CFAI 2017 Mock 2017 Q.33 - Franconia Notch Case

As titled, can someone explain to what on earth is statement 3 talking about and what is the client three comment is about? What is minimum immunization risk approach?? and the client 1 will achieve one time shift of yield curve regardless right? thanks

Same question although I guessed this one right because I just remembered the cash flow matching is the most expensive.

Not possible to perfectly match cash flows if you cant invest in instruments that provide CF on the dates you need. So, you need to immunize instead

Otherwise pretty easy to eliminate 1 and 2 - 1 needs 5 different zero coupons, 2 needs payments MORE dispersed.

Linear programming is the whole “work backwards from last coupon + principal” stuff from cash flow matching


Do you mind elaborating on why “a bond with a target yield of 5.00% maturing in 5 years” wouldn’t work? I thought A was wrong because it doesn’t have anything to do with whether the term structure of interest rates is downward sloping. It should work no matter what.

Unless its a bullet bond maturing on the exact date you have a cash outflow it wont match perfectly. Also any coupons on non bullets will be subject to reinvestment risk