time until the client expects to need the invested funds✓
• b.The proportion of the portfolio that can be converted to cash quickly
• c.The total dollar amount of income the client earns each year before taxes
• d.The client's willingness to tolerate short-term declines in the market value of the portfolio

Time horizon is the period until the money is needed, distinct from risk tolerance (willingness to bear volatility) and liquidity (ease of converting to cash). A longer horizon generally supports more volatility and equity exposure.

A client has a high emotional willingness to take risk but only a small, fixed income and little savings. The adviser should recognize that the client's risk CAPACITY is:

• a.Low, because limited financial resources reduce the ability to absorb losses✓
• b.Irrelevant, because only the client's stated willingness to take risk should ever determine suitability
• c.Equal to the client's willingness, so an aggressive all-equity portfolio is clearly appropriate for this person
• d.Best measured solely by the client's self-reported comfort with market volatility on a questionnaire

Risk capacity (the financial ability to absorb losses) differs from risk tolerance (the emotional willingness). Suitability generally uses the lower of the two. Limited resources mean low capacity despite high willingness.

A client may face a large, unexpected medical bill within 60 days. In the investment policy, this is primarily a:

• a.Time-horizon consideration favoring long-dated government bonds
• b.Liquidity constraint favoring readily accessible, stable-value holdings✓
• c.Legal constraint requiring the account to be retitled into an irrevocable trust
• d.Tax consideration that makes municipal bonds the most appropriate holding for this client

A near-term cash obligation creates a liquidity constraint: the need to convert assets to cash without loss. It calls for stable, accessible holdings rather than volatile or illiquid ones.

An existing client retires and their income drops sharply. Under suitability obligations, the adviser should:

• a.Wait until the client submits a written request to change the strategy
• b.Keep the aggressive growth strategy unchanged, because the account was suitable when it was first opened
• c.Update the client profile and reassess whether the current allocation still fits✓
• d.Move the whole portfolio into the highest-yielding bonds at once, since retirees need income

A material change in circumstances such as retirement and sharply lower income calls for updating the client profile and reassessing whether the allocation still fits. Waiting for a written request leaves the adviser relying on an outdated profile. Suitability is not judged only at account opening, so keeping the growth strategy is wrong. Moving everything into the highest-yielding bonds swaps one unexamined strategy for another and ignores the client's risk capacity.

Compared with a retail customer, a large institutional investor such as a pension plan is generally presumed to:

• a.Have the same suitability protections as an unsophisticated first-time investor
• b.Have greater capacity to evaluate investment risk independently✓
• c.Require more detailed explanations of basic product features
• d.Be prohibited from investing in derivatives or privately placed securities

Institutional investors are presumed more sophisticated, which changes the nature of the suitability analysis. They are generally capable of independently assessing risk, unlike a typical retail customer.

A client states three goals: maximum current income, maximum growth, and complete safety of principal. The adviser should explain that:

• a.These objectives conflict and must be prioritized and traded off against one another✓
• b.Complete safety of principal is guaranteed by any diversified stock portfolio
• c.Maximum growth and maximum income are the same objective and can be treated as one goal
• d.All three objectives can be achieved at once by purchasing a single high-yield junk bond fund

Objectives such as safety, income, and growth involve trade-offs; no single portfolio maximizes all at once. The adviser must help the client prioritize among competing goals.

The primary purpose of documenting a client's financial profile before making recommendations is to:

• a.Establish a reasonable basis that recommendations fit the client's needs✓
• b.Enable the firm to charge the highest permitted performance-based fee
• c.Satisfy a marketing requirement so client testimonials can be used in advertising
• d.Shift responsibility for investment losses onto the client regardless of what was recommended

Profiling creates the reasonable-basis foundation for suitability, documenting that advice fits the client's objectives, risk tolerance, and constraints. It supports suitable recommendations, not fee maximization.

Why can a longer time horizon justify a higher allocation to equities?

• a.More time allows short-term volatility to be smoothed by long-run compounding✓
• b.A longer horizon converts capital gains into tax-free income
• c.Equities are legally required to be the majority holding in any account with a ten-year horizon
• d.A longer horizon eliminates market risk and guarantees equities will not lose value

Time diversification: a longer horizon lets compounding work and gives short-term volatility time to average out. It does not eliminate market risk, but it improves the case for equities.

For a 35-year-old saving for retirement in 30 years, an all-cash portfolio is risky primarily because:

• a.Money market funds may not be held longer than five years
• b.Cash instruments carry high default risk and are likely to lose their entire principal
• c.Cash produces large taxable capital gains each year
• d.Inflation erodes purchasing power over long horizons (purchasing-power risk)✓

Over a long horizon, purchasing-power (inflation) risk is the key danger of an all-cash portfolio: real returns can be negative. Growth assets are needed to outpace inflation.

Which objective is BEST served by a portfolio of dividend-paying stocks, high-quality bonds, and REITs?

• a.Elimination of interest-rate risk
• b.Current income✓
• c.Aggressive long-term capital appreciation
• d.Speculation

Dividend-paying stocks, high-quality bonds, and REITs all generate cash flow, making them well suited to a current-income objective. They are not primarily growth or speculative vehicles.

A risk-tolerance questionnaire labels a client 'aggressive,' but the client became distressed and sold during the last downturn. The adviser should:

• a.Assume the client's earlier panic was irrational and can be ignored
• b.Weigh the client's actual behavior, which suggests lower true risk tolerance✓
• c.Rely on the questionnaire score and raise the equity allocation to its maximum permitted level
• d.Disregard the client's behavior because a signed questionnaire overrides experience

Demonstrated behavior can reveal true risk tolerance better than a questionnaire. The adviser should reconcile stated and revealed tolerance, leaning toward the more conservative real-world evidence.

A client has a 2-year goal (a home down payment) and a 25-year goal (retirement). The MOST appropriate approach is to:

• a.Fund only the nearer goal now and postpone any retirement investing entirely until the down payment has been spent
• b.Match each goal to its own horizon: conservative assets for the near goal and growth assets for the far one✓
• c.Hold the down-payment money in growth stocks and the retirement money in cash, so the nearer goal earns the higher return
• d.Blend both goals into one 60% stock and 40% bond portfolio, since the two horizons average out to about 13 years

Goal-based planning matches each objective's assets to its own time horizon and liquidity needs: conservative assets for the 2-year down payment and growth-oriented assets for the 25-year retirement goal. Postponing retirement saving forfeits decades of compounding. Reversing the mix exposes the short-term money to market losses and starves the long-term goal of growth. Blending both goals into one portfolio on an averaged horizon fits neither goal.

Before implementing a long-term investment plan, a general financial-planning principle is that a client should first:

• a.Concentrate the portfolio in a single high-conviction stock
• b.Borrow on margin to invest more
• c.Establish an adequate emergency cash reserve✓
• d.Purchase the maximum permissible amount of variable annuities to shelter income

The financial-planning pyramid puts an emergency reserve (commonly three to six months of expenses) and debt management before long-term investing. A cushion prevents forced liquidation of investments.

A passive (indexing) investment approach is BEST described as:

• a.Frequently trading to exploit short-term mispricings
• b.Selecting undervalued stocks through fundamental analysis
• c.Rotating among sectors each quarter based on macroeconomic forecasts
• d.Seeking to match a benchmark index's return at low cost✓

Passive management replicates a benchmark index to match its return with low turnover and low cost. It contrasts with active security selection and market timing.