funds outperform the market so I would be richly rewarded. The truth of the matter is that less than 50% of equity mutual funds outperform the market. When looking at this graph it is a fact that less than half will outperform the market. This means that most funds will be underperforming tht market given the average. You have to consider that average return has to be for all the investors’ returns not just those who outperform the market. That means I would expect more than 50% of mutual funds to underperform due to expenses that are associated with mutual funds. Looking at the large-cap stock fund you will see that it has an expense ratio of 1.5% just to start. This means you have to exceed the market by that amount so you can cover those fees. Regardless if the market is efficient or not, mutual funds managers are supposed to be the best investors in the market and will either get richly rewarded or fired. It is possible that you can outperform the market but have to be prepared to get some economic returns from the stock market. Unfortunately the graph shows that most can’t. Most mutual funds tend to hit the market average before expenses so outperforming the market may not be a reality.

2. Is the graph consistent or inconsistent with market efficiency? Explain carefully. When analyzing the graph market efficiency seems to be supported. Since there are som many mutual fund companies who are willing to spend money for research it is expected that mutual funds managers should have the ability to outperform the market. The results show that the best financed investors can’t outperform the market and this supports the theory of the concept of market efficiency. I used to have a mutual fund called Fidelity Magellan. At that time in 2003