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Bonds 104: Immunization

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1.
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.
2.
Combination matching can lower the reinvestment risk of a portfolio.
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True. Combination matching can lower the reinvestment risk of a portfolio.
3.
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.
4.
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.
5.
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.