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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.
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.
3.
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.
4.
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.
5.
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.