Question

Which of the following would be least important in determining the level of diversification in a corporate bond portfolio?A. Bond ratingsB. Industries represented in portfolioC. Domicile of issuersD. Maturities of the bonds in the portfolio

Answer 1

Answer:

C. Domicile of issuers

Explanation:

Diversification is the process through which investor spread their investments across different classes of assets to minimize risks. A diversified portfolio is a basket of investment assets. A corporate bond portfolio will consist of several bonds from different companies presented as a single investment asset.  

In determining the level of diversification, an investor should check that the bonds are from different industries and diverse classes of assets. The bonds maturity date should be considered as well as the bond ratings.  Domicile of insures is the state where the company issuing the bond is incorporated. As long as the bond is highly rated, the location of the issuer is not an important factor.