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Bonds 104: Immunization

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1.
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.
2.
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.
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.
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.
5.
Contingent immunization strives to match a portfolio's cash flow to its liabilities.
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False. This matching is called combination matching.