Buzzwords in Contingent Immunization

This is my collection, please correct me if I’m wrong.

1, Immunization target rate of return = current immunized rate of return = current market interest rate.

* Immunization rate = YTM of the portfolio (2011 mock exam, Q31) * Immunization target rate of return is NOT YTM (Volume 4, page 32, example 8)

2, Safety net return = required rate of return (2011 mock exam, Q31) 3, Cushion spread 4, Dollar safety margin 5, The yield is BEY, if not specified.

Please add more if I miss anything. Thanks.

you are cute

“contingent immunization requires the prevailing immunized rate of return to exceed the required rate of return”

is this correct? if so, why?

Required Rate of return = Safety Net Rate of return.

When Immunized Rate of Return > Required Rate of return - you have a positive Safety cushion - and can do active management in that space.

Can someone provide an full example on contigent immunization which needs N, PV, YTM, Fv, PMT on calc?


Here is a contingent immunization question I have:

If you take a look at the Schweser Example in Book 3 Page 33, the safety return is 8% and the immunization rate is 9%. So I take this to mean that your cushion spread is 1% and you can manage actively at any rate of return until the active return goes down to 8% (so even at 8.2% you can manage actively).

At 8% you stop and manage passively.

So when you change to passive managment, is the implication that you then start to earn the 9% immunization rate? Or is it the safety return of 8%? Schweser seems to be inconsistent:

Page 33: “If the portfolio return declines to the safety net return, the immunization mode is triggered to lock in the SAFETY NET RETURN.” ----> 8%

Page 35: “There may be a lack of assurance that the IMMUNIZATION RATE will be achieved once the immunization rate is activated.” ----> 9%