fixed income question..

Which of the following most accurately describes the relationship between an investor’s investment objectives and the benchmark chosen for performance evaluation? An investor with a: A) liability as a benchmark has an investment strategy to match the timing and amount of the payments corresponding to the liability. B) liability as a benchmark has an investment objective that is to earn a higher return than the cost of borrowing. C) bond index as a benchmark has as an investment objective to outperform the bond index.

A. My choice is A. C seems reasonable too, but depending on how active the management style is one may just want to just track the index and not beat it.

A. C would be right if said bond index as benchmark is to match benchmark; if is benchmark, generally looking to match, not outperform.


I go with A,

I am down with A. For some people, all your benchmark needs to be is to make enough cash flow each month to pay your bills.

A -


I pick C

So the answer was A. I chose C. I work for a long only equity manager and if the goal isn’t to beat the index, i’ve been misled for some years now. if the goal was just to meet the benchmark, why wouldn’t i just index? i understand that A is correct, but still can’t believe C is incorrect. stubborn me.

A and C should both be correct. I work with bond portfolios and all of our clients strive to beat the benchmark, not just keep pace with it. if it said passive investor, then thats different. but you cant assume passive.

I am too late but, A.

Now I am thinking why A is the BEST answer. Could it be setting long term strategic investment objective is to assume a passive (Strategic Asset Allocation) approach (i.e. ensure return meet liability or index benchmark return) and when there are opportunity to use Tactical Asset Allocation to achieve higher return than the benchmark.