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Nov 20'23
Exercise
Which of the following statements regarding immunization are true?
- If long-term interest rates are lower than short-term rates, the need for immunization is reduced.
- Either Macaulay or modified duration can be used to develop an immunization strategy.
- Both processes of matching the present values of the flows or the flows themselves will produce exact matching.
- I only
- II only
- III only
- I, II and III
- The correct answer is not given by (A), (B), (C), or (D).
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.
Nov 20'23
Solution: B
Cash-flow matching limits the number of investment choices available to the portfolio manager to a subset of the choices available for immunization.
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.