Suppose a bond index consists of municipal and corporate bonds, has durations ranging from 1 to 10,
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Suppose a bond index consists of municipal and corporate bonds, has durations ranging from 1 to 10, and has quality ratings ranging from B to AAA. Decompose the index into cells based on three durations ranges (D < 4; 4 ≤ D ≤ 7; D >
7), two quality ratings (investment grade and speculative grade), and the two sectors. Explain how you would construct a bond index portfolio using the cells.
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