Objective of Immunization Strategy

Very Easy Liability-driven Strategies Immunization

As a portfolio manager, you are evaluating various strategies to ensure that your fixed income portfolio meets future liabilities. One important strategy you are considering is 'immunization'.

Immunization is an investment strategy that aims to protect a portfolio from interest rate risk by matching the duration of the assets with the duration of the liabilities. This ensures that changes in interest rates will not significantly impact the portfolio's ability to meet future cash flow needs.

Which of the following statements best describes the primary objective of an immunization strategy?

To maximize total returns regardless of interest rates.

To ensure that the portfolio's cash flows match the timing of the liabilities.

To achieve a similar yield to the benchmark for a fixed income portfolio.

Hint

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