2012 Q51 - Immunisation

I think the use of language here is rediculous. They call key rate duration ‘functional duration’ which I’d never come across and so got it wrong. However the question I have is, is answer A:

‘decreasing the dispersion of cash flows around the horizon date’

correct? I think they key here is which one BEST addresses it, but just want to check my understanding of part A) is correct.


My answer was A as well. but Smith’s main concern was non parallel shifts. the exam says ‘functional duration’ to refer to rate key rate duration. i think if they used key rate duration i would have chosen B.

key rate duration= functional duration = multi functional duration.

this. i got it right. it was obvious, not tricky.

Yeah. Straightforward comparison of immunization vs. contingent immunization.