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Bonds 104: Immunization

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1.
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.
2.
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.
3.
Contingent immunization strives to match a portfolio's cash flow to its liabilities.
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False. This matching is called combination matching.
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.
The goal of immunization is to offset the effects of interest rates on a bond's price and reinvestment rate.
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True. Immunization is about attempting to protect bond investments from the potential risks of interest rate changes.