A Japanese pension fund wants to invest 1 billion in U.S. equity. Its board of trustees must decide whether to invest in a commingled index fund tracking the S&P index or give the money to an active manager. The board learns that this active manager turns the portfolios over about twice a year. Given the size of the account, the overall transaction costs are likely to be an average of 0.75% of each transactions value. The active manager charges 0.5% in annual management fees, and the indexer charges 0.15%. By how much should the active manager outperform the index to cover the extra costs in the form of fees and transaction costs on the annual turnover?

A)3.35%

B)4.75%

C)5.0%

D)5.25%