Carol Harrod is the investment officer for a $100 million U.S. pension fund. The fixed-income portion of

Question:

Carol Harrod is the investment officer for a $100 million U.S. pension fund. The fixed-income portion of the is actively managed, and a substantial portion of the fund’s large capitalization U.S. equity is indexed and managed by Webb Street Advisors.
Harrod has been impressed with the investment results of Webb Street’s equity index strategy and is considering asking Webb Street to index a portion of the actively managed fixed-income Describe advantages and disadvantages of bond indexing relative to active bond management.
b. Webb Street manages indexed bond portfolios. Discuss how an indexed bond is constructed under stratified sampling (cellular) methods.
c. Describe the main source of tracking error for the cellular method.

Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...