A. Based on a set of five government/corporate bonds and the benchmark index, calculate the annualized tracking error of the portfolio (i.e., at the time you decide to answer this question, get the monthly returns of one year). Present and discuss your findings. (5 marks)

B. Suppose you would like to match the benchmark index without changing the portfolio components. What would you do? Answer the same question if you want to change the portfolio components. (5 marks)

C. Review the usefulness of the tracking error method with a comprehensive reference to the relevant academic literature. Discuss how you have estimated in Part 2(A) and (B) regarding this literature. Also, comment on the pros and cons of using this method. (8 marks)