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Bonds 104: Immunization

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1.
Contingent immunization strives to match a portfolio's cash flow to its liabilities.
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False. This matching is called combination matching.
2.
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.
3.
Combination matching aims to match a bond portfolio duration to its time horizon, cash flow, and goals.
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True. In combination matching, the bond portfolio not only aims to match its duration to its time horizon, but also its cash flow and goals.
4.
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.
5.
Which is not true about bond duration?
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The shorter a bond's duration, the greater its price volatility. In reality, the longer a bond's duration, the greater its price volatility.