Why might the matching of the maturity of acoupon bond to the remaining time to maturity of a liability fail to immunize a portfolio?
What will be an ideal response?
Investing in a coupon bond with a yield to maturity equal to the target yield and a maturity equal to the investment horizon does not assure that a portfolio's target accumulated value will be achieved. This is because an increase in the market yield causes the market value to fall and the portfolio can fail to achieve the target accumulated value. This can occur when the fall in principal is greater than any increase in reinvestment rate. In other words the interest rate (or price) risk has a greater impact that the reinvestment risk. To avoid this loss (and immunize its portfolio from interest rate changes), the portfolio manager should look for a coupon bond so that however the market yield changes, the change in the interest on interest will be offset by the change in the price.
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National differences in product and technological standards force firms to customize the ______________
Fill in the blank(s) with the appropriate word(s).
All of the following are circumstances under which withdrawals from a traditional IRA may be made prior to age 59.5 without incurring a substantial penalty EXCEPT
A) The withdrawal is in substantially equal installments paid over the individual's life expectancy. B) The withdrawal is used to pay living expenses after unemployment insurance benefits cease. C) The distribution is to the beneficiary of a deceased IRA owner. D) The withdrawal is because of income needed due to the individual's disability.