CFA CFA Level 1 CFA Level 1 Question of the Week – Equity Investements

CFA Level 1 Question of the Week – Equity Investements

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    • Matt_AnalystPrep
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      Which of the following is most likely a potential challenge faced by investors during the construction of fixed income securities indices?

      • A. A large universe of securities
      • B. Investment barriers imposed by authorities/government
      • C. A lack of diverse investment vehicles
    • lugnuts
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      What’s the answer @Matt_AnalystPrep

    • Matt_AnalystPrep
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      The correct answer is A.

      The fixed-income universe is quite wide: There are securities issued by public-owned corporations, governments, government agencies, and even private firms. Each of these entities issues a variety of fixed-income securities with different characteristics. Therefore, the number of fixed-income securities is many times larger than the number of equity securities.

      To accurately represent a specific fixed-income segment, an index usually includes thousands of different securities. What’s more, all these fixed-income securities mature at some point, and issuers replace them with new ones. Thus, the turnover in fixed-income indices is quite high, and developers have to constantly update the index structure.

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