Understanding Cash Flow Matching Strategy

Very Easy Liability-driven Strategies Cash Flow Matching

Consider a pension fund that has future liabilities due in 5 years, totaling $1 million. To ensure that the fund can meet these liabilities, the investment manager is considering implementing a cash flow matching strategy with fixed-income securities.

Which of the following describes the main objective of a cash flow matching strategy in the context of managing such liabilities?

To maximize total return from the investment portfolio.

To invest in securities that provide cash flows that match the timing and amount of the future liabilities.

To achieve capital appreciation by investing in high-yield bonds.

Hint

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