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Nov 20'23
Exercise
Determine which of the following conditions are necessary for an immunization strategy.
- The present value of the cash inflow from the assets is equal to the present value of the cash outflow from the liabilities.
- The price sensitivity to changes in interest rates is greater for assets than for liabilities.
- The convexity of assets is less than the convexity of liabilities.
- 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: A
I is true. II is false, the price sensitivity of assets and liabilities must be equal. III is false, the convexity of assets should be greater than the convexity of liabilities.
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.