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Bonds 104: Immunization

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1.
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.
2.
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.
3.
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.
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.
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.