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.

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.