CFA Practice Question

CFA Practice Question

Which one of the following is false?
A. Creation and computation of bond indices is easier than stock indices due to bond prices being less volatile than stock prices.
B. The DJIA is a price-weighted average of 30 blue chips.
C. Benefits of diversification (across asset classes and within asset classes) can be evaluated by composite stock and bond indexes.
Explanation: Creation and computation of bond indices is harder than stock indices due to there being wider variety of bonds, the set of bonds constantly changing, changes in price volatility due to constantly changing duration, and prices for bonds not as readily available as for stocks.

User Contributed Comments 3

User Comment
arudkov why C true?
chandsingh I guess benefits of diversified stock and bond indexes provide proxies for such returns
jjhigdon My interpretation of C was that one can look at the risk/return profiles of composite indexes vs. that of individual securities or a non-difersified portfolio as evidence of the benefits of diversification.
You need to log in first to add your comment.