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 these are true.
E) both a and b are true.

Question

Quizplus · Accepted Answer

All of the options listed are true. The number of bonds included in major indexes can be very large, making it difficult to purchase them in the proper proportions. Additionally, many bonds are thinly traded, which can make it difficult to buy them at a fair market price. Finally, the composition of bond indexes can change frequently, making it challenging to maintain an appropriate portfolio.

Indexing of Bond Portfolios Is Difficult Because