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Immunization protects a bond's price from changing interest rates.

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True

False

True. When a bond portfolio is immunized, it is designed to be "immune" to price changes due to fluctuating interest rates.

Combination matching aims to match a bond portfolio duration to its time horizon, cash flow, and goals.

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True

False

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.

Contingent immunization strives to match a portfolio's cash flow to its liabilities.

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True

False

False. This matching is called combination matching.

Which is not true about bond duration?

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It can be used to measure a bond's price volatility.

It is made up of weighted cash-flow averages over a bond's entire life.

The shorter a bond's duration, the greater its price volatility.

It can be used to determine how interest rates will affect a bond's value.

The shorter a bond's duration, the greater its price volatility. In reality, the longer a bond's duration, the greater its price volatility.

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

False

True. Immunization is about attempting to protect bond investments from the potential risks of interest rate changes.

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