You have been retained by a wealth managementfirm to advise on the selection of a benchmarkfor its client who has made the decision to investin only U.S. investment-grade corporate bonds.One of the firm’s managers recommended that amarket-capitalization-weighted investment-gradecorporate bond index be selected. The managerargued that by doing so the client would know theinvestment characteristics of the benchmark anddetermine if they are within the client’s risk tolerance.
Answer the below questions.
(a)What is meant by the investment characteristicsof the benchmark?
(b)How would you respond to the manager’s suggestionabout a suitable benchmark?