2021 Boston Mock PM Q18

CFA Level III
#1

I picked A, The correct answer is B
I don’t get why Risk budgeting is not going to influence the Active passive choice. Passive investing will usually have a lower tracking error right?

Regarding Statement 1, which factor is least likely to influence Kumar’s decisions to select passive or active strategies for the Garcias’ investment portfolio?
A. Tax status.
B. Risk budgeting.
C. Beliefs concerning market informational efficiency.

#2

Tax has big influence on being active or passive: active = higher trading = suboptimal return.
Risk budgeting is just to allocate risk among portfolio components.

#3

I guess Risk budgeting is questionable. I was thinking about risk tolerance.

Thanks for your explanation!