Why Does Immunization Against Interest Rate Shocks Using Duration for Fixed-Income

question 64

Multiple Choice

Why does immunization against interest rate shocks using duration for fixed-income securities work?

• A)Because interest rate changes are relatively predictable.
• B)Because the gains or losses on reinvested cash flows that result from an interest rate change are exactly offset by losses or gains from the security when it is sold.
• C)Because the fixed-income security gravitates toward its maturity value as it approaches its maximum duration.
• D)Because cash flows that result from the security are not reinvested so they are not affected by interest rate changes in the same way as the security's gain or loss when it is sold.

---

Definitions:

Fallopian Tubes

A pair of narrow tubes that transport eggs from the ovaries to the uterus, playing a crucial role in the process of fertilization.

Morula

An early stage in the embryonic development that resembles a mulberry, formed from the division of a zygote.

Chlamydia

A common bacterial STI caused by bacterium Chlamydia trachomatis that can lead to PID in women.

Trichomoniasis

A sexually transmitted infection caused by the parasite Trichomonas vaginalis, characterized by genital inflammation, discomfort, and discharge.