Q6: Please consider the following statements.

1) Indexing via full replication approach should result in minimum tracking error.

2) Return in Indexing via the full replication approach is higher than the underlying index return.

3) In indexing via the optimization approach, every stock in the index is owned according to its index weight.

4) Indexing via full replication works best with a limited number of liquid stocks.

5) Indexing via the stratified sampling approach results in higher tracking error than the full replication approach to indexing.

Which of the above statements is (are) INCORRECT?

Select one:

a. Statement 1, statement 2, and statement 3

b. Statement 2 and statement 3

c. Statement 2, statement 3, and statement 5

d. Statement 2, statement 3, and statement 4

e. Statement 1, statement 2, and statement 4