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What does the expense ratio measure? (A) Efficiency (B) Growth (C) Profitability (D) Solvency - HSC - SSCE Business Studies - Question 4 - 2013 - Paper 1
Question 4
What does the expense ratio measure? (A) Efficiency (B) Growth (C) Profitability (D) Solvency
Worked Solution & Example Answer:What does the expense ratio measure? (A) Efficiency (B) Growth (C) Profitability (D) Solvency - HSC - SSCE Business Studies - Question 4 - 2013 - Paper 1
Step 1
What does the expense ratio measure?
Answer
The expense ratio is a financial metric used to determine the efficiency of a fund or investment manager in managing an investment portfolio. It is calculated by dividing the total expenses of the fund by its total assets under management (AUM). Thus, it essentially measures how well a fund is managing its expenses relative to its revenue generation.
Given the options provided, the correct answer is:
(A) Efficiency
This is because a lower expense ratio indicates greater efficiency in managing the fund's operational costs.