Câu 22: CFA Level 3

Eugene Price, CFA, a portfolio manager for the American Universal Fund (AUF), has been directed to pursue a contingent immunization strategy for a portfolio with a current market value of $100 million. AUF's trustees are not willing to accept a rate of return less than 6% over the next five years. The trustees have also stated that they believe an immunization rate of 8% is attainable in today's market. Price has decided to implement this strategy by initially purchasing $100 million in 10-year bonds with an annual coupon rate of 8.0%, paid semiannually. Price forecasts that the prevailing immunization rate and market rate for the bonds will both rise from 8% to 9% in one year. While Price is conducting his immunization strategy he is approached by April Banks, a newly hired junior analyst at AUF. Banks is wondering what steps need to be taken to immunize a portfolio with multiple liabilities. Price states that the concept of single liability immunization can fortunately be extended to address the issue of immunizing a portfolio with multiple liabilities. He further states that there are two methods for managing multiple liabilities. The first method is cash flow matching which involves finding a bond with a maturity date equal to the liability payment date, buying enough in par value of that bond so that the principal and final coupon fully fund the last liability, and continuing this process until all liabilities are matched. The second method is horizon matching which ensures that the assets and liabilities have the same present values and durations. Price warns Banks about the dangers of immunization risk. He states that it is impossible to have a portfolio with zero immunization risk, because reinvestment risk will always be present. Price tells Banks, "Be cognizant of the dispersion of cash flows when conducting an immunization strategy. When there is a high dispersion of cash flows about the horizon date, immunization risk is high. It is better to have cash flows concentrated around the investment horizon, since immunization risk is reduced."Price has stated that, because of the need to reinvest coupons, it is impossible to totally eliminate immunization risk. He has also stated that an increased dispersion of asset maturities around the horizon date increases immunization risk. Determine which of these statements is (are) correct.

1. A. Only the statement about totally eliminating immunization risk is correct.
2. B. Only the statement about the dispersion of cash flows is correct. — đáp án hiện tại
3. C. Both statements are correct -OR- both statements are incorrect.