Multiple choice

A high turnover rate for a fund indicates

  1. high transaction costs

  2. greater efficiency

  3. high returns to the investor

  4. a rising market
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A Correct answer
Explanation

High turnover means frequent trading, which directly increases brokerage, commissions, and market impact costs. These transaction costs reduce net returns. While high turnover can indicate active management, it does not guarantee efficiency or high returns, and rising markets don't necessarily cause high turnover; passive funds can hold through market cycles.

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