Zero Coupon Bond - No Price Risk

CFA Level III Fixed Income
#1

I have a really stupid question… it says in Reading 23 p. 50 that zero coupon bond has no price risk because bond is held to maturity. Why do we assume zero coupon bond are held to maturity? Assume I purchase a 5 year ZCB to immunize my single obligation due in 5 years. One year has passed and interest rates fell, wouldn’t I want to sell to lock its higher price before it matures?

#2

And what are you going to do with the higher price that you receive, given that you still have a liability due in 4 years that you’re trying to immunize?

#3

can I not use the proceeds and re-invest in a different ZCB that matures in 4 years with FV equal to the liability?

#4

Sure you can.

It will have the same price and par value as the one you just sold.

#5

thanks S2000!

#6

You’re quite welcome.