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Question:

A high yield bond fund states that through active management, the fund’s return has outperformed an index of Treasury securities by 4% on average over the past five years. As a performance benchmark for this fund, the index chosen is:

A inappropriate, because the index does not reflect the actual bonds in which the fund invests.
explanation

Security market indexes may be used as benchmarks for the performance of active managers, but the index chosen should represent the universe of securities from which the manager is choosing. Here, an index of high yield bonds would be a more appropriate benchmark.

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