Confusion and immunization go hand in hand… the more i read it more is the level of confusion… I have drawn some conclusions after reading the material atleast 6-7 times which u guys need to endorse or correct… Objective of immunization:- To have sufficient assest to pay the liabilities at the HORIZON DATE. How to do it ?:- 1. Buy such an asset whose price risk equates the reinvestment risk… 2. The YTM (not the coupon) of the asset= the target rate of liabilities 3. PV of asset = PV of liability.— as on today 4. Duration of asset = duration of liability… Conclusion:- We have effectively locked the YTM and the poprtfolio will grow at the desired rate so as to have suuficient funds to pay the liabilities.
don’t think 1 & 2 are necessary.
when we equate the PVs the yields have to be the same so that the assets grow to the value of Liabilities at the Horizon date… so second condition is neccessary…