Bond investors often like to buy shares in mutual funds that give returns that closely follow commonly quoted indices, such as the Lehman Brothers Government Index. One popular index is computed from several thousand different bond types. Roughly how many bonds do you think would be needed in a portfolio that could reliably give one year portfolio returns within half a percentage point of the index? You can assume bond returns typically vary in range from -5% to +5% with a standard deviation of about 2.5% but state any other assumptions you made for this.

Bond investors often like to buy shares in mutual funds that give returns that closely follow commonly quoted indices, such as the Lehman Brothers Government Index. One popular index is computed from several thousand different bond types. Roughly how many bonds do you think would be needed in a portfolio that could reliably give one year portfolio returns within half a percentage point of the index? You can assume bond returns typically vary in range from -5% to +5% with a standard deviation of about 2.5% but state any other assumptions you made for this.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 15P

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