Optimal Immunization Strategy for Liabilities

XYZ Pension Fund is focused on immunizing its liabilities, which total $500 million due in 10 years. The fund manager is considering various fixed income securities to match the duration of the liabilities effectively. The current yield curve indicates an upward-sloping structure with short-term rates at 2% and long-term rates at 4%.

The fund has been considering three distinct portfolios:

• Portfolio A: A 10-year zero-coupon bond purchased at par with a yield of 4%.
• Portfolio B: A series of bonds with varying maturities, including intermediate-term bonds, with a durationweighted average of 8 years and a yield of 3%.
• Portfolio C: A duration-matched strategy using a combination of long-term bonds and cash equivalents to align exactly with the cash flow of the liabilities.

The manager wishes to ensure that the portfolio not only matches the duration but also manages reinvestment risk and interest rate risk effectively. Which portfolio is best suited for the fund's liability-driven strategy in achieving immunization?