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Bonds 104: Immunization

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1.
Maintaining a fixed rate of return on a bond for a specific period of time is known as _______.
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Immunization. Immunization is a way of aiming to help protect returns.
2.
Contingent immunization strives to match a portfolio's cash flow to its liabilities.
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False. This matching is called combination matching.
3.
Immunization protects a bond's price from changing interest rates.
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True. When a bond portfolio is immunized, it is designed to be "immune" to price changes due to fluctuating interest rates.
4.
A bond portfolio is immunized when ________.
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Its duration is equal to its time horizon. A bond portfolio is immunized when its duration is equal to its time horizon.
5.
When interest rates rise, ________.
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Neither choice is correct. When interest rates rise, a bond's price decreases and its reinvestment rate increases.