Asked by Brennan Stevens on May 12, 2024
Verified
Indexing of bond portfolios is difficult because
A) the number of bonds included in the major indexes is so large that it would be difficult to purchase them in the proper proportions.
B) many bonds are thinly traded, so it is difficult to purchase them at a fair market price.
C) the composition of bond indexes is constantly changing.
D) All of the options are true.
Bond Portfolios
Collections of bonds held by investors or institutions, designed to achieve certain financial goals while managing risk and return.
Indexing
The investment strategy of replicating the performance of a market index, often through passive fund management.
- Apply duration analysis to practical scenarios involving interest rate changes and bond portfolio management.
Verified Answer
EZ
Emily ZapataMay 13, 2024
Final Answer :
D
Explanation :
All of the provided reasons contribute to the difficulty of indexing bond portfolios. The large number of bonds in major indexes makes it hard to replicate them accurately. Many bonds are thinly traded, affecting the ability to buy them at fair prices. Additionally, the frequent changes in bond index compositions complicate maintaining an indexed portfolio.
Learning Objectives
- Apply duration analysis to practical scenarios involving interest rate changes and bond portfolio management.