Two common methods for constructing a bond index are
A) full replication and stratified sampling.
B) partial replication and overall market approach.
C) ETFs and High Yield sampling.
D) multiple discriminant analysis and bond swaps.
E) High Yield sampling and partial replication.

Question

Quizplus · Accepted Answer

Full replication and stratified sampling are the two most common methods for constructing a bond index. Full replication involves purchasing all the bonds in the index in the same proportion as they appear in the index, while stratified sampling involves dividing the index into smaller sub-indices and selecting a representative sample from each sub-index. Both methods have their advantages and disadvantages, but they are widely recognized as the most effective ways to create a bond index. The other options listed are either not related to bond index construction or not commonly used methods for constructing a bond index.

Two Common Methods for Constructing a Bond Index Are